The Central Bank of Kenya (CBK) has finalised a taxonomy and a climate risk disclosure framework as part of suite of green finance tools for the banking sector to promote more sustainable investments and encourage the shift to a low-carbon economy.
“The general public and other stakeholders will benefit from increased transparency, fostering accountability within the financial sector and encouraging businesses to adopt more sustainable practices,” the CBK said in a public notice.
The taxonomy and the risk framework are an outcome of the CBK’s partnership with the European Investment Bank.
Seventeen out of the 20 countries most threatened by climate change are located in Africa, according to the Economic and Social Council of the United Nations.
“Kenya is among the most vulnerable countries in the world to the impact of climate change,” the taxonomy states. “Unlocking sustainable finance and stimulating the allocation of capital to support a climate-resilient economy will be critical.
“For the financial sector to effectively contribute to implementing the climate change agenda, there is need for a common understanding of what constitutes green finance as well as a standardised disclosure and reporting framework.”
Economists say that African economies and their central banks need to transform the financial system to mobilise investments to address the climate crisis.
Climate change is expected to hit agriculture, water, energy and tourism in Kenya, denting economic output by more than 7% by 2050 if the country does not take action.
The CBK said the taxonomy would be subject to periodic updates. It initially focuses on climate change, with mitigation and adaptation as its objectives, but other environmental objectives, such as biodiversity, would be considered in future updates.
The risk disclosure framework is aimed at helping commercial banks to collate and disclose climate-related information in a comparable manner, helping investors to identify companies that support the green transition.
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