Introduction
Kenya, a country renowned for its stunning natural beauty and rich diversity, faces severe water and sanitation crises that put the well-being and socio-economic progress of its people at risk. Based on the findings from the
Kenya Demographic and Health Survey report of 2022, conducted by the Kenya National Bureau of Statistics (KNBS), it has been determined that 68% of the Household population in Kenya has access to at least basic drinking water services with 41% having basic sanitation services. Kenya has officially been classified by the United Nations as a water-scarce nation with 398 m3 per capita per annum, indicating that the country possesses one of the lowest national water replenishment rates. The scarcity of clean water and sanitation services poses significant challenges to public health, environmental conservation and economic development.
Figure 1: Renewable Internal Freshwater Resources of select Countries per capita (cubic metres) in 2020
Source: Food and Agriculture Authority, AQUASTAT Data, Agusto & Co. Research
Table 1: Household Population of select counties in Kenya with access to basic drinking water and sanitation services in 2022
Source: Kenya National Bureau of Statistics, Agusto & Co. Research
The water and sanitation crisis in Kenya is characterised by insufficient access to clean water and inadequate sanitation facilities, particularly in rural areas. Insufficient infrastructure, inefficient water management practices, and climate variability have exacerbated the situation, resulting in water shortages and an alarming rise in sanitation-related diseases. The crises have had severe implications for public health, environmental degradation and overall socio-economic development. According to the Water, Sanitation and Irrigation Ministry, various capital models will be required to finance the country's Kshs 652 billion water funding gap and implement the Kenya National Water and Sanitation Investment and Financing Plan (NAWASIP) over the next seven years to 2030.
Capital Market Interventions
In response to this pressing issue, the Government of Kenya (GOK) has taken significant steps towards promoting sustainable development, particularly through the adoption of various financing mechanisms including green bonds to address its water and sanitation crisis. In January 2019, the Capital Markets Authority (CMA) of Kenya issued a Policy Guidance Note on Green Bonds outlining the procedure for issuing and listing green bonds in the country. This policy also specifies the eligibility of independent verifiers (such as Agusto & Co. Limited, which is licensed by the Climate Bonds Standard Board as an Approved Green Bond Verifier) to provide verification services in line with the Climate Bond Initiatives (CBI) standards. Furthermore, the country's premier stock exchange, the Nairobi Securities Exchange (NSE), has developed guidelines for listing green bonds, which paved the way for the issuance of the first and only green bond in Kenya, Accorn Holdings' Kshs 4.3 billion green bonds, which was listed in Kenya and London in October 2019. The bond proceeds were used to construct low carbon student residential building in Nairobi (Qwetu student hostel at Strathmore University), setting a positive precedent for green bond financing in Kenya.
In the bustling capital city of Nairobi, the county government, under the leadership of the Governor, H.E Johnson Sakaja, has recognised the urgency of the situation and embraced the concept of green bonds. The Nairobi City County government is considering floating a green bond as a means of securing funding for the estimated Kshs 150 billion investment required to modernise the city's infrastructure. These unique financial instruments aim to raise funds for projects that champion environmental sustainability. The ideas are simple but powerful: by channelling investments into eco-friendly initiatives, Nairobi City County could address the water crisis while also fostering economic growth.
The Green Bond Initiative
Green Bonds are fixed-income financial instruments designed to raise capital for projects with positive environmental impacts. Their emergence stemmed from the need to channel investments into eco-friendly initiatives, thereby addressing environmental challenges like water scarcity, pollution, soil erosion, loss of biodiversity, deforestation, global warming and waste disposal, amongst others. Green bonds serve as a financing mechanism and offer a unique opportunity to mobilise long-term funds to catalyse sustainable infrastructure development while simultaneously ensuring Kenya's alignment with the Paris Climate Agreement goals of reducing greenhouse gas emissions and transitioning to net zero emissions by 2050.
Financing from Green Bonds can be utilised for the rehabilitation and expansion of existing water treatment plants in rural counties to improve water distribution networks, enhance water conservation practices and upgrade infrastructure to meet growing demand sustainably. These initiatives can help tackle the water and sanitation crises, thus aligning with the United Nations Sustainable Development Goal (SDG 6) of Clean Water and Sanitation for all. Through the use of Green Bonds, Kenya and its counties can proactively mitigate the water and sanitation crisis, contribute to reducing greenhouse gas emissions, and attract investors committed to sustainability and positive societal impact while also enhancing public health, creating economic opportunities and demonstrating transparent governance. These Green Bonds can be raised in local or foreign currency directly by the Government of Kenya, the County Governments or through the use of a special purpose vehicle (SPV), wherein the project or assets can be ring-fenced and serve as the primary source of repaying the obligation over a long tenor while immediately resolving the water challenges. For example, in Tanzania, the Tanga Urban Water Authority and Sanitation (TANGA UWASA) in Tanga City, is on the verge of issuing a USD$23 million water infrastructure green bond. This green bond will fund the construction of water infrastructure in Tanzania, including the rehabilitation and expansion of drinking water supply networks, wastewater treatment plants and renewable energy-based pumping systems.
Project selection, risk assessment and effect monitoring are three areas that could prove difficult for the green bond approach despite its clear potential. Consequently, addressing these problems requires establishing processes of openness, accountability, and efficient governance mechanisms. Kenya is already feeling the negative effects of climate change and global warming, and now water scarcity is worsening as a result of protracted droughts. Without sustainable financing and investment in critical water infrastructure, access to clean water and proper sanitation facilities would continue to be limited, posing significant risks to public health, agricultural productivity and overall socio-economic development. Therefore, urgent action through green bonds is essential to mitigate the effects of the water crisis and build climate-resilient water systems that can sustain communities in the face of ongoing climate challenges. Furthermore, expanding public awareness and investor education about green bonds will play a crucial role in fostering support and participation.
Conclusion
The Green Bond collaborative approach, coupled with innovative water projects, will show that sustainable financing solutions can significantly impact water security and environmental conservation. As Kenya plans and continues to harness the essence of green bonds, it stands as a beacon of hope, inspiring other African nations to take up responsible and purpose-driven finance to address pressing environmental issues and pave the way for a greener, more sustainable future.