The Central Bank of Kenya (CBK) has signed a partnership with the European Investment Bank to support banks’ efforts in mobilising funding for green projects and addressing climate-related risks.
CBK said the two-year technical assistance programme will serve as a model for addressing barriers that hold back commercial banks from supporting green projects and also enable it to incorporate climate risk into the regulatory framework.
The regulator added that the greening financial systems programme will also help Kenyan banks adopt climate finance best practices across all their activities, allowing them to better assess, monitor, and report on climate-related risks.
“Barriers remain that hold back the full engagement of banks in climate-dedicated finance,” said European Investment Bank (EIB) Vice President, Thomas Östros.
“It is hindered by the lack of long-term funding that matches the economic life of green investments, the higher perceived risk of climate investment and limited experience of how to originate and monitor climate finance.”
Kenya’s banking sector in 2018 channelled Sh27 billion in climate finance against the total loan book of Sh2.49 trillion, highlighting the sector’s risk averseness towards green projects.
Green financing in Kenya is currently concentrated on areas such as lending to renewable energy projects, and providing credit lines for energy efficiency projects like solar installations and wastewater management projects in the hospitality industry.
Many investors and financiers have shown a low appetite for green projects due to the mismatch between risks and returns.
The EIB technical assistance, added to other efforts such as the 2021 CBK guidance on climate-related risk management in the banking sector and the government’s plans to launch a green bank are expected to incentivise private sector investments in green projects.
“Considerable progress has been made by banks in implementing the Guidance, but more remains to be done,’’ said Kamau Thugge, CBK governor.
The Treasury in February published the draft National Green Fiscal Incentives Policy Framework in which it disclosed plans to set up an investment bank that will be absorbing part of the risks associated with lending to green investments.
