The Central Bank of Kenya (CBK) on Friday released a set of guidelines to strengthen the capacity of financial institutions to manage risks associated with climate change including recurrent droughts, floods, and wildfires.
The CBK said the issuance of Guidance on Climate-Related Risk Management to commercial banks and mortgage finance companies, marked a milestone in the country’s quest for green pandemic recovery.
“The Guidance is intended to enable banks to integrate the opportunities and risks arising from climate change in their governance structure, strategy, and risk management frameworks,” CBK said in a statement issued in Nairobi.
The set of guidelines will help commercial banks disclose climate-related information to key stakeholders including investors, regulators, and account holders, according to CBK.
Kenya is among African countries that have borne the brunt of the climate crisis as witnessed by severe droughts, water stress, and food insecurity.
The country’s apex bank noted that socio-economic consequences of climate change include loss of livelihoods, displacement, forced migration, and destruction of property that pose a huge threat to the sustainability agenda.
According to CBK, climate change coupled with ravages linked to the COVID-19 pandemic has worsened poverty and unemployment, while slowing down the implementation of a long-term development blueprint.
The industry regulator said it leveraged international best practices to develop the new guidance on the management of climate-related risks in the financial sector and accelerate green pandemic recovery in the country.
It added that the guidelines will inform future investment decisions by the banking industry in renewable energy projects, climate-smart farming, and resilient infrastructure.
“In addition, banks will need to build their capacity to identify and mitigate risks arising from climate change. It is for these reasons that the issuance of the Guidance is timely,” said CBK.