CBK Climate Risk Guidance: 9 Essential Rules for Kenyan Banks

Updated 7 November 2026

The CBK climate risk guidance is the Central Bank of Kenya’s Guidance on Climate-Related Risk Management, issued to commercial banks and the mortgage finance company through Banking Circular No. 4 of 2021 on 15 October 2021. It requires banks to bring climate change into four areas: board governance, business strategy, risk management and public disclosure. In April 2025 CBK built on it by releasing the Kenya Green Finance Taxonomy and a Climate Risk Disclosure Framework. For borrowers, the practical effect is that lenders increasingly ask how floods, drought and policy changes could affect a business, its collateral and its ability to repay.

Based on CBK’s Guidance on Climate-Related Risk Management, the covering Banking Circular No. 4 of 2021 and CBK’s April 2025 notice, all read on 7 November 2026. This is an explainer, not legal or regulatory advice.

1. Who it applies to and its legal basis

The guidance says it is issued under section 33(4) of the Banking Act, which allows CBK to guide institutions to maintain a stable and efficient banking system, and that it applies to institutions licensed under the Banking Act. The covering circular was addressed to the chief executives of commercial banks and the mortgage finance company. Saccos, insurers and microfinance banks have their own regulators and are not the direct audience.

The circular describes the stated purpose plainly: banks should embed the financial risks from climate change in governance, fold them into existing risk management, and develop an approach to disclosing them.

2. The three types of climate risk

The CBK climate risk guidance groups the risks into three drivers:

• Physical risk: losses from climate and weather events and long-term shifts in climate. CBK notes that floods and droughts are of particular concern in Kenya.
• Transition risk: financial risk from adjusting to a lower-carbon economy, triggered for example by climate policy, new technology or changing market sentiment.
• Liability risk: legal claims connected to climate change, including claims against institutions that finance activities with negative environmental impacts.

The document also flags “stranded assets”, investments whose economic life is cut short by technology, regulatory or market change. With heavy reliance on physical collateral in Kenyan lending, CBK warns that climate policy could raise credit risk on collateral that becomes stranded.

3. Board responsibilities

Under the CBK climate risk guidance, the board has primary responsibility for overseeing climate-related risks. Board and senior management should assess and quantify the bank’s exposure across business lines, oversee a climate risk strategy and formally allocate roles for implementing the framework. The board should also approve the climate strategy, make sure resources and systems exist to deliver it, and build a risk culture that brings climate into everyday decisions. Senior management carries out the strategy and keeps the board informed with regular management information.

4. Climate in the risk appetite statement

The board approves the bank’s risk appetite statement, and the CBK climate risk guidance asks it to consider whether and how climate risk should be integrated. Where appropriate, climate risk should appear explicitly and proportionately; the guidance accepts that this may be qualitative at first, with quantitative metrics adopted over time. Banks should develop key risk indicators and limits, and review the statement at least once a year.

5. Strategy and client profiling

Banks are expected to identify climate risks at the level of the economic sectors and business lines where they lend, and to judge which risks affect strategy in the short, medium and long term. One example in the text is especially relevant to customers: a bank may embed climate considerations into a client’s risk profile by evaluating that client’s environmental impacts and transition plan against the bank’s own climate strategy. The guidance also encourages engagement with regulators, investors, depositors, clients, suppliers and employees.

6. How climate feeds into traditional risks

The CBK climate risk guidance does not create a separate silo. It asks banks to understand how climate risk is transmitted into the risks they already manage:

Assessment can happen at portfolio, counterparty and transaction level, including during client onboarding, underwriting and credit review. For physical risk, CBK points to the location of a client’s operations and assets, supply-chain disruption and collateral values; for transition risk, criteria such as energy use and sensitivity to climate policy.

7. Monitoring, limits and continuity

The CBK climate risk guidance says banks should monitor and report climate exposures against their risk appetite, use quantitative and qualitative tools as early warnings, and adapt IT systems to gather the data needed. For sectors that do not fit the bank’s climate strategy or appetite, CBK suggests control measures such as limitations or lending thresholds. Banks should also plan for business continuity when extreme weather hits their own facilities or major outsourced arrangements.

8. Disclosure and the 2025 framework

The 2021 guidance named the TCFD recommendations, with four pillars of governance, strategy, risk management and metrics and targets, as a desirable benchmark for bank disclosures, published in the annual report, a sustainability report, a TCFD report or a standalone climate risk report. On 4 April 2025 CBK released the Kenya Green Finance Taxonomy and the Climate Risk Disclosure Framework. CBK’s notice says the disclosure framework is aligned with IFRS S2 and Basel Committee principles, while the taxonomy helps institutions classify whether activities are green. Our explainer on the Kenya Green Finance Taxonomy covers the classification side. Check the framework document itself for the reporting timeline that applies to a particular bank.

9. Reporting to CBK

The CBK climate risk guidance required each bank to submit a time-bound implementation plan approved by its board, signed by the chairman and chief executive, by 30 June 2022. After that, banks were to report progress to CBK quarterly, within 10 days after the end of each calendar quarter, starting with the quarter ending 30 September 2022. Internally, banks should give the board and senior management periodic reports on aggregated climate risk data.

What it means for borrowers

If you run a business that borrows from a Kenyan bank, the CBK climate risk guidance means you should expect more questions about climate exposure: where your assets are located, whether they sit in flood-prone areas, how dependent you are on rain-fed supply chains, and how energy-intensive your operations are. Lenders may also price or limit exposure to sectors that clash with their climate strategy. Having credible answers, insurance and a transition plan can strengthen a loan application. Companies preparing broader sustainability reporting should also read our business guides for related compliance topics.

Frequently asked questions

When was the CBK climate risk guidance issued?

CBK issued the Guidance on Climate-Related Risk Management with Banking Circular No. 4 of 2021, dated 15 October 2021.

Does the guidance apply to Saccos?

No. It applies to institutions licensed under the Banking Act; the circular was addressed to commercial banks and the mortgage finance company.

What did CBK add in 2025?

On 4 April 2025 CBK released the Kenya Green Finance Taxonomy and the Climate Risk Disclosure Framework, which it says is aligned with IFRS S2.

How often must banks report progress to CBK?

The guidance set quarterly progress reports, due within 10 days after each calendar quarter, starting with the quarter ending 30 September 2022.