Climate Risk Regulation in Africa’s Financial Sector and Related Private Sector Initiatives

This report assesses the integration of climate-related risks in the regulatory and supervisory frameworks of a selection of African countries. It draws on interviews with representatives of authorities covering 17 countries as well as 14 large banks and insurers.

Although the vast majority of featured authorities consider climate risk a high or very high priority, only a few have published regulations or supervisory expectations regarding the climate risk management practices of financial institutions.

The Central Bank of Kenya and the Bank of Mauritius are highlighted as examples of authorities with well-established climate risk policies, while the central banks of the Democratic Republic of the Congo, Tunisia and Rwanda had taken no action to integrate climate risk into their supervisory frameworks when the survey was conducted.

The authors asked authorities which actions they would consider taking in the future. Most of the measures cited are non-binding, such as running awareness campaigns and publishing best practice guides. However some binding measures are also being looked at, such as requiring firms to publish climate disclosures.

A minority of authorities are contemplating adjusting one or more of their collateral frameworks, refinancing operations or asset purchase programmes based on climate criteria.

The survey found that 82% of authorities said the main challenges were a lack of data and a limited capacity to define regulations and guidelines, while 73% mentioned a lack of international standards or common methodologies.

The report offers a series of recommendations based on the challenges highlighted by the interviews. It mentions the need for authorities to collaborate with external organisations and initiatives to build their own capacity and those of the institutions they oversee. Only half of central banks interviewed are currently members of the Network for Greening the Financial System.

The authors argue that international organisations should support African authorities to develop their capabilities through technical assistance, and encourage entities they finance to implement climate management practices.