Globally, climate change is recognized as one of the most serious threats to humanity. The Paris Agreement, which was a global response to climate change, recognizes the need for adequate funds to finance the reduction of greenhouse gas (GHG) emissions and climate-resilient development. Dubbed ‘transition finance’, the funding needed for the transition to a low-carbon sustainable future is fundamental to the fight against climate change.

According to Glasgow Financial Alliance for Net Zero (GFANZ), a global coalition of leading financial institutions committed to decarbonization, transition finance is broad and includes the ‘investment, financing, insurance, and related products and services that are necessary to support an orderly real-economy transition to net zero.’

Kenya is seeking to abate its GHG emissions by 32% by 2030.  It is estimated that USD 62 billion is required for this, with USD 17.7 billion earmarked for mitigation and USD 43.9 billion for adaptation. Kenya has committed to meeting 13% of the budget while relying on international support for 87% in the form of finance, investment, technology development and transfer, and capacity building.

Given the rising level of debt in many African countries, concern has been raised that transition financing in form of debt would exacerbate the risk of default.  Accordingly, the clarion call from Africa is to prioritize grant-based funding. The justification being that the biggest contributors to GHG emissions are the developed countries who should provide this financing.

At the recent Bonn Climate Conference, which marked a midway point to COP 29 which will be held in Baku this November, the participants identified decisions for adoption at COP 29 including on climate finance. The goal is to increase the prevailing USD 100 billion target.

Even as the international community continues to mobilise these resources, the question is, how can Kenya be ready to reap the maximum benefit from these financing opportunities?

Kenya must unlock the barriers that have conventionally inhibited such investments. Patchy implementation of climate action strategies, unwieldy regulatory structures and institutions, high perceived investment risks and scarcity of bankable project pipelines continue to impede private investment in climate action projects. Even as we await a decision in COP 29, Kenya must better leverage the existing funding mechanisms available under the international framework such as the Adaptation Fund, the Least Developed Countries Fund and the Special Climate Change Fund. Notably, Kenya has developed the National Policy on Climate Finance with its strategic interventions to encourage mobilisation of climate finance.

Recently, Kenya appointed NEMA as the National Implementing Entity (NIE) for Kenya under the Adaptation Fund. As the NIE, NEMA is poised to oversee the management of the programmes financed by the Adaptation Fund. The real challenge is how ready NEMA is for this important function.  

Voluntary carbon markets represent another source of finance. Kenya has now passed carbon market regulations which provide a mechanism for sale and purchase of carbon credits. This opens the door for Kenya to secure finance from a purchasing country for mitigation actions implemented locally. The real challenge relates to effective oversight.

Incentives and subsidies would also go a long way towards mobilizing private sector investment into adaptation financing. The National Treasury is currently working on a national policy framework on green fiscal incentives to provide guidelines that motivate private financing for climate action.

There is also need for transparency and accountability in reporting adaptation finance inflows into the country which is essential for building trust among stakeholders and attracting greater financing. Currently, it is difficult to track and report adaptation financing although we understand that the National Treasury is planning to utilise a module of the Integrated Financial Management system (IFMIS) for this.  

One lingering challenge is the overlap in climate change actions and funding priorities across the different state actors as well as the private sector.  The solution is to ensure that climate change actions are coordinated through a joint multi-stakeholder steering committee to achieve synergised results.  Early engagement with stakeholders will also ensure that the design of investment programs and projects is aligned to the National Adaptation Plan and National Climate Change Action Plan.

Importantly, with devolution, climate change-related activities are now primarily implemented at the county level. However, many counties are hampered by a shortage of enabling legislation and expertise. They also suffer a paucity of dedicated resources to plan, implement, and monitor climate impact investments. Enhancing the capabilities of county governments in areas such as climate risk evaluation, project initiation, and fiscal administration is therefore of paramount importance.

It is also imperative for county assemblies that have not yet passed legislation related to climate change to expedite this process. This will pave the way for a more organized approach to access and use climate finance including through the County Climate Change Funds.

Finally, accelerating innovative financing mechanisms, such as green bonds and carbon trading is critical to attracting more financing and investment in this space. This would call for a diagnosis of the low uptake including matters relating to qualifying projects, returns, risks and financing models.

The article was featured in the Business Daily and can be accessed here.