In recognition of the threats posed by climate change, banks are emerging as shining lights in efforts to stem the tide and lead the transition of businesses towards a low carbon, green economy through green financing.

This is because effects of climate change may cost Kenya up to Sh7 trillion in the next decade if not dealt with, according to the Ministry of Environment.

Further, it could lower gross domestic product (GDP) in Sub-Saharan Africa by up to three per cent by 2050, notes the State of the Climate in Africa Report.

Therefore, trough their resource allocation capabilities financial institutions are now becoming an indispensable cog in the war against climate change.

But why green financing? This is the eco-friendly approach to funding that integrates innovative funding models with sustainable development across diverse sectors of an economy.     

Businesses will always need financial resources to survive and banks can now leverage their position as financiers to transform Kenya’s economic structure through capital formation, capital leveraging and industrial integration.

Acting as a bridge between the financial sector and environmental conservation, banks can guide businesses looking to tap from an increasingly vast pool of green financing, spurring them to adopt eco-friendly practices as an important starting point in business creation or development. 

Green finance can form the basis for achieving high-quality economic development in Kenya. It motivates businesses, both large and small, to get keener on building green credentials and finding innovative ways to operate sustainably, reduce their carbon footprint as well as energy consumption.

In the long-term, these measures will improve profit, reduce business risk and deliver the desired effect which is to slow down the rate of global warming.

By integrating green financing structures, banks can indirectly influence an accelerated adoption of green solutions in carbon-intensive industries such as manufacturing and transport, which account for 35 per cent of global greenhouse gas emissions.

Through green financing mechanisms, financiers gradually reduce their investment in low-end industries that are guilty of environmental pollution and increase their investment green energy industries.

Financing policies can help banks divert the flow of funds to green industries, thus spur  rapid improvement of the national green development level, and help save the world.  

Private and public sector players are appreciating the gravity of the matter and taking action. The Kenya Bankers Association (KBA) has initiated Sustainable Finance Initiative (SFI) programmes to train bank employees on how to scale up green financing models and partnerships.

Absa Bank recently signed a Sh1.25 billion Credit Guarantee Scheme with the Africa Guarantee Fund (AGF) to women entrepreneurs as well as mid-sized businesses qualifying as green transactions.

The Capital Markets Authority (CMA) has appreciated the Absa African Financial Markets Index (AFMI 2021) for championing sustainable finance products such as green bonds, equities and mutual funds in the market.

Last year, the Central Bank of Kenya (CBK) released Climate-Related Risk Management guidelines to facilitate the integration of climate-related risks in governance, strategy, risk management and disclosure frameworks by local banks. The guidelines also spell out transition risks and how to mitigate them.  These guidelines provide an opportunity for banks to lead a national drive towards accelerated change and transformation of the country to a low carbon economy.

The government can support this agenda further by creating pro-sustainability policies such as tax reductions which encourage banks to invest more in supporting eco-friendly businesses. 

– Writer is the Head of Sustainability and Citizenship at Absa Kenya