Central Bank of Kenya, Nairobi (c) mwanasimba
Kenya consults on new disclosure framework, banks warned of major legal risks tied to East African oil pipeline, Wall Street still widely underestimating adaptation risk, all this and more in this week’s roundup.
Kenya’s green banking reforms gather pace with enhanced climate disclosure framework
The Central Bank of Kenya (CBK) introduced an enhanced draft climate risk disclosure framework as its green reforms gain momentum. The initiative, alongside a recently released green taxonomy, is a key outcome of the CBK’s partnership with the European Investment Bank. It aims to strengthen climate risk management and promote green investments in Kenya.
The document emphasises that financed emissions “should be a priority metric” as they represent the “largest share of total emissions for financial institutions”. It recommends reporting financed emissions using the Partnership for Carbon Accounting Financials’ methodology.
The framework covers governance, strategy, risk management and metrics. It seeks alignment with global standards such as the IFRS S2 standard on climate-related disclosures and the Basel Committee’s principles on climate-related financial risk.
As these reforms progress, the Kenyan banking sector is “poised to play a pivotal role” in both national and global sustainable finance efforts, the draft framework states. The draft is open for public consultation until 31 October, 2024, with mandatory annual reporting set to begin in January 2027.
Wall Street unprepared for hotter and more volatile world, say data analysts
A new study reveals that globally systemically important banks are widely underestimating adaptation risk, a crucial metric for assessing how banks fare in a world transformed by climate change. Approximately 88% of the world’s 50 largest commercial banks are falling short in their efforts to climate-proof their operations, according to the study from data analytics provider Climate X.
Wall Street banks, in particular, exhibited a low level of climate adaptation maturity, with several major institutions – including Goldman Sachs, JP Morgan and Wells Fargo – meeting very few or none of the adaptation indicators used in the study.
Kamil Kluza, Climate X’s chief product officer, drew parallels between the current situation and the lead-up to the 2008 financial crisis and the widespread underestimation of liquidity risk, Bloomberg reported. There’s currently a similar blind spot around climate risk, Kluza told Bloomberg.
The report highlights that while many banks are assessing physical risk exposures, very few are setting adaptation impact metrics and targets or providing lending for adaptation and resilience.
European banks warned of substantial litigation risk tied to East African pipeline
The seven unnamed European banks reportedly considering financing the controversial East African Crude Oil Pipeline (EACOP) face major legal and reputational risks, says an article from environmental think tank BankTrack. The US$5bn TotalEnergies-led EACOP project has faced long standing opposition over environmental and human rights concerns. These factors caused three of France’s biggest banks to rule out support in 2021, deeming the project “too hard to defend.”
Ruth Nankabirwa, Ugandan Minister of Energy, stated European financing was a requirement from Chinese investors to avoid the project being seen as solely Chinese-backed. This came after both Japan’s Sumitomo Mitsui Financial Group and UK bank Standard Chartered publicly distanced themselves from EACOP last year, bringing the number of large global banks to do so to 27.
Ryan Brightwell of BankTrack was quoted in the article warning of “a huge reputational hit, likely official complaints and legal challenges” for banks financing EACOP. However, the project financing and insurance are not yet in place.
Brightwell told Green Central Banking that opponents plan to use the Organisation for Economic Co-operation and Development’s (OECD) complaints procedure to enforce its responsible business guidelines for multinational enterprises if financing deals close. Brightwell described this as a “relatively accessible” starting point.
Several influential public interest law groups are linked to the StopEACOP coalition that could explore additional legal avenues, including the Center for International Environmental Law and Natural Justice. However, as the European banks’ identities are presently unknown Brightwell said it is too early to initiate legal action.
Various organisations, including the Rockefeller Foundation and Human Rights Watch, have advised banks to invest in the region’s clean energy potential instead.
Iraq launches green roadmap alongside wider banking reforms
The Central Bank of Iraq (CBI) unveiled its green finance roadmap, which aims to enhance Iraq’s sustainable finance infrastructure, foster financial inclusion, and diversify the economy. The roadmap covers the years 2023 to 2029 and was developed with support from the International Finance Corporation (IFC). At the launch event, both organisations signed a strategic partnership to jointly develop ESG risk management guidelines for the nation’s banking industry.
These initiatives come as Iraq faces significant transition finance needs. A 2022 World Bank report has estimated Iraq requires $233bn by 2040 for development gaps and green growth. Speaking at the roadmap’s launch, Ali Muhsen al-Allaq, Governor of the CBI, emphasised the importance of advancing ESG standards to attract global investments and ensure financial growth.
Key elements of the plan include implementing mandatory ESG risk management guidelines and sustainability reporting, climate-related Basel Committee principles, and a national financial inclusion strategy.
The CBI implemented an ESG scorecard for banks in 2021, preceding similar developments in many middle-income countries, which other countries are now replicating, according to the IFC. These developments reflect the CBI’s broader efforts over recent years to reform its banking system to align with international best practices and increase its operational capacity.
Australian regulator urges businesses to prepare for mandatory climate reporting now
The Australian Securities and Investments Commission (ASIC) has called on large Australian businesses and financial institutions to prepare for mandatory climate-related financial disclosures, set to commence from 1 January, 2025.
In a press release, Commissioner Kate O’Rourke stressed that banks should “implement appropriate governance arrangements and sustainability record-keeping processes ahead” of the rule changes.
Acknowledging the need for a transition period, ASIC has aimed for a “proportional and pragmatic” approach. The mandatory provisions will be phased in over three years across three groups of reporting entities, with the largest entities affected first. The move aligns Australia with global trends in climate-related financial disclosures.
ASIC has established a dedicated sustainability reporting page on its website, with further information about reporting obligations and enforcement. It will also be used to consult on new and updated regulatory guidance.
This page was last updated October 16, 2024
Written by
Ike Walker, a Green Central Banking contributor since 2023, has a decade's experience in research writing. An Utrecht-based scholar, Ingrid specialises in transformative justice, green finance, law and systems change. They are an Utrecht University's Bright Minds scholar and previously worked for Cambridge University and various justice-based NGOs.
