The Climate Risk Disclosure Framework for the Banking Sector in Kenya: A Practical Guide
- Muhoro & Gitonga Associates
- Sep 19, 2024
- 5 min read
Updated: Oct 28
Table of contents
Why Climate Disclosure Matters for Kenyan Banks
Regulatory Background and Recent Developments
Key Disclosure Pillars and Required Metrics
Governance, Strategy and Risk Management Expectations
Data, Methodologies and the Kenya Green Finance Taxonomy Link
Reporting Templates, Timelines and Submission Process
Legal risks: Liability, Supervisory Action and Enforcement Tools
Practical Implementation Roadmap for Banks
Common Challenges and How to Address Them
Role of External Assurance and Third Parties
Opportunities: Green Finance, Investor Confidence and Market Access
Executive Summary
This guide explains what the Climate Risk Disclosure Framework requires of Kenyan banks, how it fits into the Central Bank of Kenya's (CBK) broader green finance reforms, and what legal and operational steps banks should take to comply. It focuses on practical obligations for boards, general counsel, risk and sustainability teams and sets out a step-by-step compliance roadmap.
Why Climate Disclosure Matters for Kenyan Banks
Climate related physical shocks and transition risks create measurable credit, market and operational risks for banks. Disclosure increases transparency, helps investors and supervisors assess systemic vulnerability and channel capital to resilient, low-carbon activities.
Transparent climate reporting also reduces greenwashing risk and improves comparability across institutions, strengthening market confidence.
Regulatory Background and Recent Developments
The Central Bank of Kenya issued the draft Climate Risk Disclosure Framework for public consultation in September 2024 and subsequently published the final framework together with the Kenya Green Finance Taxonomy in April 2025. These instruments build on earlier CBK guidance issued in 2021 on climate related risk management and on industry reporting templates developed in 2023.
International developments relevant to Kenyan banks include the Basel Committee’s voluntary framework on climate-related disclosures published in June 2025, which leaves mandatory decisions to national regulators.
Scope and Who Must Comply
The Framework applies to all commercial banks licensed by the Central Bank of Kenya. It requires banks to identify, measure and disclose climate-related financial risks across their balance sheets and off balance sheet exposures.
The taxonomy and disclosure expectations also extend to reporting on green assets where relevant. Institutions offering mortgage finance or materially exposed to climate-sensitive sectors should pay particular attention to the Framework’s sectoral indicators.
Key Disclosure Pillars and Required Metrics
The Framework organises disclosures across core pillars: governance, strategy, risk management, metrics and targets. Required metrics typically include exposure by sector to physical and transition risk, stress-testing outputs, climate scenario analysis, and an asset classification against the Kenya Green Finance Taxonomy.
Banks should expect to report on financed emissions where applicable, concentration of exposures in climate-sensitive sectors, and qualitative narratives on resilience and transition planning.
Governance, Strategy and Risk Management Expectations
Board and senior management are expected to exercise clear oversight of climate risk. The Framework requires integration of climate considerations into corporate governance, strategy setting and risk appetite statements.
Risk functions must embed climate risk into credit risk assessments, stress testing and capital planning where material. Legal teams should review existing policies, lending covenants and contractual language to ensure alignment with disclosure commitments and to mitigate potential contractual inconsistencies.
Data, Methodologies and the Kenya Green Finance Taxonomy Link
Robust disclosures depend on consistent data and transparent methodologies. The Framework points banks to the Kenya Green Finance Taxonomy for classifying assets as green or transition aligned and encourages the use of scenario analysis consistent with internationally accepted methodologies while allowing for local calibration.
Where data gaps exist, banks must disclose assumptions and data limitations in their reports. The CBK materials and taxonomy provide the official classification and technical annexes.
Reporting Templates, Timelines and Submission Process
The CBK has made reporting templates available to facilitate consistent filings and previously circulated a standardised reporting template for use by banks. Expect mandatory public disclosures at prescribed intervals and supervisory submissions to the CBK.
