Central Bank of Kenya(CBK) Governor Dr. Kamau Thugge has disclosed that to make Kenya a green finance hub, the monetary authority has embarked on a second phase of reforms that follows the guidance on climate-related risk management that it issued to all commercial banks in Kenya in October 2021.
“We are developing a green finance taxonomy that will identify activities, investments, and projects that are considered green,” said CBK Governor Dr Thugge.
He made these remarks while opening the inaugural Africa Climate Business Forum that was co-hosted by the CBK and the International Finance Corporation(IFC), the lending arm of the World Bank.
This event closely follows the Africa Climate Summit that was also held in Nairobi, Kenya.
“The transition to a green low carbon and climate resilient economy presents opportunities not just for corporates but also Micro, Small and Medium Enterprises (MSMEs) and households,” said CBK Governor Dr Thugge while speaking at the Africa Climate Business Forum.
- The State of the Climate in Africa 2020 report indicates that by 2030, up to 118 million extremely poor people will be exposed to drought, floods, and extreme heat in Africa, if response measures are inadequate.
- Additionally, climate change could further lower gross domestic product (GDP) in Sub-Saharan Africa by up to 3 percent by 2050. And Africa is not alone.
In the build-up to COP26, Kenya and other countries began scaling up their climate actions at the sectoral and national levels. The CBK issued a Guidance on Climate-Related Risk Management that enables banks to integrate climate-related risks into their governance, strategy, risk management, and disclosure frameworks.
Climate change poses three broad risks to banks including the physical risk to the loan portfolio arising from damage or loss caused by climate and weather-related events such as floods and drought.
Banks also face transition risks arising from the changes toward a low-carbon (green) economy.
- The abandonment of coal and other energy sources could result in banks being left with obsolete assets that were used to secure loans.
- Liability risk could arise from banks being sued for financing companies whose activities negatively impact the environment.
Nevertheless, efforts to mitigate and adapt to climate change also generate business opportunities for banks.
These include the adoption of low-emission energy sources, the development of new products and services, access to new markets, housing, and resilient infrastructure.
Kenya has made significant strides in the field of green finance.
Three years ago Acorn Group issued the first green bond in East and Central Africa, worth KSh 4.3 billion, which was listed at both the NSE and the London Stock Exchange (LSE).