• CAPITAL MARKETS UNIVERSITY CHALLENGE 2018

    CAPITAL MARKETS UNIVERSITY CHALLENGE 2018

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    A proactive regulator of competitive and robust capital markets

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    Developing Kenya's capital markets to be an investment destination of choice through facilitative regulation and innovation.

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    Promoting investor education, awareness and interest in the capital markets

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    Strengthening institutional capacity to effectively and efficiently deliver on its mandate

Principal Secretary of the National Treasury, Dr. Kamau Thugge, MBS;

Principal Secretary, Environment and Forestry, Mr. Charles Sunkuli;

Governor of the Central Bank of Kenya, Dr. Patrick Njoroge;

Chief Executive of Nairobi Securities Exchange, Mr. Geoffrey Odundo;

Chief Executive of Council of Governors, Mrs. Jacqueline Mogeni;

Director General/Budget, Fiscal & Economic Affairs Dr. Geoffrey N. Mwau, EBS;

Distinguished Guests;

Ladies and Gentlemen;

John Gachora noted the growth of global green bonds to $155bn USD, which is undoubtedly encouraging, but when assessed against the increasing pool of global resources seeking sustainable investments

- over 50% of EU assets

- 21% of US

- 37% Canada

- 50% Australia and New Zealand

Averaging 26% of global AUM as at 2016

In this context it is clear that supply of capital far outstrips the products being made available.

This increasing concentration of capital is central to supporting the commitments in the Paris accord that developed countries as the highest net carbon emitters will continue to provide and mobilize finance to support developing countries to tackle climate change. This therefore calls for proactivity from developing nations to ensure our markets can leverage this opportunity.

Kenya a a nation has taken a strong stand on tackling climate change through ratifying the Paris Accord and moving ahead to ban use of plastic bags.

The Kenyan National Government through its relevant constituent Ministries, Departments and Agencies (MDAs) has established the overarching policy environment, a prerequisite for promoting Kenya as a Green economy. This is not a recent notion and may be traced to the Vision 2030 aspirations through its supportive Medium-Term Plans (MTPs) and more recently the Big 4 Agenda, where food security is a key policy issue in the Kenyan Government’s priorities.

In particular, the development of the National Green Economy Strategy and Implementation Plan for Kenya (2015) as well as the Green Economy Strategy and Implementation Plan (2016) have both set the tone for Kenya’s policy direction towards Green Investments;

As a sector, the CMA and NSE were pioneer signatories of the Marrakech Pledge in November 2016 during COP 22 affirming our commitment to the growth of green capital markets assets on the continent

Sustainability is also a key focus area across all emerging markets with the IOSCO Growth and Emerging Markets (making up 85% of its membership) is developing a dedicated work stream on sustainability financing. In this regard the GEM committee will be convening and industry Stakeholder engagement session in London on June 28th at the new Bloomberg Offices in london which is touted as the most sustainable commercial building in the world.

It is however noteworthy there is yet to be global consensus on what should be the applicable green standards, and therefor the partnerships kenya adopts will be central to determining the scale of funds we will be able to attract. In this context we welcomed the signing of bilateral agreements between institutions such as the KBA, NSE, FSDA, FMO and IFC as well as the Kenya Green Building Society and the Climate Bonds Initiative Africa program to ensure that the standards developed in kenya will be as global as possible pending concurrence on convergence.

Green assets are diverse including sustainable infrastructure such as public transport, water services or clean energy. According to the African Development Bank (AfDB), financial requirements to adapt to climate change are projected to be between US$20 and US$30 billion annually until 2030. These can only be met through diversification of financing mechanisms and sources of funding. It is therefore clear that there is unquestioned demand and based on growing pools of sustainable funds, there is supply, and so the challenge to us is the effective intermediation of the same to unlock the flows.

Green bonds in this context offer an easy access to a large and diverse funding pool, providing a source of low-cost and much-needed capital to finance infrastructure projects and set up green funding programs. Statistics indicate a rapid growth in the green bonds markets with a record USD155.5bn raised in 2017, 78 percent higher than 2016’s $87.2 billion. In the same year, there were 10 new sovereign entrants including Argentina, Chile, Fiji, Lithuania, Malaysia, Nigeria, Singapore, Slovenia, Switzerland and the United Arab Emirates.

The Capital Markets Authority will therefore keep working with the Nairobi Securities Exchange towards providing a supporting framework for the issuance of green bonds taking into consideration key principles upon which green financing is based namely; use of proceeds to ensure transparency, project selection for funding, management of proceeds as well as reporting requirements and the need for third party review of issuances.

On the policy incentives front, the Authority has recently discussed with the Cabinet Secretary for the National Treasury the importance of extending tax neutrality measures that would currently be enjoyed by a Green Infrastructure bond to any Green bond whose issue proceeds will be applied to meeting the National Agenda, notably tackling Climate Change and we are looking at the relevant amendments to be made on the Income Tax Bill 2018 to support this;

To complement this direction, the adoption of Environmental, Sustainable Governance also known as ESG presents yet a further opportunity for the market. In this context the CMA Corporate Governance Code has incorporated ESG factors in assessing the strength of corporate governance framework for our listed entities.

We however cannot drive this change purely from a regulatory perspective. Money talks as they say. So we need our institutional investors to leverage the opportunities created by the stewardship code to highlight their expectations and prioritization for sound governance and sustainability in order to influence issuer decision making.

With that I am pleased to further affirm the Authority’s commitment to the full realization of our green finance aspirations.

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