Kenya is set to become the first African nation to issue Sustainable Linked Bonds (SLBs) by the end of 2024, with the support of the World Bank, Bloomberg reported yesterday, citing an expert from the multilateral financial institution.

The sustainable development bonds, totaling $500 million, are expected to be issued by November. “Kenya has promised a very ambitious sustainability agenda, which includes not just climate, but also social and health and energy," said Isfandyar Zaman Khan, Senior Financial Sector Specialist at the World Bank's Kenya office. He stressed that the proceeds from these bonds will finance the state budget, making Kenya the pioneer in Africa for such issuance.

East Africa's largest economy is actively seeking new sources of financing to cover its budget deficit, projected to reach 3.9% of GDP in the 2024/2025 fiscal year (July-June). Sustainable Linked Bonds are debt securities aimed at encouraging companies or sovereign issuers to contribute to sustainability from an Environmental, Social, and Governance (ESG) perspective. Issuers explicitly commit, including in bond documentation, to future improvements in their sustainability performance, according to predefined timelines. These goals are measured using Key Performance Indicators (KPIs).

Unlike Sustainability Bonds, where the issuer commits to allocate the proceeds to finance environmental or social projects, the proceeds from Sustainable Linked Bonds are intended for general purposes. Kenya's issuance of these bonds is expected to be guaranteed by the World Bank, reducing risk for investors and lowering the cost of these debt securities.

“The World Bank will assist Kenya in developing the sustainability-linked framework and key performance indicators for the bond,” Khan said. The way these indicators are modeled is to reward Kenya when it achieves something beyond what it would have done in normal circumstances, he noted, indicating that the Democratic Republic of Congo and Angola are also considering issuing such bonds.