In recognition of the threats posed by climate change, banks are emerging as shining lights in efforts to stem the tide.
Through their resource allocation capabilities, lenders and other financial institutions are now an indispensable cog in the war against climate change.
Businesses will always need financial resources and banks can leverage their position as financiers, to transform our country’s economic structure through capital formation, capital leveraging, and industrial integration.
If not acted upon, climate change war may cost Kenya up to Sh7 trillion in the next decade, according to the Ministry of Environment.
In addition, the State of the Climate in Africa report highlights that this could further lower gross domestic product (GDP) in sub-Saharan Africa by up to three percent by 2050.
Human-driven environmental pressures have raised risks of habitat degradation. In recognition of the threats posed by climate change, banks are emerging as shining lights in efforts to stem the tide and lead the transition of businesses towards a low carbon, green economy through green financing.
Through their resource allocation capabilities, lenders and other financial institutions are now an indispensable cog in the war against climate change.
But why green financing? This is defined as an eco-friendly funding rulebook that integrates innovative models with sustainable development across diverse sectors of an economy.
Businesses will always need financial resources and banks can leverage their position as financiers, to transform our country’s economic structure through capital formation, capital leveraging, and industrial integration.
Acting as a bridge between the financial industry and environmental conservation, lenders can guide businesses looking to tap from the vast pool of green financing, spurring them to adopt eco-friendly practices as an important starting point in business creation or development.
Green finance can form the basis for achieving high-quality economic growth in Kenya. It motivates firms, both large and small, to get keener on building green credentials and finding innovative ways to operate sustainably, reduce their carbon footprint as well as energy use.
In the long-term, these measures improve their bottom-line growth, cut business risk and deliver desired effect of slowing down the planet-warming rate.
By integrating green financing structures, banks can indirectly influence an accelerated adoption of eco-solutions in carbon-intensive industries such as manufacturing and transport, which account for 35 percent of global greenhouse gas emissions.
Through green financing mechanisms, players gradually cut their investment in low-end industries that are guilty of environmental pollution and increase their investment in sunrise, new energy industries.
Through sustainable financing policies, banks can divert the flow of funds to green industries, thus spurring a rapid improvement of the national green development level.
For instance, Absa Bank #ticker:ABSA recently signed a Sh1.25 billion Credit Guarantee Scheme with the Africa Guarantee Fund (AGF), with particular support to women entrepreneurs as well as mid-sized businesses qualifying as green transactions.
It is encouraging to see private and public sector appreciating the gravity of the matter and taking action. The Kenya Bankers Association (KBA), for example, has initiated sustainable finance initiative programme, which trains bank staff on how to scale up green financing models and partnerships.
The Capital Markets Authority has ranked high in the Absa African Financial Markets Index for championing sustainable finance products such as green bonds, equities and mutual funds in the market.
The introduction of environmental, social, and governance-focused initiatives and policies, though still at an early stage, is attracting local and foreign investors, boosting their confidence in Kenya’s financial market and critically moving the needle on climate action in Africa and the world.
Last year, the Central Bank of Kenya (CBK) released Climate-Related Risk Management guidelines to facilitate integration of such risks in governance, strategy, risk management and disclosure frameworks by local banks. They also spell out transition risks and how to mitigate them.
The regime provides a clear opportunity for banks to lead the national drive towards accelerated change and transformation to a low carbon (green) economy.
The government can support this agenda further by creating pro-sustainability policies such as tax reductions, which encourage banks to invest more in supporting eco-friendly businesses.
The rallying call is now for banks to develop clear, well-tailored, dedicated financing and investments, particularly at a local level key, to encourage low carbon, sustainable and resilient development.
Jane Waiyaki is the Head of Sustainability and Citizenship at Absa Bank Kenya PLC
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