Effects of Private Sector Incentives on Climate Change Financing in Kenya

Abstract

Climate finance generally refers to financial resources invested in mitigation and adaptation measures aimed at reducing emissions through investments in sectors that emit large quantities of greenhouse gases and adaptation that creates a sense of responsibility to different actors as significant financial resources will be similarly required. This study therefore aimed to identify incentives that will encourage the private sector towards contributing to climate change financing and investments in Kenya. The study aimed to create potential links between climate relevant incentives and on sources of both capital and investment trends. The incentives looked at various economic instruments that influence behaviour through price and information instruments that influence behaviour through awareness. This in turn will increase access to finance and strengthen the country‟s responses to climate change. The theoretical basis informing this study is drawn from the: Modigliani-Miller Theorem, Modigliani and Miller (1958); Pecking order theory, Myers (1984) - Retained earnings, debt, equity; and the Prospect Theory - An Analysis of Decision under Risk Daniel Kahneman and Amos Tversky, (March 1979). The study was conducted through a structured interview guide in whom 51 private sector companies were interviewed from a total of 85 that were approached. The findings showed that knowledge on climate change, sector, subsidies, intellectual property rights, insurance, training, public procurement, emission reduction programmes, and awareness creation could statistically predict the willingness to invest on climate change by the private, and 88% of respondent were willing to invest in climate change with the preferred investment options included insurance, guarantees and green stocks (equity). Regression analysis was used to find out on the private sector willingness to contribute to climate finance and using investment options and incentives as the independent variables. The study findings showed that the private sector will be champions of climate finance by integrating climate change adaptation and mitigation in their operations as compared to CSR. Further research should be done to establish sectoral incentives and investment options towards climate change mitigation and adaptation in the private sector