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Kenyan financial institutions are increasingly channelling significant funds into climate-aligned projects, demonstrating a strategic shift towards sustainable practices to combat the nation's severe vulnerability to climate change impacts.
Nairobi, Kenya – Kenyan banks are stepping up their commitment to climate action, with Equity Bank announcing a cumulative disbursement of KSh 26 billion towards climate projects. This move highlights a growing trend within the local financial sector to integrate environmental considerations into lending and investment strategies.
The initiative by Equity Bank, detailed in its recent sustainability report, focuses on supporting businesses and communities in transitioning to more sustainable practices. This includes financing for climate-smart agriculture, renewable energy, clean cooking technologies, and nature restoration.
Kenya is highly susceptible to the adverse effects of climate change, experiencing frequent extreme weather events such as prolonged droughts and severe floods. These events have significant economic repercussions, with estimates suggesting that climate-related disasters lead to annual socioeconomic losses of 3-5 percent of the Gross Domestic Product (GDP) between 2010 and 2020. Droughts alone are estimated to cost Kenya approximately 8% of its GDP every five years.
In response, Kenya has demonstrated strong leadership in climate governance, hosting the Africa Climate Summit in 2023 and spearheading the Nairobi Declaration. The nation aims to reduce greenhouse gas emissions by 32% below business-as-usual levels by 2030. Achieving this ambitious target is projected to cost USD 62 billion (approximately KSh 8.4 trillion) for the period 2020-2030, with the government committing to fund 13% and seeking international support for the remaining 87%.
Kenya's commitment to climate action is enshrined in its Climate Change Act of 2016, which provides a framework for promoting climate-resilient, low-carbon economic development. The Act mandates the government to develop and update a National Climate Change Action Plan (NCCAP) every five years. The second NCCAP (2018-2022) aimed to guide climate action and support the implementation of Kenya's Nationally Determined Contribution (NDC) under the Paris Agreement. The third NCCAP (2023-2027) continues to build on these efforts, mainstreaming climate actions and green economy principles into national development planning.
The Central Bank of Kenya (CBK) has been instrumental in greening the financial sector. In October 2021, the CBK issued Guidance on Climate-Related Risk Management to help banks integrate climate risks into their governance, strategy, risk management, and disclosure frameworks. More recently, in April 2025, the CBK finalized a Green Finance Taxonomy and a Climate Risk Disclosure Framework for the banking sector. These tools, developed in partnership with the European Investment Bank (EIB), aim to standardize the understanding of green finance, enhance transparency, and encourage sustainable investments.
Commercial banks, including Equity, NCBA, KCB, and Co-operative Bank, are increasingly recognizing sustainability as a core strategic driver. Equity Bank, for instance, reported disbursing over KSh 24 billion in green loans in 2023, supporting clean energy, climate-smart agriculture, and sustainable construction. This resulted in a reduction of nearly 40,000 tonnes of CO₂ emissions. NCBA Bank has also committed KSh 2 billion for electric vehicle financing and KSh 500 million for solar financing, alongside a pledge to plant 10 million trees by 2030.
The Kenya Bankers Association (KBA) has been a key player, launching the Sustainable Finance Initiative (SFI) in 2015 to raise awareness on environmental, social, and governance risks and financing within the banking sector. The KBA, along with the Nairobi Securities Exchange (NSE), Climate Bonds Initiative (CBI), and Financial Sector Deepening (FSD) Africa, also established the Kenya Green Bonds Programme in 2017 to develop a domestic green bond market.
While public expenditure on green projects averaged KSh 108 billion in 2017/2018 and KSh 120 billion in 2018/2019, with 60% sourced internationally, private sector investments are also significantly reliant on foreign capital. Only 30% of the estimated KSh 100 billion annual green finance from the private sector comes from domestic sources. A notable imbalance exists in funding allocation, with 79% of green funds directed towards mitigation efforts and only 12% towards adaptation measures. This highlights a significant gap, especially given Kenya's adaptation-focused NDC.
The banking sector faces significant climate-related risks, including physical risks to loan portfolios from extreme weather events, transition risks from the shift to a low-carbon economy, and liability risks from financing environmentally impactful companies. The vulnerability of the banking sector to climate change is evident in stress testing results, which show an increased probability of loan defaults with moderate, severe, and extreme temperature changes. The estimated expected loss given default is KSh 628 billion.
Despite these risks, efforts to mitigate and adapt to climate change also present business opportunities for banks, such as financing low-emission energy sources, developing new products, and investing in resilient infrastructure.
While Kenya has made strides in green finance, the extent of private sector contributions to green finance is not fully known. There is also a significant gap in adaptation finance, despite the government's emphasis on adaptation in its climate plans. Mobilising sufficient domestic capital remains a challenge, with a heavy reliance on international funding.
The implementation of the CBK's new Green Finance Taxonomy and Climate Risk Disclosure Framework will be crucial in shaping the future of green finance in Kenya. Commercial banks have an 18-month test period before these guidelines are fully implemented. Continued efforts to attract both domestic and international private sector investment, particularly for adaptation projects, will be vital for Kenya to meet its climate goals. The ongoing development of County Climate Change Funds (CCCFs) also presents an opportunity for devolved climate finance and community-led solutions.
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