•The CBK is developing a green finance taxonomy that will identify activities, investments, as well as projects that are considered green.
•While adaptation to climate change remains a top priority, particularly for African and developing countries, they remain underfunded.
The Central Bank of Kenya now wants financial institutions and partners to mobilise more resources for both development and climate action.
This is on the back of a wide gap in capital required to mitigate climate-related shocks in Kenya and Africa, despite the continent being the most hit by droughts, floods, storms among other calamities.
One-third of the world's droughts occur in sub-Saharan Africa, and Ethiopia and Kenya are enduring one of the worst in at least four decades, according to experts.
World Bank estimates Kenya’s annual climate and nature financing gap at $5.13 billion (Sh775.1) billion, which is more than the country’s development budget of Sh743.5 billion in the current financial year.
Speaking during the closing of the Africa Climate Business Forum co-hosted by the International Finance Corporation (IFC) and CBK, in Nairobi, governor Kamau Thugge said more needs to be done towards a low, green, carbon and climate-resilient economy.
“While we need to scale up climate financing, it is also imperative that players in the economy be part of this conversation. The transition to a climate resilient economy presents opportunities not just for corporates, but also for Micro, Small and Medium Enterprises and households,” Thugge said.
He noted that global transformation to a low-carbon economy is expected to require investment of at least $4-Sh6 trillion per year, based on the decision from COP27 in Egypt last year.
Delivering such financing, he said, requires a transformation of the financial system and its structures and processes, engaging governments, central banks, commercial banks, institutional investors and other financial actors.
"We call for collective global action to mobilise the necessary capital for both development and climate action, echoing the statement of the Paris Pact for People and the Planet, that no country should ever have to choose between development aspirations and climate action,” said Thugge.
The Nairobi forum brought together players from manufacturing, agriculture, real estate, financial sector, capital markets and tourism.
To enhance Kenya’s attractiveness as a green finance hub, CBK has embarked on a second phase of reforms on guidance on climate-related risk management.
The first guidelines were issued in October 2021, which were aimed at facilitating commercial banks to incorporate climate risk-related actions in their governance, strategy, risk management as well as disclosure frameworks.
The CBK is developing a green finance taxonomy that will identify activities, investments, as well as projects that are considered green.
This will be supported by a disclosure framework for banks in line with international standards, including the recently issued standards by the International Sustainability Standards Board.
“We believe these reforms will spur transparency in re-finance and attract domestic regional as well as international investors to support Kenya’s transition to being a green-low carbon economy,” said Thugge.
While adaptation to climate change remains a top priority, particularly for African and developing countries, they remain underfunded.
According to the United Nations Environment Programme, African countries require at least $3 trillion (Sh453 trillion) by 2030 to implement their Nationally Determined Contributions (NDCs).
These are countries’ self-defined national climate pledges under the Paris Agreement, detailing what they will do to help meet the global goal to pursue 1.5°C, adapt to climate impacts and ensure sufficient finance to support these efforts.
NDCs represent short to medium-term plans and are required to be updated every five years with increasingly higher ambition, based on each country’s capabilities and capacities.
The Kenyan government estimates that $62 billion (Sh9.3 trillion) was required to implement Kenya’s NDC (mitigation and adaptation actions) in 2020-2030.
The resource requirement for mitigation actions is $17.7 billion (Sh 2.7 trillion), while the resources required for adaptation actions up to 2030 is $43.9 billion (Sh6.6 trillion).