Banks must tackle climate-related financial risks
- We are at a big guess, where the ravages of floods, droughts and other natural disasters continue to plague Africa, although they contribute the least to global emissions.
- We are also at a point where the global discourse is increasingly shifting towards recovering from the coronavirus pandemic (Covid-19) and restoring shattered livelihoods.
We are at a big guess, where the ravages of floods, droughts and other natural disasters continue to plague Africa, although they contribute the least to global emissions.
We are also at a point where the global discourse is increasingly shifting towards recovering from the coronavirus pandemic (Covid-19) and restoring shattered livelihoods.
The transition to a green economy will be at the heart of sustainable growth and shared prosperity for our citizens. At the Central Bank of Kenya (CBK), our vision is of a banking sector that works for and with Kenyans.
The industry must not only provide financial services, but also ensure that they meet the needs of clients while aligning with environmental, social and governance considerations. We aspire to a world where all financial services are green.
And each step brings us closer to that goal. What have we accomplished so far to make this vision a reality? I will highlight three important steps.
First, in 2015, the Kenya Bankers Association (KBA) launched the Sustainable Finance Initiative (SFI). The IFC aims to raise public awareness of environmental, social and governance risks and finance within the Kenyan banking sector. KBA through SFI has implemented comprehensive online training designed to empower financiers to create long-term value for the economy, society and the environment. Currently, 38 banks are participating in the training and over 30,000 bankers have been enrolled.
Second, the first corporate green bond in East and Central Africa, issued by the Acorn group, was listed on the Nairobi Securities Exchange (NSE) in January 2020. The bond was admitted to the International Securities Market segment. (ISM) on the London Stock Exchange (LSE) in January 2020.
Third, in November 2020, KCB Bank, Kenya’s largest bank, was accredited by the United Nations Green Climate Fund (GCF) as the premier financial intermediary for the implementation of green finance in Africa. ‘Is.
As you know, the Green Climate Fund is the world’s largest climate fund, mandated to help developing countries raise and achieve their nationally determined contributions (NDCs) ambitions towards low emission pathways and climate resilient.
It is an essential part of the historic Paris Agreement.
While recognizing these milestones, there is still a long way to go to green Kenya’s financial system.
Therefore, during this Year of Climate Action, in preparation for COP-26, we will work with the banking sector to develop guidelines on climate risk assessment and mainstream financial disclosures. related to climate in the financial sector. Green finance presents significant opportunities.
However, as regulators, we must always be mindful of climate risks. Climate risk is a growing threat to the financial sector due to the physical risk to the loan portfolio resulting from, among other things, floods and drought. In addition, the risk of transition may arise from the switch to clean energy with the abandonment of already entrenched energy sources such as coal.
Bank customers can therefore end up with obsolete stranded assets that have been used to secure loans. We therefore need to provide guidance to banks on how to identify, measure and mitigate climate risks. Additionally, as a regulator, we must integrate climate risk into our supervisory framework as we pursue our core mandate of financial stability.
Regarding disclosures, we do not intend to reinvent the wheel, but rather to draw inspiration from the Task Force on Climate-related Financial Disclosures (TCFD or Task Force).
The working group has developed a set of recommendations for consistent information that will help financial market participants understand their climate-related risks. Beyond disclosures, the structuring of recommendations around the fundamental institutional elements of governance, strategy, risk management and indicators and targets will integrate the integration of climate-related risks and opportunities in banks.
In our climate action agenda for Kenya’s banking sector, we cannot walk alone. There is a saying that if you want to go far, go together. We will strive to walk with others on the same path, but who are more advanced.
In this regard, collaboration with the European Union (EU) and in particular the European Investment Bank (EIB) is relevant. We note the transformation of the EIB into the EU climate bank. The EIB actively supports private sector development in Kenya by providing medium and long term finance to commercial banks for on-lending to SMEs and microenterprises.
Over the past 10 years, the EIB has made more than € 300 million available to Kenyan banks to support critical sectors including agriculture, tourism, industry, transport, construction, health and education.
We commit to walk with our development partners including the EU, the private sector and other stakeholders on green finance innovation in Africa
(This is an abridged version of Dr Njoroge’s speech at the EU-Kenya Green Diplomacy Conference)