May 13th, 2021

That Kenya’s climate has changed and is changing is not in doubt. This is evidenced by rising temperatures across the country; remarkably changed an unpredictable rainfall patterns with floods and droughts as a common feature; and rising sea levels along its coastline. These changes, which are not unique to Kenya, have been captured in the country’s National Climate Change Response Strategy (NCCRS) of 2010, its first and second National Climate Change Action Plans (NCCAP I and II), and its National Adaptation Plan (NAP) 2015-2030, amongst other green growth-related strategies and plans.  

Kenya does indeed recognise climate change and environmental degradation as some of the greatest threats to its sustainable development including poverty eradication, hence the country’s concerted efforts towards addressing the same. Kenya is amongst 197 countries that are signatories to the Paris Agreement that aims to limit “the increase in the global average temperature to well below 2°C above pre-industrial levels”, a level seen to be consistent with the aim of averting the worst impacts of climate change. To achieve this, Kenya needs to transition to a low carbon and resilient economy, as indicated in its Nationally Determined Contribution (NDC), NCCRS, NCCAP II, and NAP 2015-2030.  Towards this end, is undertaking a number of interventions, and will be among governments, civil society, and companies participating in the 26th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC) (COP26) in the United Kingdom on 1st – 12th November 2021. The summit aims to accelerate action towards delivering the goals of the Paris Agreement and the UNFCCC.  

Addressing a challenge as daunting as climate change, however, requires a concerted multi-stakeholder engagement. The financial sector in particular has a key role to play in driving economic growth towards values of sustainability based on promoting, amongst other factors, greater environmental responsibility, climate resilience, low-carbon, human rights, gender equality, social inclusion and sustainable economic growth. Globally, the financial sector is awakening to this pertinent role, particularly in respect to sustainability reporting.      

The Task Force on Climate-related Financial Disclosures (TCFD) has emerged as the preferred global standard for climate disclosures. TCFD was created in 2015 to enable financial markets to better assess and price climate risk. This led to the introduction in 2017 of a framework to improve public disclosure of climate-related financial information and help companies better structure their internal approach to assessing climate risks and opportunities. Several governments world wide have begun to recognise that the TCFD framework provides a robust setup to address climate change-related issues. Although TCFD aligned reporting is still voluntary, some jurisdictions have already made plans to make it mandatory to report climate related risks. These countries include: 

• New Zealand plans by 2023 to make climate-related financial disclosures mandatory for publicly listed companies and large insurers, banks and investment managers 
• The Swiss Government announced in late 2020 that it is working on regulation to make TCFD mandatory and has advised companies to apply the recommendations voluntarily for now, while it continues to work on a bill that will make the recommendations binding for all sectors of the economy 
• The United Kingdom seeks views to mandate climate related financial disclosures in line with TCFD recommendations for all listed companies, large asset owners, large private companies and limited liability partnerships by 2023 
• The Canadian Government has tied its COVID 19 relief measures to companies that publish annual climate-related disclosure reports consistent with TCFD, including how their future operations will support environmental sustainability and national climate goals 

•  Brazil has increased the disclosure requirements on social and environmental risk and the consideration of ESG principles for private pension funds and insurance companies. 
•  The Brazilian Banking association has led the charge towards aligning the sector’s activities with global climate ambitions. In particular, the association is actively developing tools and guidelines for the industry, such as a climate risk sensitivity assessment tool and guidelines on implementing TCFD recommendations, financing specific types of climate mitigation and adaptation projects, and issuing green bonds. 

With the ongoing developments and interest by the Kenyan financial industry players, FSD Kenya, through its Green Finance project, supported the development and delivery of a training programme on TFCD. The training participants included Kenya’s financial sector regulators (Central Bank of Kenya, Capital Markets Authority, Nairobi Securities Exchange, Sacco Societies Regulatory Authority and the Retirements Benefits Authority) and Industry Associations (Kenya Bankers Association, Institute of Certified Investment and Financial Analysts, and the Institute of Certified Public Accountants of Kenya) on TCFD. The training took place on 16th – 17th March 2021.Green finance project supported the development and delivery of a training programme on TFCD. The training participants included Kenya’s financial sector regulators (Central Bank of Kenya, Capital Markets Authority, Nairobi Securities Exchange, Sacco Societies Regulatory Authority and the Retirements Benefits Authority) and Industry Associations (Kenya Bankers Association, Institute of Certified Investment and Financial Analysts, and the Institute of Certified Public Accountants of Kenya) on TCFD. The training took place on 16th – 17th March 2021. 

Although some participants did not know much or were even sceptical about TCFD at the beginning of the workshop, by the end, workshop participants agreed that Climate-related financial disclosure provides an important practice in identifying, disclosing and mitigating risks associated with climate change. There is a real and present need for mainstreaming uniform, robust and empirical disclosure of climate-related financial risks which will support more accurate pricing, allocation, governance and management of these risks within economies and financial markets. 

To devise a way forward for Kenya regarding to whether TCFD or any Environmental, Social, and Corporate Governance (ESG) standard is the right one for Kenya, the workshop participants recommended the following: 

• Development of a white paper that would include international best practice on climate reporting disclosure, review of Kenya’s legal framework and make recommendations and a road map for implementation 
• Formation of task force that would include financial sector regulators and industry associations to interrogate the white paper and thereafter develop a policy paper, legislation and regulations that would guide climate disclosures by financial sector and real economy players. 
• Development of a capacity training programme to sensitise key stakeholders on the new regulations to be adopted. 

I am delighted to note that the CBK Governor, Dr Njoroge recently indicated while giving remarks at the European Union-Kenya Green Diplomacy Conference on 11th May 2021 that the CBK intends to draw from TCFD while developing its climate risk reporting framework for Kenyan banks. He further added that the CBK intends to incorporate climate risk reporting to its prudential surveillance framework as it pursues its core mandate of ensuring financial stability.  

As this is the Year of Climate Change Action on the road to CoP26, the green finance team at FSD Kenya is ready to support Kenya to develop and adopt a climate risk reporting standard that meets international best practice and takes into account local realities. This I believe, will demonstrate Kenya’s commitment and leadership in the East African Community in addressing the effects of climate change. 

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