Earnest Journey to Financing Sustainable Projects through Green Financing in Kenya
Over the last couple of decades, the
world has seen demands for the recognition of environmental decay and global
warming. Today, the world’s economies such as Kenya are in a dilemma as they
work towards attaining greater economic development, at the same time embracing
environmentally sustainable policies. Green advertising and audience reception
within the growing arena of corporate social responsibility have turned out to
be an essential component of this journey of funding sustainable projects to
support environmental conservation, energy production, and social upliftment in
the country (Bonneuil et al., 2021). The
integration of the financial sector with sustainability offers Kenya a chance to
create a new economic landscape that has greater environmental responsibility.
What is Green Financing?
According to the understanding of green
financing, the term refers to a class of financing that is employed on projects
and activities that produce environmental and social benefits. Such projects
may involve ventures in renewable power, wastewater management, conservation
agriculture, water conservation, and afforestation programs. The green
financing goals are thus in maintaining the global carbon levels at a bearable
level, improve resource usage efficiency, and creating sustainable projects. To
Kenya where climate change impacts a developing country whose main economic
activity is agriculture and the livelihoods of millions are at risk, the idea
of green financing therefore fits. Frequent periods of droughts and floods, and
severe climate fluctuations characterize the climates of these countries and
make it imperative for this country to embrace sustainable options. Green
financing provides a mechanism for financing such solutions and, at the same
time ensures economic growth.
The Growing Role of Green Bonds
The most widely known instrument of green
financing is the green bond instrument. Green bonds refer to bonds that are
sold to develop capital for Porto Alegre’s environmental projects. Such bonds
have received global attention and Kenya is gradually embracing this financial
instrument to finance sustainable infrastructure. In 2019, Kenya came to the
market with its first green bond, configuring Ksh 4.3 billion for green student
housing projects. This was the first green bond in East Africa making Kenya a
pioneer in environmentally sustainable financing. Acorn Holdings needed to
raise money for the construction of ordinary student houses that would be
equipped with solar energy and water-saving devices. This was a clear example
of how green bonds can be optimized for general environmental and social
issues. Kenya's green bond issuance paved the way to expand more investment in
lines such as renewable energy, water, and waste efficient sectors. Most
importantly, it assured investors that green projects in Kenya are both
financially feasible as well as sustainable.
Financing Renewable Energy
Kenya has been among the front runners to
embrace renewable energy in Africa. To this point, renewable energy sources
such as geothermal, hydro, and wind power supply more than 80 percent of the
country’s electricity consuming more funding and showcasing that green
financing acts as a real platform for the performance of the energy sector.
Kenya adopted alternative funding strategies for funding renewable energy
projects thus attracting local and international investors. For instance, one
of the largest in Africa – the Lake Turkana Wind Power Project – was backed by
equity from private equity firms, project debt, and development aid. It is
currently contributing approximately 17% of Kenya’s electricity needs and is an
excellent example of how green funding may be used to meet energy requirements
without contributing towards greenhouse gas emissions. Likewise, there has been
a growing development of geothermal energy in Kenya. The Olkaria Geothermal
Plant aided by development partners and private investors has ranked among the
largest geothermal electricity generator in Africa. Such projects remain
important in extending green financing for such initiatives and help Kenya cut
reliance on conventional energy sources and boost energy security.
Opportunities in Agriculture and Water Management
Agriculture remains the backbone of Kenya’s economy, employing over 70% of the rural population. Nevertheless, adverse physical capital quality is a barrier to the sector due to climate change in terms of unpredictable rainy seasons and long dry spells hindering production. Green financing especially has implications to change practices in agriculture by availing funding for sustainable farming, Climate Smart Agriculture, and efficient irrigation techniques targeting water conservation. KCSAP is an example of innovative green finance that enables improvement in the resilience of agricultural practices the Kenya Climate Smart Agriculture Project (KCSAP) are an example of how green finance can improve resilience in agriculture. KCSAP is a WB initiative which seeks to increase productivity, and climate resilience and reduce greenhouse gas emissions from agriculture. KCSAP shows an understanding of the two types of challenges that farmers experience by embracing and supporting the growing of local drought-tolerant crops besides supporting the efforts of conservation of the soil and effective water management. Secondly, the availability of clean and reliable water remains a major concern also in Kenya because the country is dominated by arid and semi-arid areas. All four characteristics that typify LE, namely social, governance, environmental, and concessional, can back projects that contribute to sustainable water services and infrastructure investment, including dams water recycling infrastructure, and efficient irrigation. The Nairobi City Water and Sewerage Company has been considering issuing green bonds as a way of financing the improvement of water systems so that the growing urban centers can have good access to water with little or no wastage
Challenges in Green Financing
However, green financing in Kenya has
some challenges as it gains momentum. First, it takes time for local investors
to understand such green financial products due to the existing low literacy
levels on the subject. Still, numerous firms and banks have not adopted green
bonds or sustainable loans since they can focus on perceived risks or the
absence of data on the returns. Second, the process of developing a structure
for green bond issuances and offering them is likely to be costly.
Consequently, most of the green financing activity has been driven by
international development agencies and external investors. Green financing
fully developed will require more awareness creation and facilitating of
capacities to local players on green finance. Third, there are few developed
green finance institutions available to support sustainable projects at scale.
In general, Kenya has embraced policies needed to support a green economy, but
major activities are still required to support green economy businesses and
entrepreneurs.
The Future of Green Financing in Kenya
From this perspective, the prospects for
the development of green financing in Kenya are very large. Due to the social
issues that climate change has caused now more than ever the need for
sustainable projects. They include Geothermal, Wind, and Solar are some of the
natural resources that make investing in Kenya green. In addition, with the
combined effect of supportive policies and increasing investor interest, the
country is poised to provide leadership to green financing in Africa. In the
following part, the authors provide a detailed analysis of how efforts need to
be coordinated to overcome green finance challenges to realize this potential.
As part of Kiwango’s strategic objectives, there will be promotion of
partnerships and linkages with the government and private players, financial
sector development that will enhance the capacity of Kenyan institutions, and
establishment of new and practical financial instruments to suit the Kenyan
market. Green financing offers a win-win solution: it assists the country in
achieving its development objectives besides protecting future generations from
environmental degradation. Given that sustainability is one of Kenya’s most
significant priorities, it may be said that green financing will be even more
important in creating a sustainable and inclusive economy.
References
Bonneuil, C., Choquet, P. L.,
& Franta, B. (2021). Early warnings and emerging accountability: Total’s
responses to global warming, 1971–2021. Global Environmental Change, 71,
102386.