As scientists warn about the devasting effects of climate change, more investors are shifting their focus on environmental risk and how it might affect their portfolios.
After all, the prevailing rising temperatures and increasing frequency of severe storms, floods, heatwaves, and drought are eroding the economic gains of many nations.
Globally, the unmatched existential threat of the climate crisis is a major concern to governments and players in the financial services sector. Both recognise that financial resilience will remain at stake if drastic measures are not taken to abate the effects of a shifting climate.
Africa remains one of the most adversely exposed continents to climate change. Five out of 10 countries that are most susceptible to the crisis are in Africa. This gives the continent a compelling reason to adopt global best practices to boost its adaptive capacities.
It is encouraging to see that as of November 2019, a majority of African countries, Kenya included, had ratified the Paris Agreement and submitted their Nationally Determined Contribution (NDCs), focusing on adaptation measures.
Today, their commitment is setting their course to enhance climate action by cutting Green House Gas (GHG) emissions and building their resilience.
At home, the Central Bank of Kenya took a progressive approach by introducing to the banking sector Guidance on Climate-Related Risk Management.
The guidance provides direction and encourages banks to integrate climate-related risks in their decision-making frameworks particularly, in their governance, strategy, risk management and disclosure structures. Such progressive policies are critical to supporting the country to transition into a low-carbon economy.
Kenya Bankers Association has also been a key advocate over the years in enabling banks to set the pace in recognising and managing the impact of climate risk through its Sustainable Finance Initiative.
In 2015, KBA launched the SFI Guiding Principles, which have empowered a good number of banks in Kenya to be innovative in their allocation of resources to spur green growth while they mitigate risks associated with their lending practices.
With better understanding of the role banks play in mitigating and managing climate risk, the industry is able to cushion itself from the crushing weight of future liabilities.
Better planning today will also address the unexpected costs that might arise as the country transitions into a low-carbon economy. Indeed, banks are at the centre of financing a greener, inclusive future for all.