Kenya launches Green Bond rules and guidelines

The Capital Markets Authority (CMA), Nairobi Securities Exchange and program partners on Wednesday launched the Green Bonds issuance rules and guidelines aligned to its 2014-2023 master plan to deepen and broaden Kenya’s capital markets.

The guidelines include the listing rules incorporating listing requirements for Green Bonds and a Policy Guidance Note (PGN) on the issuance of Green Bonds in Kenya.

Speaking at the launch of the rules, CMA Chief Paul Muthaura stated that the green bond rules are a significant step in furthering the complementary efforts of the government, regulators and the financial services industry to direct financial capital to more sustainable economic activity.

“The development of the green bonds framework significantly deepens Kenya’s capital market product offerings while infusing sustainability into financing strategies. The potential of Green Bonds to spur the market and especially for institutional investors to diversify their portfolios and hedge against the effects of climate change cannot be overstated,” said Muthaura.

He added that “The Authority is launching its Policy Guidance Note (PGN) on Green Bonds that covers both listed and unlisted Green Bonds. The framework only differs from other debt instruments by providing for an independent verifier whose work will be to assess an instrument’s “greenness” and the continuous reporting obligations imposed on issuers due to the nature of Green bonds.”

Green bonds are special bonds issued to finance or refinance in part or in full new and existing eligible environmental or climate projects.

Geoffrey Odundo, Chief Executive Officer of the Nairobi Securities Exchange said, “The legal framework is now in place and the rules are now out there.”

Nuru Mugambi, Director of Public Affairs at the Kenya Bankers Association (KBA), said that there are two strong potential issuers from the banking sector with one at an advanced stage.

However, the lending rate caps still in place would make it difficult for banks to price the products.

“The rate cap is making it difficult for banks to come into the capital markets to raise capital, therefore it’s limiting the bonds, but more so it’s limiting the potential that we see within the green bonds space,” she said.

Dr. Patrick Njoroge, Governor Central Bank of Kenya said the guidelines should be guided by the Green Bond Principles. “We must develop clear guidelines on Green Finance in order to ensure that Nairobi is the entry port of this new and innovative finance.”

In 2018, a new study commissioned by Green Bond Programme Kenya found out that the country’s manufacturing, transport, and agriculture sectors have combined green investment and financing opportunities valued at KSh87 billion over the next five to 10 years of which there is near-term demand for Ksh16 billion.

The Green Bond Programme – Kenya is brought together by the Kenya Bankers Association (KBA), Nairobi Securities Exchange, Climate Bonds Initiative (CBI), Financial Sector Deepening (FSD) Africa and FMO – Dutch Development Bank.

In Africa, South Africa and Nigeria have used the instruments to finance projects in the renewable sector.