The Central Bank of Kenya (CBK) has developed and released the Kenya Green Finance Taxonomy (KGFT) and the Climate Risk Disclosure Framework (CRDF) for the banking sector.
The KGFT is expected to guide target institutions on evaluation and classification of their economic activities according to the extent to which the activities support or hinder climate objectives and promote the transition to a low-carbon economy.
A press statement released today by CBK stated that this is part of their ongoing second-generation reforms aimed at greening the banking sector in line with evolving reforms to mitigate the risks of climate change.
Institutions are expected to apply the taxonomy in assessing the degree to which their business activities are aligned under the taxonomy’s guiding principles, the statement added.
This initiative is part of the Greening Financial Systems Technical Assistance Programme to CBK by the European Investment Bank (EIB) that commenced in October 2023.
The KGFT will be a live document subject to periodic updates, initially focusing on climate change mitigation and adaptation as its objectives and drawing largely from Kenya’s Nationally Determined Contributions (NDCs) under the United Nations Framework Convention for Climate Change (UNFCCC) and other national climate policy documents, the statement says.
The Climate Risk Disclosure Framework (CRDF), CBK says, intends to assist commercial banks in collating and disclosing climate-related information in a relevant, useful, consistent and comparable manner.
“For investors, the framework provides the information needed to assess the financial implications of climate change on potential investments and identify companies well-positioned for the transition to a low-carbon economy, the statement says.
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 Framework is also aligned with global best practices and standards such as the International Financial Reporting Standards (IFRS) S2 on climate-related disclosures and the Basel Committee on Banking Supervision.
In recognition of the importance of the financial sector in combating climate change, the Central Bank of Kenya (CBK) issued Guidance on Climate-Related Risk Management in October 2021 to facilitate the integration of climate-related risk considerations in their governance, strategy, risk management and disclosure frameworks.
Kenyan government is committed to the United Nation’s 2030 Agenda for Sustainable Development and the Paris Agreement and funding from both government and private sector, including the financial sector, has been necessary to support in fulfilling its climate change commitments.
By Wangari Ndirangu
