European Investment Bank and CBK team up to drive climate finance initiatives
The European Investment Bank and the Central Bank of Kenya (CBK) have launched a new climate finance best practice initiative aimed at strengthening engagement by Kenyan financial institutions in financing climate-related investments.
The initiative seeks to enable commercial banks to mobilize essential climate finance for achieving a net-zero economy and enhancing the climate resilience of Kenyan financial systems.
This two-year Kenyan technical assistance scheme is the first of its kind to be implemented in East Africa under the European Investment Bank’s Greening Financial Systems Programme. It is financed by the German government through the dedicated International Climate Initiative Fund (IKI Fund).
The initiative is designed to serve as a model for mobilizing climate finance by addressing barriers that impede engagement by commercial banks. It will also empower the Central Bank of Kenya to incorporate climate risk into the Kenyan regulatory framework.
Green investments
The scheme aims to further enhance the impact of climate-related investments by developing a green taxonomy for the financial sector, supporting the scaling up of green investments aligned with the goals of the 2015 Paris Climate Agreement.
The Greening Financial Systems program will assist Kenyan banks and financial institutions in adopting climate finance best practices across all activities. It aims to catalyze new funding for green projects and improve the assessment, monitoring, and reporting of climate-related risks.
This program reflects the urgent need to mobilize climate finance, as highlighted at COP28 in Dubai last week. It contributes to global efforts to limit global temperature increases and adapt to the impact of climate change.
Commenting on the technical assistance agreement, EIB Vice President Thomas Östros stated that greater efforts are being made to understand the barriers hindering green financing in Kenya.
According to him, scaling up climate finance is crucial to mobilize new investments for the green transition and to reduce the impact of climate change. Existing barriers include the lack of long-term funding matching the economic life of green investments, the higher perceived risk of climate investment, and limited experience in originating and monitoring climate finance.
CBK Governor Dr. Kamau Thugge, emphasized the commitment of the financial industry regulator to the greening of the Kenyan financial sector. He noted that considerable progress has been made in implementing guidance on climate-related risk management issued to commercial banks in October 2021.
Read also: COP28: Collaboration crucial to tackling the climate emergency
Climate risks
As outlined in the EIB’s Finance in Africa Report 2023, the increasing prevalence of climate risks on balance sheets has made climate an integral part of the risk appraisal process for both new loans and existing portfolios.
The latest EIB survey found that 59 percent of banks in Africa have a climate change strategy, and an additional 22 percent plan to introduce one. Banks across Africa are now intensifying efforts to offer an expanded range of green finance products rather than merely mitigating risk.
Over the past decade, the EIB, as the world’s largest international public bank and a leading climate financier, has played a pivotal role in enhancing the climate finance technical skills of over 40,000 African financial professionals.
Furthermore, it has provided more than EUR534 million (Kes88 billion) over the last five years for private sector investment in Kenya, collaborating with Kenyan businesses, banks, financial partners, and microfinance institutions.
