GREEN FINANCE INTEGRATION AND SOVEREIGN EUROBOND YIELDS IN KENYA: A CLIMATE RISK PREMIUM PERSPECTIVE

Kenya's exposure to climate risks and fiscal volatility has raised concerns about the pricing of its sovereign Eurobonds in global markets. This study investigates the impact of green finance announcements, ESG risk scores, and inflation on Kenya’s sovereign Eurobond yield spreads over U.S. Treasuries from 2015 to 2024. Employing a quantitative explanatory research design, the study analyzed secondary monthly data on yield spreads, macroeconomic indicators, and ESG metrics using multiple linear regression. Descriptive statistics and diagnostic tests confirmed data suitability, while correlation analysis revealed expected directional relationships. Findings show that green finance announcements significantly reduce Kenya’s sovereign risk premium, aligning with signaling theory that credible sustainability communication enhances investor confidence. ESG risk scores were also found to have a statistically significant negative effect on yield spreads, underscoring the importance of non-financial performance in sovereign debt pricing. Conversely, inflation had a significant positive effect, reflecting heightened risk aversion toward macroeconomic instability. The study concludes that climate and ESG signals now influence investor pricing behavior in African debt markets. It recommends that the Kenyan government institutionalize green finance disclosures, improve ESG reporting systems, and enforce effective inflation-targeting policies to reduce borrowing costs and enhance debt sustainability. The findings offer vital information for policymakers and investors in understanding the evolving dynamics of climate-adjusted sovereign risk.