A study on the factors affecting the uptake of carbon finance investments opportunities in Kenya

Abstract

The global challenges of growth, urbanisation, scarcity and environmental change have become the key strategic drivers for business leaders in the present world. Governments and business constituencies are shifting from thinking of climate change and resource constraints as environmental problems to economic ones related to the sharing of opportunity and costs which present opportunities for sustainability if appropriate actions are taken. Over the last decade we have witnessed significant growth in non conventional financial instruments including carbon finance products. While opportunities for such sustainable solutions are indeed a reality in the developed economies, for countries in the Sub-Sahara region like Kenya these opportunities are considerable in theory; to date Kenya and other countries in Sub-Saharan Africa have missed out. In the context of the clean development mechanism, for example, the region’s current share in the project pipeline was only 1.4 percent only 53 out of 3,902 projects or nine times smaller than its global shares in GHG emissions as at 2010. Despite the existing huge opportunity in the carbon finance market, the Kenyan companies have not awaken to the reality and moved in to tap the opportunity. The purpose of this research was to undertake a review and analysis of the factors contributing to the low uptake of carbon finance opportunities in Kenya. The study design used was exploratory factor analysis to get in sights and examine how underlying factors influence the uptake of CF investment opportunities. The research data collected related to responses from the target population on factors that contribute to uptake of carbon finance investment opportunities analyzed to give insight on the most prevalent factors and their rankings. The study further sought to xii explain the relation of the most prevalent factors namely the high initial cost of investment, risk and return and information gaps on valuation and certification of CF projects. A multivariate regression model was applied to determine the relative importance of each of the three variables in relation to the study. The research found that among the factors that are contributing to low uptake of carbon finance opportunities the most prevalent were: information gaps on certification and measurement of projects, associated risks of CF projects and initial investment cost. It was interesting to note that the three factors had a coefficient of determination with a value of 0.7524 implying that the three variables explain 75% of variation of uptake in carbon finance investment opportunities in Kenya. Among the three factors analysed information gap had the highest factor loading of 0.8 while High initial cost had the most statistically significant coefficient as indicated by the T ratio of 1.459. The study also deduced that investment uptake of CF projects was highly correlated to initial cost of investment and the associated risks and return posting a coefficient of 0.866 and 0.816 respectively The study findings will be useful to the government as a reference for policy formulation in steering investments in CF, development agencies and academic community for future research.