How can Capital Markets Support Climate change interventions?

Climate change poses an existential threat to mankind with developing countries set to face the toughest impacts that come with it. To put this into perspective, in the current year, the prolonged drought situation in Kenya has predisposed close to 2.1 million people (from the ASAL regions) to food insecurity. Other than prolonged droughts, the rainfall patterns have also changed resulting in low rains in the food-producing counties. Also, torrential rainfalls and floods experienced across East Africa in 2019 and 2020 could be attributed to climate change. The threat to our people’s livelihoods is real despite Africa having contributed only 3% of historical carbon dioxide emissions. This calls for urgent solutions which can finance can provide since all interventions call for funding.

The role of finance in averting the impending climate catastrophe has been discussed by many scholars in different forums. In 2020, President Kenyatta presided over the cross-listing of Kenya’s first green bond at the London Stock Exchange with Acorn realizing an 85% uptake. Issuing instruments linked to sustainable investments will play a key role in mitigating climate change. Therefore, Kenya’s capital market has provided a framework for green finance.

As an incentive, the capital market, in partnership with the government have exempted these green finance instruments from tax thus attracting both local and international investors. With the cross-listing option, Kenyan companies are set to access adequate funding from developed markets given the premium ratings these instruments have received in the past.

The capital market has also offered guidelines in sustainable reporting by listed firms. This has seen more and more firms report their ESG (ENVIRONMENT, SOCIAL, AND GOVERNANCE) as part of their annual reports providing both qualitative and quantitative measures with regards to their climate change mitigation initiatives. To this end, most listed firms are incorporating their sustainability efforts. Therefore, the markets ought to offer guidance in ESG reporting and even make it compulsory for new listings to promote the net-zero goal as enshrined in the Paris agreement.

The effects of climate change are massive and a lot has to be done to avert the worst outcome. As players in the world order, African exchanges and capital markets have to play their roles as investment gateways even as governments seek more funding in international forums. With collaborative efforts, climate change provides new and innovative investment avenues that are not only profitable but also sustainable.

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