Response to Climate Change Financing by Commercial Banks in Kenya

As the adverse impacts of climate change become more evident, almost every sector of the society is being challenged to adopt considerations for mitigation and adaptation that move away from business -as-usual models. In the banking sector, this has meant a growing pressure for commercial banks to inculcate aspects of mitigation and adaptation in their lending. This requires instituting aspects of green and climate financing in their commercial lending. One may wonder, what is the progress in Kenya in inculcating principles of climate change financing for development under sustainable development (SDG) targets and what accounts for why commercial banks adopt or fail to adopt green finance? Therefore, this research examined the status and trends in implementation of green and climate financing requirements in Kenyan commercial banks, the impediments, and drivers of adoption of green and climate finance schemes as well as the firm level drivers for the adoption of green finance using a case study. The results showed the increasing adoption of green and climate finance considerations among Kenyan banks, although there are significant divergences among the banks on this adoption. Based on extant literature, study interviewed industry players on the key hurdles or drivers in adoption of climate change financing and in order of importance finds that; (i) transitional risks, (ii) regulatory pressure and (iii) customer ignorance are the most crucial driving factors in adoption or failure to adopt green climate finance. In addition, the study highlights the centrality of international partnerships in adoption of green finance, while augmenting existing literature’s assertions on the role of transitional risks and regulatory pressure as principal factors in adoption.