Lenders must rise to the challenge of green financing

Ideas & Debate

Lenders must rise to the challenge of green financing

That climate change lobbyists disrupted a military parade in London during Queen Elizabeth’s Platinum Jubilee celebrations on June 2 is no minor development. It caught the attention of the whole world, as the protesters wanted, days before World Environment Day. But the climate change message did the same.

The protest was part of a global push for climate action, as the world marked Environment Day on June 5. The 2022 World Environment Day campaign dubbed #OnlyOneEarth called for collective and transformative action on a global scale to celebrate, protect and restore our planet.

Since the beginning of the Industrial Revolution in the 18th century, the use of machines and constant automation have propelled technological advances, urbanization and economic growth.

Industrialization has been a major driver of prosperity around the world. However, it has had its drawbacks, such as its contribution to environmental pollution and the depletion of natural resources, which has led to global warming and accelerated climate change.

The depletion of our natural resources and the injection of greenhouse gases into the atmosphere should concern us all because we only have one earth and its resources are not increasing at the same rate as we are drawing them down.

It is therefore our duty to conserve these natural resources. The effects of climate change are clear and all sectors are affected. Unfortunately, the majority of these effects are irreversible.

The agricultural sector, a key enabler of Kenya’s economy, is one of the most affected due to erratic and unpredictable weather patterns accompanied by long periods of drought and heavy flooding.

It has also had a direct impact on tourism, which is equally important to our economy. Therefore, most economic sectors depend on climate protection to thrive.

For us to care for current and future generations, climate adaptation and mitigation measures must be in place. However, this comes at a cost.

It is estimated that more than $130 billion is needed each year for adaptation measures in Africa alone. This amount is expected to increase from $140 billion to $300 billion per year by 2030.

Despite this challenging demand, there is hope that we can secure the amount needed to finance climate action, with appropriate use of cross-sectoral synergy. Financing climate change interventions requires a collaborative effort between the private and public sectors.

When it comes to the amount required for climate finance in developing countries, there is no doubt that global support from developed markets and development finance institutions is needed to find financing vehicles and mechanisms to boost climate change. climate finance.

International organizations such as the International Finance Corporation (IFC) and the Global Climate Fund (GCF) have played a leading role in supporting climate finance in developing countries. As a financial institution, KCB, with operations across East Africa, has partnered with these organizations to finance climate-related investments.

In 2020, the bank became the first financial institution in East Africa to be accredited by the GCF to disburse climate investments in the region. Great strides have been made since these accreditations, with green lending traction increasing across the bank.

As an operating financial institution, we are keen to transform our portfolio by supporting the low carbon transition through financing, clean energy, sustainable infrastructure, smart agriculture and energy efficiency that touch our clients’ critical processes .

Despite the advent of sustainability frameworks within financial institutions, there is an urgent need to take the lead in sustainable finance.

To do this better, financial institutions must build the internal capacities of their teams as well as deploy internal frameworks and policies that promote climate finance and integrate climate risk among the main risks.

The publication of guidelines on climate-related risk disclosure by the Central Bank of Kenya (CBK) gives banks an opportunity to further strengthen the structures and policies that had already been put in place.

For example, KCB has incorporated these guidelines to ensure that more guarantees are taken into account against climate risks. Additionally, social and environmental assessment (M&E) is being integrated for projects seeking funding to ensure that all risks are considered. Last year, KCB assessed the M&E threats of projects worth 245 billion shillings.

Lenders that engage in climate finance will accelerate the fight against climate change. By lending to customers who are transitioning to green businesses and projects, financiers will green their lending books and attract the financial attention of like-minded investors.

They will play a leading role in the transition to a green economy, build their brand reputation and emerge as thought leaders in the field of sustainability.

It is time for Africa through our financial institutions to rise again. Banks on the continent should adopt sustainable measures, as this will in turn ensure that our business practices and those of our customers are sustainable in the long term.

Joining global alliances such as Net Zero Banking Alliance and Green Climate Fund is also a way in which we ensure that we participate in decision making and strategy development, guiding the technical work that needs to be done in sustainable space.

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