The Central Bank of Kenya (CBK) has released a draft of the Kenya Green Finance Taxonomy (KGFT) for public comment. This initiative aims to clarify and precisely define green investments in Kenya.
What is the KGFT?
The KGFT is a classification system that defines what qualifies as “green” economic activities, aligning with international best practices and Kenya’s national priorities.
Investors, issuers, and other financial sector participants can use it to track, monitor, and demonstrate the credentials of their green activities more confidently and efficiently.
The Kenya Green Finance Taxonomy draft reads, “The KGFT is intended to benefit the Kenyan banking sector. It will serve as a reference for the sustainable progress of the Kenyan economy without social or environmental trade-offs.”
“The aim is to increase the consistency of green finance flows and align green products and financial allocations with internationally recognised standards.”
The Impact
- Increased Green Finance Flows: The KGFT is expected to attract more green finance to Kenya, supporting sustainable development.
- Alignment with International Standards: Kenyan green products and financial allocations will align with recognised international standards, facilitating global partnerships.
- Improved Risk Management: Banks can make better-informed decisions about green investments with clear guidelines.
- Unlocking Private Sector Investment: The KGFT can unlock billions of dollars in private sector funding for climate action in Kenya.
The Need for KGFT
Currently, Kenyan banks struggle with:
- Lack of Standardised Framework: No clear definition of “green” activities hinders progress.
- Limited Risk Management: Banks need more frameworks to manage and disclose climate-related investment risks.
The draft of the Kenya Green Finance Taxonomy benchmarked against successful South African and European models, is crucial to effective climate change mitigation and adaptation in Kenya. By facilitating informed investment decisions and attracting international support, the KGFT has the potential to unlock billions of dollars for a sustainable future.
