Medium-Term Sustainability Note (MTSN) programmes provide a framework through which corporations, banks and governments can issue debt securities over time to finance environmental and social projects.
The programmes operate similarly to conventional Medium-Term Note (MTN) programmes, but the notes issued under them are required to meet specified Environmental, Social and Governance (ESG) criteria.
In Kenya, the sustainable debt market has expanded through corporate green and sustainability-linked bond programmes, alongside government efforts to develop climate-linked financing instruments.
What is a Medium-Term Sustainability Note Programme?
An MTSN programme is an umbrella legal and financial arrangement that allows an issuer to make multiple debt issuances under a single programme.
Rather than establishing a new legal framework for every bond, the issuer creates one programme that remains available for several years and can issue individual notes when financing is required and market conditions are suitable.
The programme operates alongside a Sustainability Financing Framework, which sets out the eligible projects and the requirements that each issuance must meet.
Individual series can include green notes for environmental projects, social notes for projects addressing social needs, and sustainability-linked notes whose financial terms are tied to the issuer’s performance against predetermined sustainability targets.
How MTSN Programmes Are Structured
The first step is establishing a Sustainability Financing Framework. The framework sets out how proceeds will be used and aligns the programme with recognised sustainable-finance standards, including principles developed by the International Capital Market Association (ICMA).
Before the programme is launched, an independent external reviewer can assess the framework and issue a Second-Party Opinion (SPO). Organisations such as Sustainalytics and S&P Global provide such assessments for sustainable debt programmes.
Once the framework and legal documentation are in place, the issuer can issue notes with different maturities, interest-rate structures and currencies under the same programme. Maturities can typically range from two to 10 years, depending on the terms of an individual issuance.
Types of Notes Issued Under MTSN Programmes
MTSN programmes can accommodate different categories of sustainable debt. Green Notes are issued to finance environmental projects. Eligible investments can include renewable energy, clean transportation and green buildings. Social Notes direct proceeds towards projects addressing defined social needs. These can include affordable housing, healthcare infrastructure and employment-related projects.
Sustainability-Linked Notes (SLNs) differ from green and social notes because their proceeds can be used for general corporate purposes. Instead, the financial terms of the notes are linked to sustainability performance indicators. For example, the interest rate can be adjusted depending on whether an issuer achieves predetermined carbon-reduction or other sustainability targets.
How Issuers Account for Bond Proceeds
MTSN programmes require issuers to provide ongoing information on the use of proceeds and the impact of financed projects. Issuers are expected to publish allocation and impact reports showing how funds raised through sustainable notes have been deployed and the measurable results achieved.
Impact reporting can include indicators such as the amount of carbon dioxide emissions avoided through financed environmental projects. The reporting requirements provide investors with information on both the allocation of funds and the outcomes associated with eligible projects.
How to Invest in MTSN Programmes in Kenya
Investors seeking to invest in Medium-Term Sustainability Note Programmes in Kenya can participate through a licensed stockbroker or investment bank. The notes can be purchased during the primary issuance period or traded in the secondary market through the Nairobi Securities Exchange (NSE) fixed-income market.
The investment process generally starts with opening a Central Depository and Settlement Corporation (CDSC) account through a licensed investment bank or stockbroker.
Potential investors can approach brokers and investment firms, including SBG Securities, Dyer & Blair, NCBA Investment Bank and ApexAfrica, to facilitate the account-opening and investment process. Some brokers also provide digital account-opening options.
Investors are required to provide documentation to meet account-opening and anti-money laundering requirements. The requirements include a valid national identity card or passport and a Kenya Revenue Authority (KRA) PIN certificate.
Investors may also be required to disclose the source of funds used for the investment. Once the CDSC account and other requirements have been completed, investors can participate in an available note issuance through the appointed placing agents.
Primary Market vs Secondary Market
There are two ways investors can acquire corporate sustainability notes in Kenya. In the primary market, investors apply for newly issued notes during the official offer period. Applications are submitted through the issuer’s appointed placing agents or brokers.
In the secondary market, investors can purchase existing notes from other investors after the original offer period has closed. Such transactions are conducted through brokers on the NSE fixed-income market. Secondary-market purchases are subject to the availability of sellers, market pricing and liquidity.
Minimum Investment for Kenyan Corporate Notes
The minimum investment for Kenyan corporate medium-term notes can vary depending on the individual programme and issuance. Retail entry thresholds for corporate MTSN and green note programmes typically range between KSh50,000 and KSh100,000, with additional investments made in specified increments.
Investors can fund their accounts through channels such as mobile money for applicable retail transactions or through electronic bank transfers, including EFT and RTGS.
Some green and sustainability notes approved by the Capital Markets Authority (CMA) can receive withholding-tax exemptions on interest. The tax treatment depends on the structure and regulatory approval of the specific issuance. Investors therefore need to review the terms of each offer before investing.
Corporate bonds and sustainability notes traded on the NSE may have lower secondary-market trading volumes than some other securities.
An investor seeking to sell a note before its maturity may therefore need to wait for a buyer or accept the prevailing market price. The liquidity available to investors can vary between individual issuances depending on market participation and demand.
Kenya’s Growing Sustainable Debt Market
Kenya’s sustainable corporate debt market includes programmes from major companies and financial institutions.
Safaricom has rolled out a KSh40 billion Domestic Medium-Term Note Programme featuring tax-free green notes, while KCB Group has launched a KSh300 billion Sustainability Bond Framework, with the first KSh100 billion tranche expected under the programme.
The National Treasury is also developing and using the Kenya Sovereign Sustainability-Linked Financing Framework for climate-related financing.
These programmes provide issuers with structures for raising debt for environmental, social and sustainability-related purposes while giving investors access to sustainable fixed-income instruments.