• Sustainable Finance Industry Principles
  1. Our Priorities
  2. Industry Guiding Principles
  3. Best Practice Standards

The Sustainable Finance Initiative will be grounded in three main priorities, namely equipping the financial services sector to perform optimally in the area of comprehensive risk management; enhancing best business practice, leadership and governance through engagement and capacity building at the board and senior management levels; and promoting industry growth and development by fostering a culture of innovation and inclusivity enabled by new technology.

These Priorities were articulated by the SFI Working Group banks and adopted as the focus thematic areas of the SFI.

While utilising capital responsibly to create value economically and deliver returns to their shareholders, sector players should be effective at the mitigation and management of economic and associated risks in both the short-run and long-term period.

Economic Risk: As custodians of capital, anticipating and responding to the impact of macroeconomic conditions, includingfiscal and monetary policy, government regulation and political stability, is core to the viability of the institution as well as thesector at large. Institutions therefore should ensure that their firm is best equipped to respond to economic risks.

Associated Risk: Recognising that the financial services sector is both directly and indirectly impacted by social and environmental factors, through policies and risk assessment procedures, firms should also seek to mitigate social and environmental risks associated with their financing activities.

Board Roles & Responsibilities: Ethical practices and conduct reinforced by corporate values are the foundation of any financial service firm. It is therefore the role of the leadership, which is ultimately represented by the Board and Chief Executive Officer, to set the tone and actively ensure that business practices are ethical and fulfill the established regulatory and corporate governance requirements.

Best Practice: Organisations that openly disclose and embed their core values and priorities tend to have better run institutions. It is therefore proposed that this best practice be adopted within institutional policies and procedures. Reporting is another best practice and key component. As firms work to enhance their reporting policies and procedures; the industry should work to publicize the positive impact of sustainability initiatives that institutions are advocating and achieving in their day to day activities.

Increasingly competition within the sector and from competing sectors is driving financial service players to continually innovate and leverage on existing and emerging technology to respond to, and anticipate dynamic market needs. Considering that product and process innovation contributes towards industry growth and development, a culture of innovation and inclusivity enabled by new technology should be fostered at both the firm and industry levels.

The SFI Guiding Principles inform financiers on how to optimise the balancing of their business goals with the economy's future priorities and socio-environmental concerns.

The Guiding Principles are in line with international best practice and consistent with the financial sector's environmental and social risk management aspirations. They are meant to guide banks in the implementation and adoption of sustainability practices and the incorporation of the same into their day to day operations. They provide a much-needed case and rationale for sustainable banking in the Kenyan and regional context.

Financial institutions should consider both financial returns and the economic viability of their financing activities. Economic viability, defined as the ability to realise sustained long-term growth/returns, should be factored into the decision making process, particularly in the financing of commercial activities. The Guiding Principle is that financial viability is necessary from an investment perspective; but is not a sufficient condition for sustainable economic development.

Financial sector players seek to grow and enhance service delivery for the markets they currently serve, as well as reach out into diversified markets with economic potential thereby fostering financial deepening. The Guiding Principle is that financial institutions in pursuit of growth should innovate and leverage on existing and emerging technology to reach current and potential markets while economically empowering communities.

Economic development is intertwined with social, humanitarian and environmental concerns; therefore financiers are materially affected by these concerns despite the fact that these risks may be perceived as in- direct or secondary. The Guiding Principle is that firms should seek to mitigate social and environmental risks associated with their financing activities through client engagement and effective policies and risk assessment procedures; and in addition, firms should actively measure and report on the financial impact of these risks on their business performance.

In meeting present needs, financial institutions should ensure optimal management of resources, including financial resources and natural capital, so as to avoid compromising the future generation’s needs. The Guiding Principle is that optimal resource management is realized through productivity and efficient utilization of resources; and is guided by comprehensive opportunity cost assessment.

Promoting enhanced oversight of business practices at both the Management and Board levels contributes towards effective, resilient Organisations. The quest for ethical practice, efficiency, productivity and waste minimization should be fostered from the leadership and enabled by adequate governance structures. The Guiding Principle is that the leadership of financial institutions should ensure the organisation to deliver returns in the long term, and in a responsible manner that sees optimal utilization of resources towards achieving positive externalities.

Whereas the SFI Principles guide and inform the financial services sector on the philosophy and expectations around sustainability and sustainable finance, the SFI Procedures are best practice standards for the board and management to implement towards realizing the SFI Principles.

These are specific actions to be undertaken by various players in banks as a way of ensuring compliance with SF Principles. They provide a list of procedures, a clear roadmap of what needs to be done, by which actor and to what end. Viability is necessary from an investment perspective; but is not a sufficient condition for sustainable economic development.

