CBK Launches Green Finance Guidelines to Tackle Climate Risks in Banking

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The Central Bank of Kenya (CBK) has officially launched a comprehensive set of green finance guidelines to address climate-related risks within the country’s banking sector.

This move builds on earlier efforts, including the 2021 issuance of guidance on climate-related risk management, and forms part of CBK’s broader second-generation reforms focused on promoting a greener, more sustainable financial system.

This latest initiative will include two key tools: the Kenya Green Finance Taxonomy (KGFT) and the Climate Risk Disclosure Framework. These instruments were developed under the Greening Financial Systems Technical Assistance Programme, supported by the European Investment Bank (EIB), which began in October 2023.

The KGFT is designed to help financial institutions classify and evaluate their economic activities based on their alignment with climate objectives. By applying the taxonomy, banks and related institutions can determine how their operations contribute to or hinder the country’s transition to a low-carbon economy.

The framework draws extensively from Kenya’s Nationally Determined Contributions (NDCs) under the UN Framework Convention on Climate Change (UNFCCC), as well as national climate policy documents.

Initially, the taxonomy emphasizes climate change mitigation and adaptation, with future updates expected to incorporate additional environmental objectives, such as biodiversity.

Read: KCB Secures Green Climate Fund Backing for Climate-Smart MSME Innovations

Meanwhile, the Climate Risk Disclosure Framework provides a structured approach for commercial banks to collect and disclose climate-related data in a manner that is relevant, consistent, and comparable.

This will enable investors to better assess the financial risks and opportunities associated with climate change, while also identifying firms that are well-positioned for a sustainable future.

The framework aims to enhance transparency and accountability within the financial sector and encourage more responsible, climate-conscious business practices.

Importantly, the framework is aligned with leading global standards, including the International Financial Reporting Standards (IFRS) S2 on climate-related disclosures and the Basel Committee on Banking Supervision (BCBS) principles for managing climate-related financial risks.

Jefferson Wachira is a writer at Africa Digest News, specializing in banking and finance trends, and their impact on African economies.