Banks lead in grasping of sustainability reporting

Kenyan lenders have stayed ahead of the curve in compliance with environmentally sustainable goals, applying global best practices and pre-empting regulatory changes ensuring stability despite evolving changes.

The Central Bank of Kenya (CBK) published a draft climate risk disclosure framework instituting some of the changes bankers are already reporting on.

Most Banks are already making disclosures with comprehensive annual sustainability reports that make public their climate-related targets such as annual green loans and the percentage of loan books screened for sustainability and the performance against each.

Absa Bank Kenya which released its 2023 Sustainability Report themed “Banking on a Better Sustainable Future”, said it has in place an Environmental and Social Management System (ESMS) tool employed to screen environmental and social risks. With this tool, the loan assessment is automated to conduct thorough checks of climate risk exposure for customer loans.

Kenya corporates have led the way in embracing ESG goals partly because of the global interlinkages that require the highest standards. This has meant investing in technology and technical expertise to stay ahead of the market evolutions.

Absa Bank Kenya enlisted the International Finance Corporation (IFC), the private wing of the World Bank Group, which has helped the lender come up with its Climate Finance Strategy development including ways of certifying projects that qualify for climate financing, conforming Absa sites to IFC EDGE certification.

By revamping loan origination systems to capture sustainability-related risks and opportunities the lender has identified seven sectors that carry the highest level of climate risk, including agriculture, manufacturing, real estate, transport, electricity, gas and water supply, construction and communications as well as mining and quarrying.

With these sectors, the bank is keen on climate-related risks which can be physical or transition risks. The physical risks can be extreme weather conditions with transition risks being exposure to coal and oil & gas, resulting from the uncertainty created by the global shift towards a more sustainable and net zero economy. These are some of the considerations the bank is after during the loan scoring process.

Furthermore, the bank is in the process of mapping out all environmental, social and governance risks to define their key performance indicators.

Absa is also developing an internal tool that will help gather, collate and synthesise data on ESG risks.

As regulators set targets to make such disclosures voluntary for banks from 'January next year and then compulsory two years later, Banks will be a step ahead in staying compliant giving a positive outlook for investors in projecting on regulatory transitions.