- The two-year Kenyan technical assistance scheme is the first of its kind to be implemented in East Africa
- 59% of banks in Africa have a climate change strategy
Image: FILE
The Central Bank of Kenya has launched a new climate finance best practice initiative to strengthen engagement by Kenyan financial institutions to finance climate-related investment.
The initiative with the European Investment Bank (EIB) is expected to enable commercial banks to mobilise climate finance, essential to achieving a net-zero economy and strengthening the climate resilience of the Kenyan financial systems.
The two-year Kenyan technical assistance scheme is the first of its kind to be implemented in East Africa under the EIB's Greening Financial Systems Programme, financed by the German government through the dedicated International Climate Initiative Fund (IKI Fund).
The initiative will serve as a model for mobilising climate finance by tackling barriers that hold back engagement by commercial banks and will enable the regulator to incorporate climate risk into the Kenyan regulatory framework.
The scheme is also expected to help further increase the impact of climate-related investment by developing the green taxonomy for the financial sector, that supports scaling up green investment aligned with the goals of the 2015 Paris Climate Agreement.
The programme reflects the urgent need to mobilise climate finance outlined this past week at COP 28 in Dubai and contributes to global efforts to limit global temperature increase and adapt to the impact of climate change.
EIB vice president, Thomas Östros said that greater efforts are being made to understand the barriers holding back green financing in Kenya.
“As highlighted by world leaders at COP 28, scaling up climate finance is essential to mobilise new investment to boost the green transition and help reduce the impact of climate change'', Östros said.
He added that barriers remain that hold back the full engagement of banks in climate-dedicated finance.
"It is hindered by the lack of long-term funding that matches the economic life of green investments, the higher perceived risk of climate investment and limited experience of how to originate and monitor climate finance,''he said.
He added that the new technical best practice partnership builds on the European Investment Bank’s long-standing partnership with Kenyan financial institutions, to increase the impact of climate finance and unlock investment that better protects infrastructure and business from climate change.
CBK governor Kamau Thugge said the apex bank is committed to the greening of the Kenyan financial sector.
Towards this end, CBK issued Guidance on Climate-Related Risk Management in October 2021, to commercial banks.
He said that the guidance was intended to facilitate banks in incorporating climate risk-related considerations in their governance, strategy, risk management and disclosure frameworks.
"Considerable progress has been made by banks in implementing the Guidance, but more remains to be done."
He added that as outlined in the EIB’s Finance in Africa Report 2023, the increasing prevalence of climate risks on balance sheets has made climate an important part of the risk appraisal process, for both new loans and existing portfolios.
The latest EIB survey found that 59 per cent of banks in Africa have a climate change strategy and a further 22 per cent plan to introduce one.
Banks across Africa are now stepping up their efforts to offer an expanded range of green finance products rather than just mitigating risk.
Over the last decade, the European Investment Bank, which is the world’s largest international public bank and leading climate financier, has helped to strengthen the climate finance technical skills of more than 40,000 African financial professionals.
Additionally, it has provided more than Sh88 billion over the last five years for private sector investment across Kenya, in partnership with local businesses.