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Kenya central bank pushes for green finance reforms amid climate risks

EditorPollock Mondal
Published 03/11/2023, 10:34

The Central Bank of Kenya (CBK), under the guidance of Governor Dr. Kamau Thugge, is advancing reforms to establish Kenya as a green finance hub. This initiative follows the 2021 Guidance on Climate-Related Risk Management and is part of the second phase of reforms on these guidelines. The CBK aims to assist commercial banks in integrating climate risks into their governance and risk management strategies.

The central bank's move was announced at the inaugural Africa Climate Business Forum, which followed the Africa Climate Summit. The CBK is developing a green finance taxonomy to classify sustainable initiatives, investments, and projects. This taxonomy will be supported by a disclosure framework for banks that aligns with international standards.

Dr. Thugge emphasized the need for financial institutions and stakeholders to increase resources for development and climate action during his speech at the forum. He highlighted the significant capital gap needed to counteract climate-related shocks in Kenya and Africa. According to World Bank estimates, Kenya's annual climate financing gap stands at $5.13 billion, which surpasses its development budget.

Dr. Thugge cited the COP27 decision, stating that a global shift to a low-carbon economy would require an annual investment of $4-$6 trillion. He called for a transformation of financial systems involving governments, central banks, commercial banks, institutional investors, and other financial entities.

The governor also urged collective global action to mobilize capital for both development and climate action in line with the Paris Pact for People and the Planet. He asserted that no country should be forced to choose between development and climate action.

Despite these challenges, transitioning to a sustainable economy offers potential for corporations, micro, small and medium enterprises (MSMEs), and households despite climate change threats identified in the State of the Climate in Africa 2020 report. These threats encompass physical risks to loans from weather events, transition risks due to a green economy shift leading to obsolete assets, and liability risks from financing harmful activities.

The shift towards sustainability also presents opportunities like adopting low-emission energy sources and developing new products. The Acorn Group made history three years ago by issuing East and Central Africa's first green bond worth KSh 4.3 billion, listed on both the Nairobi Securities Exchange (NSE) and the London Stock Exchange (LSE).

However, funding for adaptation to climate change in Africa and developing countries remains insufficient. The United Nations Environment Programme estimates that African countries need at least $3 trillion by 2030 to implement their Nationally Determined Contributions (NDCs) under the Paris Agreement. These NDCs outline each country's commitments towards achieving the global goal of limiting temperature increase to 1.5°C.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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