Climate change is increasingly becoming a global emergency. It is no longer a problem left only to the companies whose operations directly affect the environment through physical waste and emissions. All companies, therefore, have to consider their respective roles in helping to mitigate the effects of global climate change.
A shared effort from all companies is required to craft a framework for engaging and participating in Environmental, Social and Governance (ESG) initiatives.
No single organisation should turn a blind eye to their involvement in meeting the UN Sustainable Development Goals, that cover climate action, responsible consumption and production, quality education and no poverty, among others.
Banking institutions across the world are actively taking on the challenge of creating an enabling environment to contribute positively to the climate change emergency and related social and economic impacts.
It is clear that not only are consumers increasingly demanding more sustainable goods and services but investors and regulators are also actively pushing for real change in how businesses operate across their value chains.
Sustainable finance is the future. Banks must transcend simple compliance requirements and seek out the emerging opportunities that follow as agents of change. The progressive establishment of green initiatives in banks requires the right skills, knowledge, mindset and corporate culture.
Banks must build a clearer understanding of how they can embed ESG practices into the culture of their businesses, effecting positive and lasting change across their client base.
ESG has become a conversation linked to the entire economy, addressing questions like how companies.
Specifically, banks can connect with the world through leveraging sustainable finance that is reinforced by transparent reporting and underpinned by adopting a holistic ESG strategy with clear targets and roadmaps.
Following the Central Bank of Kenya (CBK) climate-related risk management guidelines issued early this year to help Kenya become more resilient to climate change and guide lenders to manage physical, transition and liability risks related to climate change, financial institutions, including banks, now have the power and resources to take action(s) that will positively impact the climate, paving the way for a more sustainable and resilient future.
As a bank, we recognise that we will see many opportunities emerging from providing access to sustainable finance, offering solutions that help mitigate and adapt to ESG related risks and supporting the transition(s) that businesses, sectors and markets will need to make.
Based on the CBK guidelines, directors of banks are required to steer their banks toward a path that reduces the risk and exposure of their current and future loan portfolios.
The guidance has profound consequences on climate-related risk management, governance, disclosure and, ultimately, how banks remain commercially competitive.We believe that the CBK move is timely. Banks must begin developing an ESG framework, which will incorporate the guidelines.
Financial Institutions have to take up initiatives towards more climate-friendly policies and sustainability within their sector. A good example of this is how banks finance clean energy.
Through such programs, customers who adopt sustainable practices that enhance cost efficiencies and lower their carbon footprint could be offered favorable financing terms. T
his needs to be complemented by policy initiatives from Governments which incentivize sustainability by correctly attributing the costs of externalities so that markets can properly price in the value of such initiatives and allow such favorable financing to be effective.
The industry should become more conscious about sustainability and how it can be embedded into day-to-day practices and in time simply becomes business as usual. These are values we should hold dear even when doing business with our customers.
Taking time to develop, plan and mobilise an ESG agenda and framework is crucial at this time when the world is urging businesses, governments, and communities to step up their efforts to create a sustainable environment for all.
The banking industry should also join the call by focusing their financial might into helping make their client base and subsequently economies and communities that we all rely on more sustainable.
The writer is the CEO of I&M Bank Kenya Ltd
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