CBK’s new rules in bid to stamp out greenwashing

BD Green

CBK has published draft rules to guide banks in properly classifying projects as either ‘green’ or ‘not green.’

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The Central Bank of Kenya (CBK) has published draft rules to guide banks in classifying whether particular economic activities are environmentally sustainable or ‘green’, joining the global push to stamp out greenwashing.

Greenwashing is conveying a false impression or misleading information about how a company’s products are more environmentally sound than they are.

Largely, greenwashing is an attempt to capitalise on the growing demand for environmentally sound products, whether that means they are more natural, healthier, free of chemicals, recyclable, or less wasteful of natural resources.

In a bid to curb deception, the CBK has published the draft Kenya Green Finance Taxonomy (KGFT) that if accepted, would guide banks in properly classifying projects as either ‘green’ or ‘not green’ so as not to end up funding projects that harm the environment.

A green finance taxonomy is a classification system that highlights which investments are environmentally sustainable and, by extension, those that are not. It defines a minimum set of assets, projects, activities, and sectors that are eligible to be defined as "green" in line with international best practices and national priorities.

The draft rules have been benchmarked from the European Union, and South Africa, with Kenya hoping the rules will help it stamp out greenwashing.

“For the financial sector to effectively contribute to implementing the climate change agenda, there is a need for a common understanding of what constitutes green finance as well as a standardised disclosure and reporting framework,” said the CBK in the draft.

CBK said the taxonomy will serve as a reference for Kenya’s transition to being a green economy and also “increase the consistency of green finance flows and align green products and financial allocations with internationally recognised standards.”

The rules come as several banks, including Kenya Commercial Bank, Co-operative Bank of Kenya, Absa Bank Kenya and Standard Chartered Bank-Kenya have been disclosing billions of shillings as green finance in their loan books.

Kenya and other African countries have borne the brunt of the impact of climate change, even though Africa does not contribute significantly to the global volumes of greenhouse gases, which are responsible for the adverse consequences of climate change.

CBK had in October 2021 issued guidance on climate-related risk management. The guidance was intended to facilitate banks to incorporate climate-risk-related considerations in their governance, strategy, risk management, and disclosure frameworks.

However, CBK said while a review of the implementation progress of the guidance by the banks showed significant progress in integrating climate-related risks in their governance and strategy frameworks, most lenders are at the initial stages concerning risk management and disclosure frameworks.

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