Early adopter banks should align internal reporting calendars with CBK timetables and allow lead time for external assurance.
Legal risks: Liability, Supervisory Action and Enforcement Tools
Failure to produce accurate or timely disclosures creates several legal risks. Supervisory measures can include public criticism, remedial directions, fines and license related actions depending on the severity of non-compliance.
Reputational liability and investor claims are also possible if disclosures are misleading. Legal teams should advise on warranties, representations and prospectus language to manage downstream disclosure risks and help design governance controls that reduce exposure to litigation and regulatory sanctions.
Practical Implementation Roadmap for Banks
Step 1: Conduct a scoping exercise to map material climate exposures across portfolios.
Step 2: Establish governance and assign clear board and management responsibilities.
Step 3: Build or adapt data systems and decide on methodologies for scenario analysis and metrics.
Step 4: Populate the CBK reporting template and perform an internal dry run.
Step 5: Obtain independent assurance where material or where requested by investors.
Step 6: Publish the disclosure and integrate feedback loops to refine future reports. Legal should be engaged throughout to review disclosures, coordinate with compliance and liaise with external auditors.
Common Challenges and How to Address Them
Data quality and availability are the most common practical obstacles. Banks can mitigate this by prioritising high materiality portfolios, using best available proxies, and documenting assumptions.
Capacity and methodological gaps can be addressed through targeted training, engaging consultants and leveraging industry templates. Coordination between risk, treasury, sustainability and legal teams is essential to avoid siloed reporting and inconsistent public statements.
Role of External Assurance and Third parties
External assurance strengthens credibility and reduces investor and supervisory questions. The CBK encourages clarity on the scope of assurance and the standards used.
Where banks rely on third-party climate models or vendor data, contracts should include rights to audit inputs and provisions allocating liability for demonstrable errors in third-party data that materially affect disclosures.
Opportunities: Green Finance, Investor Confidence and Market Access
Compliant, high-quality disclosures can unlock green financing, reduce cost of capital for green assets and attract diaspora and international investors seeking transparent ESG credentials. Aligning lending portfolios with the Kenya Green Finance Taxonomy can help banks position themselves competitively for sustainable finance flows while avoiding greenwashing risks.
Conclusion and Next Steps
The Climate Risk Disclosure Framework for the Banking Sector in Kenya: A Practical Guide. Kenya’s CBK has placed climate disclosure at the centre of banking sector reforms to strengthen resilience and mobilise finance for the low-carbon transition. Boards and senior management should treat the Framework as a strategic priority.
Immediate steps include scoping material exposures, designing governance, piloting the CBK template and preparing for external assurance. Legal teams must integrate disclosure review into existing compliance and capital markets workflows to mitigate regulatory and litigation risk.
FAQs
Q1 What is the single most important immediate action a bank should take?
Conduct a rapid materiality assessment of climate exposures and set a board-level climate oversight plan.
Q2 Does the Framework require banks to report financed emissions?
The Framework encourages reporting of relevant metrics including emissions where data and methodologies are appropriate; banks should check metric requirements in the CBK template and disclose methodology and limitations.
Q3 Will climate disclosure be enforced through sanctions?
Yes. The CBK’s supervisory toolkit can include remedial directions and other supervisory measures for non-compliance; legal teams should prepare for escalating supervisory engagement.
Q4 How does the Kenya Green Finance Taxonomy interact with the Framework?
The taxonomy provides the classification rules to determine which economic activities count as green or transition-aligned, and the Framework asks banks to map assets against that taxonomy in disclosures.
Q5 Should banks obtain external assurance?
External assurance is highly advisable for material disclosures and will strengthen credibility with investors and the regulator. Contracts with assurance providers should clearly define scope and standards.
To learn more, see the Climate Risk Disclosure Framework for the Banking Sector.
