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
Activity
Date1. Sensitisation of banks' CEOs and MDsOctober 20212. Bank staff sensitisation on climate change risk managementJanuary to March 20223. Submission of board-approved implementation planJune 20224. Quarterly updates on implementation of board-approved plansSeptember 20225. Disclosures of climate-related information to enhance transparency benchmarked to TCFD frameworkJanuary to June 2023
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.
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Read the original publication at Dentons Hamilton Harrison & Mathews
