Introduction to Bonds
Bonds are generally defined as fixed income instruments that represent a loan made by an investor to a borrower. Conventionally, the bond issuer raises a fixed amount of capital from investors over a set period of time,

repaying the capital (the “principal”) when the bond matures and paying an agreed amount of interest (“coupons”) on agreed interest payment dates. The instruments offer long-term maturities to investors and as a result, are suitable for institutional investors and high net-worth individual investors. 

Green Bonds defined 
Green bonds, an emerging class of bonds, are designated as “green” by the issuer who also commits to use the proceeds of the bond in a transparent manner and exclusively to finance or refinance “green” projects, assets or business activities with an environmental benefit. Kenya’s Capital Markets Authority (CMA) Policy Guidelines on Green bonds issued in January 2019 define them as fixed income instruments approved by CMA, whose proceeds are used to finance or refinance new or existing projects that generate climate or other environmental benefits that conform to green guidelines and standards.  The green guidelines and standards comprises of various principles and standards published separately by the International Capital Markets Association, Climate Bonds Initiative, and the Kenya National Policy on Climate Change and Green Economy Strategy. 

Origin and Growth of the Green Bonds
According to the World Bank, the concept of earmarking bond proceeds for climate investments was introduced in 2007, when the European Investment Bank (EIB) launched its Climate Awareness Bond that was listed in 27 domestic markets in the European Union. In 2008, the World Bank issued its first green bond, which received strong support from pension fund investors and elicited great interest from the market.  According to a World Bank report, as of October 31, 2017, the gross green bond issuance since 2007 reached almost USD 300 billion which represents about 0.1% of the total bond market of over USD 100 trillion. 

Notably, until 2012, the green bond market was dominated by issuers like the World Bank, who already had in place processes for assessing environmental, social and governance (ESG) risks for projects. This changed in 2013, with a growing number of green bond issuances by corporates, energy and utility companies and governments and their agencies from around the world. 

In Africa, since 2010 the African Development Bank (AfDB) prides itself  with proactively supporting the green bond market with an investment grade green bond issuance of US$ 500 million issuance in October 2013. In December 2017, Nigeria became the first African country to tap into the green bond market, raising $30 million (Sh3.03 billion) to fund renewable energy and afforestation projects.

Setting the Stage in Kenya

Back home, in February 2019, the CMA and Nairobi Securities Exchange (NSE) issued guidelines setting up the legal framework for the issuing of green bonds in Kenya.  This has set the stage for the introduction of the first green bond in the market, with the Kenya Bankers Association expressing intent to issue one by end of 2019. CMA’s Policy Guidance Note on Green Bonds provides a guide on the operational regulatory environment on Green Bonds. Among the salient provisions of the Guidance notes are that issuers of unlisted or listed green bonds in Kenya will be required to appoint an independent verifier to conduct a pre-issuance review. 

Challenges and Opportunities for the Kenyan Green Bond Market

A few concerns often surround the introduction of green bonds, especially in developing markets. Key concerns in Kenya include the risk of default for investors especially given the performance of the bonds market in Kenya in the past decade attributed to among others insufficient guarantees within the Kenyan legal framework. 

The second challenge is with respect to ensuring that the use of proceeds from green bonds is strictly guided by sustainability principles to guard against “green washing”, which occurs when proceeds of the greed bonds are not used for their intended purposes or do not fund projects with positive and additional impact. Related to the above, and ironically, there are concerns among market participants that the well-intended attempts to establish stringent requirements and standards for bonds to qualify as “green” could slow, inhibit or derail the growth of the green bond market. Despite these challenges and concerns, the benefits of these bonds are immense given the available data on performance of the bonds globally. 


Kenya’s development blue print emphasizes the need to address climate change and environmental issues that the country faces. Given the performance shown by the green bond market, it is important for investors and government to embrace green bonds as an innovative and unconventional way of raising finance from both domestic and external sources to attain the country’s environmental objectives. It is imperative to laud key players in the financial sector for readiness they have shown towards embracing green bonds. As at the date of this publication, media reports indicated possibility of a first green bond listing before the end of the year. With the formulation of an enabling legal framework and support from the main financial regulators, there is no doubt that Kenya is ready to tap into this market. A future article will explore the mechanics of getting the bond approved and listed. 

By Cornelius Kipkurui and Enock Mulongo


This article is intended for general knowledge only. For substantive legal advice on this, please contact the authors through the following addresses: This email address is being protected from spambots. You need JavaScript enabled to view it. or This email address is being protected from spambots. You need JavaScript enabled to view it..

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