Advising a Kenyan Commercial bank on their climate risks

THE BACKGROUND

FINANCE FOR IMPACT is advising one of East Africa's leading financial institutions to address the dual challenges of climate change and financial sustainability. Kenya faces significant environmental changes, including increasing average temperatures, irregular rainfall patterns, prolonged droughts, and intense flooding. These climate-related risks disproportionately affect the agricultural sector, a critical component of Kenya’s economy, leading to reduced productivity, food insecurity, and financial strain on rural communities.

The lack of widespread adoption of climate-resilient farming practices and adaptive technologies, such as drought-tolerant crops and efficient irrigation systems, further heightens the vulnerability of farmers and agribusinesses. However, strategic interventions and investments in climate-smart initiatives can bolster agricultural resilience while reducing greenhouse gas (GHG) emissions.

Recognizing the urgent need for climate action, our client has actively pursued measures to integrate climate considerations into its operations. The bank has adopted comprehensive policies to assess and manage climate risks within its portfolio. These measures include climate governance frameworks, scenario analyses, stress testing, and the promotion of green financing products. By aligning with national and global sustainability goals, the bank seeks to position itself as a key driver in Kenya’s transition to a low-carbon, climate-resilient economy.

THE PROJECT

This project aims to integrate climate considerations into the bank’s lending operations, particularly focusing on vulnerable sectors like agriculture and small-to-medium enterprises (SMEs). By doing so, the bank seeks to safeguard its portfolio against climate-related risks while simultaneously enabling its clients to adapt to changing environmental conditions. The tasks were as follows:

Climate Risk Assessment

• Conduct a comprehensive review of the bank’s lending portfolio to identify sectors, value chains, and clients most exposed to climate risks.
• Evaluate physical risks (e.g., droughts, floods) and transition risks (e.g., regulatory changes, market shifts) that could impact financial stability.

Development of Climate Adaptation Measures

• Propose practical adaptation strategies for the bank’s clients, such as promoting investments in drought-resistant crops, water conservation technologies, and sustainable farming practices.
• Develop sector-specific recommendations for building resilience in key industries.

Integration of Climate Risk in Management Processes

• Design a stress testing methodology for climate risks and run simulations on the portfolio.
• Design tools and methodologies to mainstream climate risk assessment into the bank’s standard lending and risk management processes.
• Establish protocols for incorporating climate risk considerations into credit evaluations and decision-making frameworks.

Capacity Building for Climate Risk Management

• Train staff across various departments on climate risk assessment tools, methodologies, and green financing opportunities.
• Organize workshops to build awareness about the financial implications of climate risks and opportunities among the bank’s key stakeholders.

Promotion of Green Financing Products

• Support the development of green finance products tailored to the needs of climate-sensitive sectors, such as agriculture, renewable energy, and sustainable infrastructure.
• Guide the bank in marketing these products to potential clients, ensuring accessibility and widespread adoption.

THE RESULTS

This information is confidential.