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Banks are more at risk from climate crisis

Banks are more at risk from climate crisis

CBK gives lenders a one year ultimatum to integrate climate risk management into their operations. [Courtesy]

Some parts of Kenya have a lot of gully erosion. Slowly, the erosion can worsen due to flooding, poor farming practices or sand harvesting from the ravines.

With time the erosion grows in depth, width and length, meaning people’s pieces of land are degraded or encroached, while roads and other structures are destroyed. In some cases, graves may have been swept away.

Arid and semi-arid lands are the most affected. Old men and women in such areas as western Kenya, Narok (Suswa), Kisumu/Homa-Bay (Awach) will tell you those were people’s land. Some are confused for seasonal streams.

Landslides are more likely to occur in Meru and Elgeyo Marakwet. There are greater chances of land being destroyed by migration to evade dry spells in the Eastern, North Eastern and coastal regions.

It flooded Nairobi a few years back, and many homes were left abandoned near rivers. People were also displaced, some of whom still owe mortgages.

Some of these properties have been financed with loans. Even with due diligence prior to lending, the physical risk of climate crisis remains a reality in banking and mortgage institutions.

While climate-induced migration and conflict, as well as changes in land use and planning may not seem like a real threat at first, they should be seriously considered by lenders as potential threats to businesses.

This requires that climate change be considered as a risk factor in strategic plans, structures, and governance.

There are also opportunities for the other side of the coin. These include special rates within the law for borrowers against high risk property; funding smart agriculture and reafforestation; and working with partners to accelerate the transition to clean energy to replace wood.

Lenders can also get involved in climate action and corporate social responsibility. Potential clients who lose their jobs, livelihoods, or property are the most likely to suffer losses.

See Also

The Central Bank of Kenya recently issued a one year ultimatum to lenders to incorporate climate risk management in their operations.

This is the decade of action to achieve global Sustainable Development Goals. Climate Action (Goal 13), can be realized through Partnership (Goal 17). Locally, lenders can channel funds together and actively towards green projects as instructed.

It’s a give-and take, as there is money to be made in capacity building and in engagement in businesses that promote resilience and mitigation of this crisis. This approach has worked in developed countries before, and Kenyan lenders may be the best example.

-Lynet serves as Quality Assurance Editor for the Standard Group

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