Advocating For Financial Services That Promote Sustainability Investment: Insights From The 2024 Finaccess Household Survey
A new fencing alternative gaining popularity in Germany is the use of solar panels. This innovation kills the proverbial two birds with one stone – installing a perimeter for your property and clean energy generation. This is a technology Kenyans should explore to complement our climate adaptation efforts. However, costs may be prohibitive. In Germany, the average cost of one-meter of solar fencing is KES 62,000.
In the recently published 2024 FinAccess Household Survey Report, green financing is highlighted as a critical aspect, a timely inclusion drawing a direct correlation between financial inclusion and sustainability initiatives. According to the report, Kenya’s rural population is the worst hit by climate change since 98% of them rely on rain-fed agriculture. Extreme climate change has occasioned droughts and floods, leading to food shortages and price hikes. It thereby follows that these farmers have insufficient income to invest in pro-climate technologies.
Data from the World Food Programme indicates that nine million lives are lost annually due to worsening climatic conditions. This is majorly attributable to failing food systems and overdependence on fossil fuels that contribute to the increased Greenhouse Gas Emissions. Electricity generation and transmission, heating, agriculture and transportation account for 60% of these emissions globally.
Whereas the clamour for, and actual shift to, more sustainable lifestyles are evident and welcome, Kenyans continue to face significant barriers to accessing affordable financing that facilitates this change. The aforementioned FinAccess survey indicates that only 34.9% of Kenyans participated in sustainability investments.
Acquisition of solar-powered equipment and tree planting recorded an uptake of 18.8%, while water conservation efforts accounted for 6.8%. Purchases of efficient cooking energy represented a 3.45% participation while biogas systems had a negligible uptake of 0.3%. Across these sustainability investments, the predominant source of financing was personal/business income. This reality limits the extent of access and usage, due to the upfront costs for equipment and installation. Further, the survey noted that 27% of solar equipment users purchase the equipment on credit, a pointer to potential challenges in accessing financing options.
Therefore, there is an urgent need for more concerted efforts among key stakeholders, especially policymakers, to provide interventions that will deepen investments in sustainability initiatives across various demographics.
First, there is a need to enhance transparency of information on product-related costs. The Digital Credit Market Inquiry conducted by the Competition Authority of Kenya in 2021 identified several financial risks to consumers, including the high cost of products and low awareness about credit terms, including fees and applicable penalties for default. Financial services providers should ensure that consumers have adequate information to make informed purchasing decisions about products, including enhancing disclosures on the total cost of credit and financing alternatives. This should be supplemented with sustained consumer literacy campaigns.
Financial service providers should also enhance their research and development to ensure that progressive products targeting sustainability investments are developed. These could include products that raise capital for programmes supporting positive environmental impacts, like green bonds. Others are loans supporting homeowners and businesses to finance the purchase of energy-efficient equipment and home improvements. Insurance products that support sustainability projects, including renewable energy installations, should be priced fairly to boost access and usage. Financial service providers may also apply to the Competition Authority for an exemption to allow cooperation on research and development initiatives for a specified period and develop products that would deepen sustainability investment.
Lastly, the role of advocacy is key. The financial services providers should endeavor to partner and collaborate with bodies focusing on sustainability such as community-based organizations to enhance credibility and uptake of sustainability measures. Moreover, the Authority, the advisor to the Government on competition and consumer protection continuously evaluates existing and draft laws and regulations to establish their impact on financial services. The output of such an evaluation forms a foundation for engaging policymakers to advocate for pro-competitive laws and regulations that incentivize financial institutions to develop sustainable products.