Climate-Related Financial Risks for Kenyan Banks
An Analysis of Loan Portfolios and GHG Emissions
This study analyses the climate risk exposure of Kenyan banks given the greenhouse gas (GHG) emissions represented by their sectoral loan composition and their relative funding of climate risk through their loan portfolios. This is achieved by constructing two climate-relevant indices: Emissions Exposure (EEi), a measure of a bank’s climate risk exposure through its loan portfolio, and Emissions Funding (EFi), a measure of how much of the climate risk a bank funds through its lending relative ...
Éditeur : Graduate Institute Publications
Lieu d’édition : Geneva
Publication sur OpenEdition Books : 2 avril 2021
ISBN numérique : 978-2-940600-26-7
DOI : 10.4000/books.iheid.8197
Collection : eCahiers de l’Institut | 37
Année d’édition : 2021
This study analyses the climate risk exposure of Kenyan banks given the greenhouse gas (GHG) emissions represented by their sectoral loan composition and their relative funding of climate risk through their loan portfolios. This is achieved by constructing two climate-relevant indices: Emissions Exposure (EEi), a measure of a bank’s climate risk exposure through its loan portfolio, and Emissions Funding (EFi), a measure of how much of the climate risk a bank funds through its lending relative to other banks and thus a measure of climate risk importance for each bank. Results from the emissions index show that the banks, with the exception of an outlier, have fairly similar exposure to climate risk through their loan portfolio, given the GHG emissions represented by their sectoral lending. On the funding index, banks have differentiated funding of climate risk through their lending that is fairly proportional to their market shares of gross loans. Thus, larger (smaller) banks have higher (lower) funding of climate-related risk. These two complementary indices provide a first set of quantitative climate-related financial disclosures that are comparable across Kenyan banks. Secondly, the results of this analysis provide decision-useful information for the Central Bank of Kenya (CBK) and other financial regulators to formulate macroeconomic and financial policies that would seek to promote low-carbon transition via the banking industry as a key financial sub-sector. Lastly, the analysis provides a template for industry-wide assessment of climate-related risk for banks in other emerging economies and the approach used for mapping national GHG emissions to bank lending sectors is also a key contribution to the literature on quantifying climate risks for the financial sector.
The winning thesis of the 2020 Rudi Dornbusch Prize in International Economics. We extend our heartfelt thanks to the Vahabzadeh Foundation for financially supporting the publication of best works by young researchers of the Graduate Institute, giving a priority to those who have been awarded academic prizes for their master’s dissertations.
Reuben is the Africa Regional Coordinator at UNEP Finance Initiative (UNEP FI) and leads the regional work strategy and program implementation in Sub-Saharan Africa (SSA). He is responsible for UNEP FI member banks, insurers and investors in SSA, including collaborations with other organizations working on sustainability and climate risk in finance. Prior to UNEP FI, he worked at McKinsey and Credit Suisse and has experience working in multiple countries in Africa and Europe. In 2019, his essay on sustainable finance interventions won the prestigious St. Gallen Wings of Excellence Award out of ~800 entries from 100+ nationalities. He was a Credit Suisse Scholar at the Graduate Institute Geneva where he earned a Master’s in International Economics and won the Rudi Dornbusch Prize for best thesis. For this research paper, he would like to thank Prof. Cedric Tille, Dr. Pierre Monnin and Prof. Irene Monasterolo for their invaluable guidance and support.
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