As the World continues to preach about and fight against the impacts of climate change, countries are coming up with guidelines and best practices on climate-related risk management. The latest of those countries is Kenya, which, through its central bank, issued guidance to commercial and mortgage banks.
The aim of the guidance, according to the Central Bank, is to enable banks “integrate the opportunities and risks arising from climate change in their governance structure, strategy, and risk management framework.”
In addition, the guidelines are aimed at guiding the banks in their disclosure of climate-related risk and information to their stakeholders.
What they are saying
As noted in the guidance, African countries have not been contributing significantly to the greenhouse gas (carbon) emissions that are responsible for most of the adverse global consequences of climate change, but the fact that Africa has been affected adversely by climate change through droughts, floods, wildfires and even water pollution makes it imperative for African countries to actively manage climate-related risks.
The Central Bank of Kenya, noted, however, that the issuance of the Guidance is not the beginning of the country’s quest to integrate environmental, social and governance (ESG) considerations in the banking industry, pointing out that the Central Bank, through the Kenya Banking Charter issued in 2019, has set the banking sector up for “customer-centricity, risk-based credit pricing, transparency and ethical banking.”
The Central Bank of Kenya noted the importance of the banking sector as the “enabler of the economy,” stating that “embracing of climate risk management” by the banking sector “will be a key signal to the financial and other sectors” of the economy.
The apex bank also reminded banks that the embarkment on climate risk management will involve some significant amount of financing but will also present opportunities for the banks as the economy prepares to “transition to renewable energy, resilient infrastructure, appropriate housing and innovative agriculture.”
It, therefore, asked banks to take advantage of the Guidance in building their capacity so as to position themselves to “identify and mitigate the risks arising from climate change.”
Quo Vadis Nigeria?
This move by Kenya is an important learning point for a country like Nigeria where lots of people have lost their livelihood due to water pollution from oil spills that make fishing impossible and put aquatic lives in danger.
Climate change has affected Nigeria in different forms and shapes. The effects of gas flaring, deforestation, oil spills may be difficult to quantify but it does not seem that Nigeria has appropriate guidelines for managing climate-related risks. In a paper entitled, “Risk Management and Challenges of Climate Change in Nigeria,” the authors (all Nigerians) called on the Nigerian government to provide solutions to manage risks associated with climate change.
The Nigerian government does not seem unaware of the need to manage climate-related risk as evidenced by the recent USAID/Nigeria Climate Risk Management (CRM) and Climate Change Considerations Strategy (CDCS). There is however an urgent need for Nigeria to be more forthright and more vocal on its will to manage climate-related risks.