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IFC to offer climate risk advisory services to banks in Sh219m deal

Monday, March 04, 2024 — updated on August 22, 2024 - 2 min read

IFC is set to offer advisory services to Kenyan banks in a $1.5 million deal (Sh219 million) to help the lenders in climate risk mitigation. PHOTO | SHUTTERSTOCK

Business Reporter

Nation Media Group

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The International Finance Corporation (IFC) is set to offer advisory services to Kenyan banks in a $1.5 million deal (Sh219 million) to help the lenders in climate risk mitigation.

The project will see the global financier provide knowledge through training and workshops on climate risk analytics, assessments, and best management practices. The risks posed by climate change to banks and insurers include higher defaults from disruption of enterprises, a jump in insurance claims and the destruction of assets.

Read: Treasury gets new cash cow in climate financing billions

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"The objective of this project is to build resilience on the negative impact of climate change by enhancing financial institutions' (FIs) Capacity in Climate risk assessment, management, and disclosure in line with the Paris Agreement’s mitigation and adaptation objectives," IFC said in its disclosures.

"This will be achieved through the provision of technical support and guidance to IFC’s investment clients in climate risk management per Multilateral development banks or IFC Paris Alignment approach and recommendations by the Task Force for Climate-related Financial Disclosures."

IFC will also support targeted institutions to align with the Paris Accord, a 2015 agreement covering climate change mitigation, adaptation, and finance. The advisory project, dubbed Climate Risk Reporting Africa, is expected to run until September 30, 2025.

"Support 14 banks on their climate risk assessment and help them develop climate risk management best practice or pathway towards Paris Alignment in line with IFC approach and /or market best practice,” added the global financier.

According to Dr Patrick Njoroge, the former Governor of the Central Bank of Kenya, climate change poses three risks to banks.

The first physical risk to the loan portfolio arises from damage or loss caused by climate and weather-related events such as floods and drought. Second, the transition risk arising from the changes towards a low-carbon economy.

Third, liability risk could arise for banks financing companies whose activities impact the environment negatively.

Read: Climate finance key to sustainability future

These financial institutions will also be able to have direct one-on-one engagements with IFC to support them in climate risk assessment and disclosures.

The bulk of Nairobi Securities Exchange (NSE) listed firms have struggled with ESG reporting with only one in four disclosing their compliance in sustainability reports.

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