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Client Alert: Central Bank of Kenya Mandates Climate-Related Financial Disclosures

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On October 15, 2021, the Central Bank of Kenya published the Guidance on Climate-related Risk Management, issued under section 33(4) of the Banking Act, Cap 488, which empowers the Central Bank of Kenya to guide institutions in order to maintain a stable and efficient banking and financial system.

Under the Guidance, the Board of Directors and Senior Management of an institution licensed under the Banking Act are required to formulate and implement climate-related financial risk management strategies, policies, procedures and guidelines; and set minimum standards for the institution. Subsequently, each institution must submit a quarterly report to CBK on the progress of its implementation of the Plan within ten (10) days after the end of the quarter ending September 30, 2022, and thereafter after every subsequent calendar quarter.

In a fast-changing global environment, it is imperative that every licenced institution knows and continuously assesses all the risk factors in its operating environment, and utilizes that information to plan and to mitigate, as well as warn stakeholders ahead of time. This is no longer limited to just financial information. The institution, as a corporate citizen, has duties that go beyond just paying dividends to shareholders. Ultimately, it is in the shareholders’ interests that the institution enjoys goodwill in society while preparing itself for any foreseeable vagaries.

The institution, as a corporate citizen, has duties that go beyond just paying dividends to shareholders.

The financial sector in Kenya often sets the tone for model corporate conduct, and coupled with a robust, yet fairly progressive regulatory environment, it is not surprising that the first comprehensive climate-risk management guidance targets the banking sector.

In the routine course of business, Kenyan financial institutions are required to submit multiple periodic reports to the regulator, with possible dire consequences for non-compliance. In the last quarter of 2021, CBK revoked the licence of a payment services provider over unaddressed regulatory breaches. The regulator disclosed in late October 2021 that the institution had repeatedly failed to submit compliance reports as required.

A specialised team within the Corporate and Commercial Department at TripleOKLaw has undergone the training offered by the Taskforce on Climate-Related Financial Disclosures (TCFD), the world leader in sustainability training for the Financial sector.

It is therefore of paramount importance that all target institutions go into high gear developing the strategies, policies, procedures, guidelines and minimum standards envisaged. This effort requires substantial time and considerable professional expertise. The Implementor or Advisor, as the case may be, has to have a detailed understanding of the various reporting standards, and specifically the standards recommended by the Central Bank.

It is with this in mind that a specialised team within the Corporate and Commercial Department at TripleOKLaw took the initiative to undergo training offered by the Taskforce on Climate-Related Financial Disclosures (TCFD), the world leader in sustainability training for the financial sector. The TCFD was founded by The Financial Stability Board to create standards and improve reporting of climate-related financial information. The CBK guidance is based on the recommendations of the TCFD.

For more information and help in developing a Governance Framework and Implementation Strategy for Climate-Related Risk Management please reach out to our Sustainability & Climate Change practice team or the Regulatory Compliance and Corporate Advisory practice team, through partners Stephen Mallowah, Jinaro Kibet or Bryan Muindi.

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