The Central Bank of Kenya (CBK) recently published Guidance on Climate-Related Risk Management (the Guidance) for the banking sector and mortgage finance companies. 

Objective

The Guidance aims to:

• enable banks to integrate and disclose the opportunities and risks arising from climate change in their governance structure, strategy and risk management framework;
• accelerate the path towards incorporating environmental, social and governance (ESG) considerations into banks’ business models; and
• assist in scaling up Kenya’s climate ambitions in line with the objectives of the Paris Agreement, the Climate Change Act 2016 and the recently concluded Conference of Parties (COP26) in Glasgow, Scotland.

Summary of the key requirements in the Guidance

Under the Guidance, financial institutions will be required to comply with the following requirements and submit a time-bound plan on how they plan to implement the Guidance (the Plan) by 30 June 2022 to CBK:

• to come up with a climate-related risk management strategy;
• to incorporate climate-related risk management;
• to establish an appropriate climate-related governance structure to enable them to effectively identify, manage, monitor and report (current and future) risks;
• to monitor climate-related risks using internal metrics and targets;
• to disclose climate-related information as part of an annual report, sustainability report, a separate climate-related risk report or develop a Taskforce on Climate-Related Financial Disclosures (TCFD) report;
• to prepare climate-related risk report to management; and
• to submit a quarterly report to the CBK on the progress of implementing the Plan within 10 days after the end of every calendar quarter, from the quarter ending 30 September 2022

Road map to implementing the Guidance

Conclusion

It is our view that the Guidance is well timed and measured, since financial institutions are a key enabler of the economy and are now in the spotlight to support a more sustainable way of doing business and to incorporate ESG and, in particular, climate-related risk management, into business practice.

Should you have any questions or require further clarification on the Guidance, please get in touch with our key contacts.