Climate change can be mitigated through innovative finance

global warming, rising temperatures, climate change

The creation of the fund at last year’s COP27 was more or less an acknowledgement than pledge by the biggest carbon emitters.

Photo credit: Courtesy | Shutterstock

Over the past two weeks, world leaders have converged in Egypt for the 2022 Framework Convention on Climate Change, better known as COP27.

The convention is an inspiring demonstration of continuing global efforts towards facilitating more decisive individual and collective action on climate change.

Importantly, the forum has offered an opportunity to exchange ideas on ways of further aligning global economic growth ambitions with considerations about the future.

In many ways, the conference has also exhibited encouraging cross-sector acknowledgement that climate change portends existential risks to lives and livelihoods.

One of the highlights from the conference is the fact that there is significant ground to cover in entrenching green interventions across all facets of socio-economic activities.

The immediacy of these solutions is premised on the fact that climate change is no longer a distant anticipation; natural havocs such as floods, famine, loss of habitat and extinction of species are already manifest.

It is, therefore, increasingly becoming clear that no progressive institution or individual can afford to default on their climate change commitments. Environmental degradation affects every aspect of life, so remedies are participatory in nature.

The contribution of financial institutions in climate change interventions has in recent decades come under the spotlight. Financial services cut across sectors, making strategies from a financing perspective instructive.

According to the United Nations, two thirds of worldwide finance is provided by banks. This presents banking institutions with a fabulous opportunity to contribute to the realisation of Sustainable Development Goals .

In Africa, voluntary guidelines and mandatory guidelines driven by regulation have been developed to mainstream sustainable banking practices.

Aided by development finance institutions, the efforts have given sustainable finance a significant impetus. This has facilitated countries to develop sustainable banking principles either through central banks or through banking associations.

Risk management

In Kenya, the Central Bank of Kenya (CBK) continues to play a pivotal role. Commendably, CBK has formulated the banking sector guidance on climate-related risk management, providing an invaluable guidance to the industry’s sustained efforts towards advancing sustainable finance practices.

There is no doubt that entrenching sustainable finance remains a beacon of hope in mitigating the hazards of climate change.

The approach involves a broad range of financial instruments, products, and services in banking and financial markets. The uniting knot in this framework is the overriding consideration and integration of environmental, social and governance criteria in investment decisions.

Globally, the pace of sustainable finance has continued to grow over the years. According to the Global Sustainable Investment Alliance, sustainable practices scaled up by 34 per cent in 2019 to US$30.7 trillion. This is about one-quarter of the professionally managed assets globally.

It is encouraging to note that banks in Kenya continue to seek interventions aimed at mitigating emerging challenges through innovative banking solutions and responsiveness.

This commitment continues to leverage cross-sector partnerships and collaborations, utilising the synergies in developing products that address the emerging needs of bank customers operating at the local, regional and global level.

In the efforts, technology and innovation have continued to offer efficiencies as well as enabling customised interventions. Initiatives such as the Green Bond Program-Kenya are encouraging props in the sustainable management of resources, mobilising capital and human resources in a bid to secure a sustainable future.

Wastewater management

Going forward, lenders will need to devote more financing to projects such as solar and hydropower, energy efficiency solutions, clean transport, biogas, forestry conservation, water and wastewater management.

In the push for a greener economy, capacity building is integral in equipping bank staff with skills that help in tapping into green opportunities.

The required skills include competencies in the identification of green investments and curating products that resonate with emerging climate needs.

It is inspiring that under the Sustainable Finance Initiative, coordinated by the Kenya Bankers Association, over 33,000 bank employees have been trained to make more inclusive decisions that factor in economic, environmental and social impacts while also balancing their firms’ financial returns.

For climate ambitions to come to fruition, a solid public-private sector collaboration framework is integral. Policies such as the directive to green-certify government-backed affordable homes will go a long way in taming climate change. More such policy interventions should be instituted.

From the discourse at the COP27 convention, the need to walk beyond acknowledgement and committing to be part of climate action efforts was clear.

There is sufficient evidence correlating climate change impacts with impoverishment of populations in developing countries through situations such as crop failure in agriculture.

It is encouraging that participants at the COP27 conference ardently expressed the concerns of developing countries and indeed the world at large on climate change. Developed economies are not being spared the ravages of climate change.

The crux of the matter is that there is need to collectively synchronise efforts on climate change to secure the future of life and livelihoods.

Dr Olaka is the CEO of the Kenya Bankers Association