The Central Bank of Kenya (CBK) will make climate risk disclosures mandatory starting in January 2023 as part of the efforts to green the banking sector.
The regulator shared the draft Climate Risk Disclosure Framework to help commercial banks gather and disclose climate-related data in a consistent, comparable, and relevant approach.
Investors are increasingly demanding consistent and comparable disclosure of climate-related risks.
CBK says investors can use the data captured in the framework to identify corporations that have made significant steps towards the low-carbon economy. Investors can use the data to assess the financial implications of climate on particular investments.
By embracing the mandatory climate risk disclosure requirement, commercial banks are set to foster accountability and encourage companies to adopt more sustainable and resilient practices.
According to the regulator, the framework aligns with the global standards provided by the Basel Committee on Banking Supervision (BCBS) and the Internal Financial Reporting Standards (IFRS).
Also, the framework was developed within the Guidance on Climate-related Risk Management, published in 2021 by CBK. The guidance authorizes CBK to guide and oversee financial institutions in maintaining an efficient and stable financial and banking system.
Purpose of the Climate Risk Disclosure Framework
The climate risk disclosure framework aims to illuminate the exposures of the credit portfolios offered by Kenyan banks to inherent climate-related risks. CBK categorizes the risks into transition risks and physical risks.
Transition risks consist of hazards associated with businesses moving toward a low-carbon economy that can subject financial institutions to risks. Physical risks involve the physical impacts related to climate change, such as weather occurrences, deforestation, water pollution, and air pollution.
The implementation of the project is divided into six phases, starting with stakeholder consultations and ending with the rollout of the mandatory risks reporting to CBK.
The regulator has requested stakeholders to share their feedback or comments on or before 31st October 2024. After the stakeholder consultation, the framework will undergo refinement, followed by the development of an online platform to facilitate reporting.
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