Lead image for Could climate change drive the next banking revolution in Kenya?.
New climate disclosure requirements will demand significant preparation from banks. Those that use the available data and capabilities to improve their lending and risk management can build stronger and more resilient businesses.
East Africa has moved between climate extremes in recent years. A prolonged drought gripped the Greater Horn of Africa in early 2023, followed by severe flooding in 2024 that destroyed crops, damaged infrastructure and interrupted business in Kenya.
These events are not only humanitarian and economic crises, but also financial events. Failed crops reduce income, flooded roads stop companies moving goods, and repeated flooding can lower property values and raise insurance costs. Each event can reach a bank's balance sheet.
Yet how many banks have genuinely changed the way they assess borrowers? How many now ask whether a farm has reliable water access, a logistics company is depending on a flood-prone road, or property used as collateral is likely to remain insurable?
I recently discussed this topic at the East Africa Banking School Conference. The response from the audience made clear that this is not a distant or theoretical issue. Banks are actively grappling with how to translate climate risk into better credit assessment, stronger data and practical changes to risk management.
Kenya's new climate disclosure requirements are intended to help close this gap. The country is adopting the International Financial Reporting Standards Sustainability Disclosure Standards, with mandatory application expected from January 2027. The Central Bank of Kenya (CBK) has also introduced the Kenya Green Finance Taxonomy and a Climate Risk Disclosure Framework for the banking sector.
Banks will increasingly need to explain how physical and transition risks could affect customers, financial performance and loan portfolios. Compliance with regulation will require better data, governance, systems and analytical skills. The institutions that benefit most will use those capabilities to identify vulnerabilities earlier and improve credit decisions.
Climate risk assessments cannot remain the sole responsibility of sustainability teams. Banks will need to explain how boards and senior management oversee them.