Nairobi, June 2 -- Kenyan investors have lately shown an unusual appetite for a new class of debt instruments that promise both financial returns and measurable social or environmental impact.

The Kenya Mortgage Refinance Company (KMRC) in May raised Sh3 billion through a sustainability bond that attracted bids worth Sh9.38 billion, more than three times the amount on offer. Months earlier, Safaricom raised Sh20 billion through a green bond that drew bids worth Sh41.4 billion against an initial target of Sh15 billion.

The success of the two issuances has thrust sustainable finance into the spotlight and raised important questions among investors: What is a sustainability bond? How does it differ from a green bond? And why are investors ...