NAIROBI, Kenya, November 7 – We have a problem. The recently released State of the Climate in Africa Report 2020 indicates that in 2020, climate indicators in Africa have been characterized by extreme weather events such as floods and droughts, temperature rise and accelerated rise. from sea level. The associated impact has been devastating. The report also notes that by 2030, up to 118 million extremely poor people will be at risk of drought, flooding and extreme heat in Africa, if response measures are inadequate. In addition, climate change could further lower gross domestic product (GDP) in sub-Saharan Africa by up to 3% by 2050. And Africa is not alone.
It is against this disastrous backdrop in Africa and around the world that the 26th United Nations Conference of the Parties on Climate Change (COP26) is being held in Glasgow, Scotland. It brings together governments, businesses, civil society and citizens as they await commitments to the ambitious actions needed to tackle climate change. Further delays in these commitments or if they are not ambitious, would undermine our destiny.
In the run-up to COP26, Kenya and other countries have stepped up their climate actions at sectoral and national levels. It is against this background that the Central Bank of Kenya (CBK) issued guidance on climate risk management (guidance) in the banking sector on October 15, 2021. The guidance aims to enable banks to integrate climate risks in their governance, strategy, risk management and disclosure frameworks.
Climate change presents three main risks for banks. First, the physical risk to the loan portfolio resulting from damage or loss caused by climatic and meteorological events such as floods and drought. Second, the risk of transition arising from changes to a low carbon (green) economy. For example, abandoning previously entrenched energy sources such as coal can lead banks to end up with obsolete abandoned assets that have been used to secure loans. Third, the liability risk that could arise from lawsuits against banks for the financing of companies whose activities have a negative impact on the environment.
However, 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.
Finance is at the center of business, and the vision of CBK is a banking industry that works for and with Kenyans, as outlined in the Kenya Banking Sector Charter of 2019. Banks should not only provide banking services, but should ensure that they meet the needs of customers. while being aligned with environmental, social and governance considerations. As part of the efforts to reverse the climate crisis, we aspire to a world where all financial services are green. Three stages have been taken on this journey.
First, in 2015, the Kenya Bankers Association (KBA) launched the Sustainability Finance Initiative (SFI). The SFI aims to raise awareness of environmental, social and governance risks and financing within the banking sector. KBA has implemented comprehensive online training designed to empower banks to create long-term value for the economy, society and the environment. Currently, all 38 banks are participating and over 30,000 bankers have been registered to date.
Second, in January 2020, the first Ksh 4.3 billion East and Central African corporate green bond was issued by the Acorn Group and listed on the Nairobi Securities Exchange (NSE). The bond was also listed on the International Securities Market (ISM) segment of the London Stock Exchange (LSE). The profits were used to build environmentally friendly housing for university students.
Third, in November 2020, Kenya’s largest bank, KCB Bank, was accredited by the United Nations Green Climate Fund (GCF) as the premier financial intermediary for the implementation of green finance in Africa. ‘East. The GCF is the world’s largest climate fund, mandated to help developing countries raise and realize their nationally determined contributions (NDCs) ambitions towards low-emission and climate-resilient pathways.
While recognizing these milestones, there is still a long way to go to green Kenya’s financial system, and the publication of the Guide will accelerate the banking sector’s journey. Over the next year and a half, CBK will support banks to build their capacity and integrate climate risk management into their day-to-day operations. In turn, this will attract global funds that seek opportunities to finance initiatives that build climate resilience, thereby positioning Kenya as a leading green finance center.
For Kenya and others, now is the time to build a truly sustainable financial system that works for and with the people. Ultimately, all funding should be green. The stakes are high. There is no planet B.
By Patrick Njoroge, Governor of the Central Bank of Kenya