Bank report calls for better environmental regulation

By Soko Directory Team / Posted on July 7, 2022 | 2:29 p.m.

KEY POINTS

The study primarily focused on identifying regulatory, policy and institutional gaps that negatively exposed financiers to defaults and asset impairment.

KEY POINTS TO REMEMBER

In the findings, the disparity in environmental regulations, particularly zoning rules for riverine lands, was highlighted as a contributing factor to the environmental risk exposure of banks and investors. According to the study, the relationship between zoning guidelines under planning laws and riparian rules under the Environment Regulations is not well defined.

The Kenya Bankers Association in collaboration with Financial Sector Deepening (FSD) Kenya, the International Union for Conservation of Nature (IUCN) with the support of Mitsubishi Corporation Fund for Europe and Africa (MCFEA) today unveiled a study which quantified and analyzed the exposure of banks to environmental risks.

The study primarily focused on identifying regulatory, policy and institutional gaps that negatively exposed financiers to defaults and asset impairment.

In the findings, the disparity in environmental regulations, particularly zoning rules for riverine lands, was highlighted as a contributing factor to the environmental risk exposure of banks and investors. According to the study, the relationship between zoning guidelines under planning laws and riparian rules under the Environment Regulations is not well defined.

The study revealed that surveying and cadastral maps often do not delineate the intended riparian boundaries. This gave way to real estate development designed and built on riverfront areas based on unmarked survey maps.

Moreover, the study points out that the same is true for wildlife migration routes. This led to the demolition of bank-financed properties. Delays due to litigation from affected members of the public also contributed to heavy losses for both the banking customer and the financiers, according to the study.

The study also shed light on the existing overlap between the mandates of different government agencies which led to premature termination of projects resulting in additional losses for bank customers and, by extension, the banking industry.

In the study, the Constitution, under Part 2(3) of the Fourth Schedule, assigned control of air, noise pollution, other public nuisances, and outdoor advertising (“delegated functions” ) to county governments. This role was previously performed by the National Environmental Management Authority (NEMA) under the relevant regulations on environmental management and coordination.

Despite this reassignment, NEMA officers continue to perform delegated duties, citing enforcement powers under environmental management and coordination regulations.

Other challenges that put banks and investors at risk include deficient environmental and social impact assessments (ESIAs) by NEMA officials, particularly with regard to quality of reporting, ethics in carrying out evaluation and audits that lead to the revocation of project licenses and possible defaults on loans granted. based on the license issued by NEMA.

Speaking at the launch of the study, KBA Managing Director Dr Habil Olaka called on policy makers to address disparities in riverine migration and wildlife environmental regulations. He also reiterated the need to strengthen multi-agency alignment on biodiversity and environment issues.

“It is our collective responsibility to ensure the stability of the banking sector by encouraging sound risk assessment and management. By harmonizing spatial land use plans and wildlife laws, we can reduce financial risks for banks and Kenyans. We also call for enhanced oversight of EIA experts to improve the quality of assessments and the ethics of EIA experts who manage projects,” Olaka said.

IUCN ESARO Regional Director, Mr Luther Anukur, encouraged policy makers to create an enabling environment for the development of research-backed science-based solutions, as the report demonstrates.

He added that “to tackle the triple planetary crisis of climate change, biodiversity loss and pollution, public and private actors must work together. The transition to a blue and green economy requires recognition of the role that biodiversity and ecosystems play in human social and economic affairs. In the face of climate change, biodiversity loss, increasing water scarcity, rising food and energy prices, accompanied by an increasingly unstable and risk-laden global economy, the notion of adopting the principles of sustainable finance in Kenya has become increasingly relevant”.

He also called for increased investment by public and private entities in nature-based solutions to reduce exposure to environmental and social risks.

FSD Kenya CEO Ms. Tamara Cook echoed the sentiments of KBA and IUCN in encouraging financial institutions to mainstream environmental risks – both the risks of non-compliance with existing environmental laws, policies and regulations and those associated with global and local environmental shifts and changes. impact – in their business strategies and operations.

This, she noted, will become increasingly important as Kenya transitions to an industrial economy status traditionally associated with intensive resource consumption and pollution. FSD Kenya is keen to support the financial sector in adopting the principles of sustainable finance as a key catalyst for the transition to a green and climate resilient development path that Kenya aspires to achieve.

To this end, FSD Kenya has partnered and will continue to partner with KBA and other partners and stakeholders in various initiatives aimed at building the capacity and capacity of the sector in sustainable finance. FSD Kenya recognizes that this is important if the sector is to remain competitive at a time when sustainability has become the most important currency in business.

The study also highlighted areas where banks could improve to ensure they are protected against environmental and social risks. He recommended that banks intensify project monitoring activities to identify and avoid environmental problems.

About the Soko Directory Team

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