The Central Bank of Kenya (CBK) announces the issuance of Guidance on Climate-Related Risk Management to commercial banks and mortgage finance companies.
The Guidance is intended to enable banks to integrate the opportunities and risks arising from climate change in their governance structure, strategy and risk management frameworks. Further, CBK said it will guide these institutions in disclosing climate-related information to their stakeholders.
Kenya and other African countries do not contribute significantly to the greenhouse gas emissions (mainly carbon) responsible for the adverse global consequences of climate change. However, they have borne the brunt of climate change, including through droughts, floods and wildfires.
The resultant socioeconomic consequences range from loss of livelihoods, displacement, physical destruction of property, and forced migration.
CBK says 100 million people to be pushed into poverty by 2030
Recent estimates indicate that the ravages of climate change exacerbated by the coronavirus (COVID-19) pandemic threaten to push over 100 million people globally into extreme poverty by 2030 if urgent action is not taken.
The Kenya Banking Sector Charter, developed in 2019, is anchored on four pillars of customer-centricity, risk-based credit pricing, transparency and ethical banking.
Under the ethical banking pillar, banks have been integrating environmental, social and governance considerations in their operations.
The issuance of this Guidance will accelerate the path towards integrating environmental considerations in banks’ business models.
In preparing this Guidance, CBK has also benefitted from related guidance issued by global standard-setting bodies as well as by supervisory authorities in other jurisdictions, and policy statements in Kenya.
As the world builds back from the pandemic, green resilient economies will be imperative. The transition to a low carbon economy will require significant financing both from the public and private sectors.
There will be opportunities for banks to fund the transition to renewable energy, resilient infrastructure, appropriate housing and innovative agricultural practices. In addition, banks will need to build their capacity to identify and mitigate the risks arising from climate change.
In a statement, CBK said the banking sector is a key enabler of the economy and its embracing of climate risk management will be a key signal to the financial and other sectors. This will be a key contribution in scaling up Kenya’s climate ambitions as the world gears up for the Conference of Parties (COP-26) in Glasgow, Scotland at the end of October 2021.
COP-26 will seek to accelerate global actions to address the increasingly dire consequences of climate change.