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Banking Industry Adopts Sustainable Finance Guiding Principles and Industrywide Standards to Promote Inclusive Growth Agenda

Nairobi, 31 March 2015 - The Kenya banking industry has adopted the Sustainable Finance Initiative (SFI) Guiding Principles that will guide in balancing their business goals with the economy's development priorities and socio-environmental concerns. The banking industry, through their umbrella body the Kenya Bankers Association (KBA), adopted the Principles during the 2nd CEO Round table on Sustainable Finance held on March 31st 2015.

"Economic viability is vital, but time has come for the financial services sector in Kenya and the region to adopt and implement a more inclusive decision making model that also factors in variables such as environmental impact and social capital in the overall finance equation," said KBA Chief Executive Officer, Mr. Habil Olaka. He added that "Kenya's SFI process is unique in that it is the first ever market-led industry wide initiative of its kind in Africa. KBA's deliberate leadership in the formation of the SFI and the development of the Sustainable Finance Principles is therefore a key milestone for the financial services sector overall." Mr. Olaka said the Principles are in line with international best practices, and form the industry wide minimum standard. The Principles are also relevant to financial institutions in general and responsive to individual risk policies. "In my view, the Sustainable Finance Initiative is one of the most noble but also necessary innovations we have undertaken as the banking industry because economic development, social wellbeing and environmental protection are matters that concern any global citizen, and every commercial entity," said Mr. Joshua Oigara, KBA Chairman and KCB Group CEO during the event at which the member banks formerly adopted the Principles. Mr. Oigara said the industry's adoption of the Sustainable Finance Principles demonstrates that apart from deepening financial inclusion and contributing towards sustainable economic growth, the financial sector, and banks in particular are also concerned about the other challenges that Africa currently faces in the areas of climate change and environmental degradation, social exclusion and resource scarcity. "By adopting the SFI Principles that align the industry, we usher in the next stage of the process, which is building the capacity of the KBA member banks to implement the standards within their banks and realise the vision of sustainable finance we have set for ourselves," said Mr. Oigara. The development of the Sustainable Finance Guiding Principles was directed by a Working Group consisting of the KBA Secretariat and 12 banks. In addition, external partners including Dutch Development Bank (FMO), German Investment Corporation (DEG), UNEP Finance Initiative, and International Finance Corporation (IFC) contributed their expertise based on their leadership in similar initiatives in other countries. Following the adoption of the Principles, KBA will implement a yearlong capacity building program. The SFI Capacity Building program, which is partially funded by DEG and FMO, targets bank credit risk, business development and operations officers, as well as board directors. The Association will also constitute an external advisory committee as part of its governance structure to support the industry's implementation.

About the Sustainable Finance Guiding Principles

The process of developing the Sustainable Finance Guiding Principles commenced on 10 September 2013, when KBA convened the First CEO Roundtable on Sustainable Finance, and is motivated by the industry's desire to support efforts towards making Kenya and the East Africa Community (EAC) more globally competitive. The Principles draw from and harmonize several global best practice standards, including the Equator Principles, IFC Sustainability Framework, Nigeria Sustainable Banking Principles, African Development Bank (AfDB) Green Growth Policy, Global Reporting Initiative (GRI) