The Central Bank of Kenya (CBK) has given banks and mortgage finance firms 18 months to begin the mandatory disclosure of climate-related financial exposure linked to the individuals, businesses, and projects they fund.

This follows the regulator’s issuance of the Kenya Green Finance Taxonomy (KGFT)—a classification framework that defines what qualifies as “green” in line with global standards and Kenya’s development priorities.

“The CBK is issuing this framework to commercial banks and mortgage finance companies licensed under the Banking Act (Cap 488) for application on a voluntary basis, for a period of 18 months from the date of issuance. Thereafter, implementation will be mandatory,” CBK stated.

The taxonomy, finalised after an earlier draft was published on April 12, 2024, aims to curb greenwashing and help banks track, monitor, and disclose their exposure to both green and non-green investments.

“During the 18-month transition, institutions will build their capacity and make the necessary adjustments in preparation towards mandatory application of the taxonomy," the regulator added.

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According to CBK, the transition period will also facilitate further engagement between CBK and the banking industry on any changes deemed necessary to facilitate the smooth implementation of KGFT.

The KGFT will support better climate-risk management and steer financial flows towards sustainable activities.

Developed with technical input from the European Investment Bank, it is modelled on frameworks used in the European Union and South Africa.

CBK said the taxonomy will also “support the reduction in financial sector risks through enhanced management of environmental performance.”

Kenya’s vulnerability to climate change, especially across agriculture, water, energy, and tourism, underscores the urgency of the framework, according to the World Bank’s 2021 Climate Risk Country Profile.