Central Bank of Kenya(CBK) has released the draft Kenya Green Finance Taxonomy (KGFT) for public consultation. The draft KGFT is intended to serve as a tool to enable market participants to classify whether particular economic activities are ‘green’ and environmentally sustainable or not.
- Green Finance Taxonomy is an official classification or catalogue that defines a minimum set of assets, projects, and sectors that are eligible to be defined as “green” in line with international best practices and national priorities.
- The draft regulations set the guidelines that allow investors, issuers and other financial sector players to track, monitor, and demonstrate the credentials of their green activities more credibly.
- The green finance catalogue is expected to increase green finance flows to Kenya and align green products and financial allocations with internationally recognized standards.
CBK agreed with the European Investment Bank(EIB) in October 2023 for technical assistance to among others, develop green finance regulations. The two have worked together on the draft green finance catalogue, which has been benchmarked to experiences in South Africa and Europe.
The Draft Kenya Green Finance Taxonomy will also guide the financial sector with clarity and certainty in selecting green investments in line with international best practice.
While banks have shown significant progress in integrating climate-related risks in their governance and strategy frameworks, CBK says most banks are still at the initial stages concerning risk management and disclosure frameworks, due to a lack of a standardized framework for green finance, including definitions of what qualifies as green as well as templates for disclosing and reporting climate-related risk exposures.
The total funding required to implement climate mitigation and adaptation actions in Kenya is estimated at US$ 62 Billion. Kenya has committed to mobilize 13% of this, amounting to approximately US$ 8 billion, with the larger share (approximately US$ 54 billion) being funded through international support and the private sector.
CBK reckons that through its capital allocation decisions, the banking sector can make substantial contributions towards effective climate change mitigation and adaptation through innovative financial solutions that sustainably channel capital.
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