Climate crisis fuels banks' resolve for greater resilience

CEO of Kenya Bankers Association Habil Olaka

As scientists warn about the devasting effects of climate change, more investors are shifting their focus on environmental risk and how they might affect their portfolios. After all, the prevailing rising temperatures and increasing frequency of severe storms, floods, heatwaves, and drought are eroding the economic gains of many nations.

Globally, the unmatched existential threat of the climate crisis is a major concern to governments and players in the financial services sector. Both recognise that financial resilience will remain at stake if drastic measures are not taken to abate the effects of a shifting climate. Africa remains as one of the most adversely exposed continents to climate change. Five out of 10 countries that are most susceptible to the crisis are in Africa. This gives the continent a compelling reason to adopt global best practices to boost its adaptive capacities.

It is encouraging to see that as of November 2019, majority of African countries, Kenya included, had ratified the Paris Agreement and submitted their Nationally Determined Contribution (NDCs), focusing on adaptation measures. Today, their commitment is setting their course to enhance climate action by cutting Green House Gas (GHG) emissions and building their resilience. At home, the Central Bank of Kenya took a progressive approach by introducing to the banking sector Guidance on Climate-Related Risk Management. The guidance provide direction and encourage banks to integrate climate related risks in their decision-making frameworks particularly, in their governance, strategy, risk management and disclosure structures. Such progressive policies are critical to supporting the country to transition into a low-carbon economy.

Kenya Bankers Association has also been a key advocate over the years in enabling banks to set pace in recognizing and managing the impact of climate risk through its Sustainable Finance Initiative. In 2015, KBA launched the SFI Guiding Principles which has empowered a good number of banks in Kenya to be innovative in their allocation of resources to spur green growth while they mitigate risks associated with their lending practices. This progress can be corroborated by the findings from the 2020 State of Sustainable Finance in Kenya’s Banking Industry report, which highlighted that 85.7 percent of banks’ credit policy ensures responsible and sustainable lending that promotes the country’s sustainable economic development. In the same report, 81 per cent of banks surveyed stated that their management developed procedures that ensure compliance with local environmental laws including the Climate Change Act, and labour standards. Banks are keen to comply given the systemic risk associated with a late transition to a low-carbon economy.

Writer is the CEO of Kenya Bankers Association