Standards:

  • Economic viability of financing activity should be factored into the organisational strategic priorities and business development planning, with the board of directors and management ensuring that the firm demonstrates the realisation of "Sustainable Finance Principle 1: Financial Returns versus Economic Viability".
  • The ability to realise sustained long-term growth/returns should be factored into the credit analysis and decision making process undertaken in all commercial lending activity. Therefore credit policies should be adjusted to factor in not only the financial viability but also the economic viability.
  • The investment climate and near-term macroeconomic projections influence the viability of financing activity. An understanding of macroeconomic impacts on current and long-term business performance should therefore be a formalised with regular monitoring and analysis undertaken by management. This includes establishing at the firm level a process for assessing the impact of national and county-level fiscal and monetary policies, other government regulation, political stability and other factors that both directly and indirectly affect the investment climate. The investment climate reports should be reported to the relevant board committees (advances and credit risk).

Standards:

  • A process should be established by management to enable and promote the development of innovative products and services that target segments with economic potential, including Small and Medium-sized Enterprises, agriculture, women-owned micro businesses, and the youth segment. Business viable innovations as advocated for in ”Sustainable Finance Principle 2: Growth through Inclusivity & Innovation” would be supported by the management within the strategic planning process.
  • Business development strategies undertaken by management should enable product and process innovation, and also seek to promote job creation; enhance efficiency and service delivery through new technology; and introduce new business lines and products, which by their very nature provide net benefits to the society (for example green credit leasing, or green bonds).
  • There is need for the management and board of directors to formerly proactively engage and partner with other economic players so as to be aligned with market and societal expectations, while realising “Sustainable Finance Principle 2: Growth through Inclusivity & Innovation”.
  • Potential and current customers should be well informed and educated about the services offered by the firm. Resources should be allocated (budgeted) every year towards customer education and promoting financial literacy and consumer protection.

Standards:

  • The management should establish an Environmental and Social Risk Management System (ESMS) to strengthen and mitigate impacts as defined in "Sustainable Finance Principle 3: Managing & Mitigating Associated Risks". The credit analysis process should include the review and categorisation of environmental and social risks; and consist of (a) risk categorisation, (b) assessment of risks, (c) benchmarking compliance with the local laws and regulations, and (d) defining the mitigation measures.
  • There is a need to develop an internal monitoring system to monitor commercial clients' associated risks over time, and to ensure compliance with agreed environmental, social and corporate governance (ESG) requirements defined in the loan agreement. This includes expanding consideration of indigenous people and protected land and wildlife through proactive engagement (dialogue) and comprehensive risk analysis for commercial projects.
  • Procedures should be established by management to ensure compliance with the local laws and regulations on labour standards, including health and safety, persons with disabilities, and labour rights. This also entails the elimination of all forms of forced and compulsory labour; the effective abolition of child labour; and elimination of discrimination in respect of employment and occupation.
  • Management should dedicate a resource person(s) towards realising "Sustainable Finance Principle 3: Managing & Mitigating Associated Risks". The resource person(s) would have designated ESG responsibilities that cut across institutional departments. For large and medium-sized institutions as defined by the Central Bank (Tier I and Tier II), there should be at least one (1) dedicated resource person with relevant experience in environmental and social risk management. For the small financial institutions (Tier III), this requirement can be met through shared responsibility roles.
  • A grievance and dispute resolution mechanism to receive and facilitate resolution of concerns and grievances about the environmental and social impact of financed activities should be established by the management with reporting of material disputes to the board of directors.

Standards:

  • The "Sustainable Finance Principle 4: Resource Scarcity and Choice" applies to both financiers and their clients. For financiers, management should establish a process of monitoring, evaluation and third-party validation, of the organisation's operations (including head office, branches and fleets). Through this process, the management should demonstrate optional operational efficiency, while realising minimal carbon emissions (carbon footprint) and waste reduction.
  • The board of directors should define a policy on natural capital, to ensure that the firm through its organisational planning process, as well as its financing activity, does not invest in or finance operations that adversely impact the country's natural resources. This policy should help guide the management in its decision making framework and opportunity cost assessment.
  • In the relationship management process, business units should engage their commercial clients (business and corporate customers), and determine the clients' capacity to reduce environmental and social risks and enhance sustainable development over time. Commercial clients should be provided with relevant information in order to strengthen their capacity.

Standards:

  • In the board planning process, there is the need for reorienting growth strategies and the organisational vision, mission and objectives to ensure that equal weight is given to the economic, social and environmental dimensions of organisational sustainability.
  • The board of directors and management should adopt to publish a comprehensive sustainability report once every two years (at a minimum). Reporting on the institution's contribution to sustainable economic development (beyond financial performance) and progress towards realisation of the "Sustainable Finance Principles" should be incorporated in the annual integrated financial reports.
  • The board of directors and management should establish formal governance structures to enable the review and reporting of progress in meeting the "Sustainable Finance Principles" and best practice procedures .
  • The board of directors and management should disclose the institutional Values, Sustainability Priority Areas, as well as industry standards on Sustainable Finance, to internal and external stakeholders to facilitate accountability within the institution.
  • Institutional Values should include the pursuit of good governance, and corporate citizenship that promotes economic empowerment, and enhances social and environmental aspects in the communities.

Our Priorities