How financial system can save our planet

Do you know that humanity has less than 11 years to avert an irreversible and catastrophic effects of climate change? This sounds scary but scientific evidence shows that man’s irresponsible investment, production and consumption have placed the earth’s system under immense strain.

Unless concrete action is taken by our species within this limited period, our planet is headed for a shutdown and with it, our own existence. The Amazon, California and Australian fires and melting of glaciers in Pakistan are all telltale signs of this looming apocalypse.

The United Nations had warned as much about the impending doom in its last year’s General Assembly’s Meeting and called global community to action. The Climate Change Action Campaigners such as the 16-year old Greta Thunberg and civil societies are also continuously adding their voices to call for prompt action without commensurate reaction.

According to World Bank estimates, extreme climatic conditions could cost the Kenyan economy equivalent of 7 percent of its GDP by this year, 2020. The National Climate Change Action Plan 2013 estimates that the total investment required for climate change mitigation up to 2030 is between Sh1.4 trillion and Sh1.8 trillion.

This is a colossal sum of money that could have gone to other investments if we had incorporated sustainability issues into our consumption and production of capital from the onset. At the heart of our planetary troubles is our financial system which includes the commercial banks, insurance, capital markets, Saccos and sector regulators. These market players and regulators play pivotal role in capital allocation, managing risk and mobilising savings and investments. However, the financial system is dependent on other sectors of the economy.

For instance, the bulk of companies listed on the Nairobi bourse consist of commercial banks which majorly lend to agriculture, real estate, manufacturing, tourism and mining sectors. More than 50percent of the country’s GDP is derived from these natural resource-based sectors such as agriculture, tourism, mining, forestry and fishing that are highly susceptible to the effects of climate change.

The dependence of financial system on these sectors and inter-dependence of the financial sector players therefore puts the stability of the entire financial system at risk due to credit risk exposure and systemic risk arising out of effects of climate change.

Despite the imminent threat of climate change, it is business as usual for our corporates in the financial sector who rarely consider the environmental risks of their investments. If they do, it is often publicity stunts or insignificant corporate social responsibility- ‘see we are helping the society/environment’ kind of gestures.

It cannot be gainsaid that commercial banks and capital markets are responsible for financing the bulk of environmentally damaging investments. According to 2019 Rainforest Action’s Report major global banks have collectively poured $1.9 trillion into fossil fuels since the Paris Agreement in 2015(COP 21).

This is not unexpected for companies are often led by their self-interest and not by public utility of their investments. This has to stop and it must stop now! We must not allow corporate oligarchs to push us over the edge into oblivion.

The redemption of our planet lies with all of us and the financial system in particular for without the planet there shall be no financial system. This therefore calls for policy, legal, regulatory and decisional approach in the financial system to shift the focus from environmentally damaging investments to green investment.

In short, the financial system should ensure that capital flows to projects and investments that are geared towards planet, people and economic prosperity and if the corporates are unwilling to play their part in shift towards the green economy then regulators such as the Capital Markets Authority (CMA), Central Bank of Kenya(CBK), Insurance Regulatory Authority(IRA) and Sacco Societies Regulatory Authority(SASRA) should actively drive the transition by formulating policies and regulations that require and facilitate the greening of the entire financial system.

To begin with there should be radical effort to stop financing of fossil fuels, coal plants and any other environmentally damaging project in Kenya. Further, positive direct action to reduce carbon emissions on the part of the financial sector players should be made a requirement of law and regulations.

The listing of first ever green bond in Kenya on the Nairobi Securities Exchange on Monday by Acorn is a step in the right direction but more coordinated approach to greening the financial system is required for significant shift to green economy to be felt in Kenya.

This year’s World Economic Forum’s Annual Meeting to be held on January 21 in Davos, Switzerland will focus on the critical role of stakeholders in promoting cohesive and sustainable world. If we are to avert further damage to our planet, stakeholders should play their part as well.

We have seen how Barclays Bank’s shareholders in Britain are already taking the lead by passing resolution requiring the bank to phase out fossil fuel financing and such action is worth emulating. The shareholders can determine the investment direction of the companies they invest in.

To avert climate crisis requires targeted shift of mindset by everyone. For Mother Earth to survive, we must relook at the business-as-usual-approach to investment by our financial system and allow permeation of sustainability issues in every policy, decision and legislative making by all persons and government organs in Kenya.

The writer is Advocate of the High Court of Kenya.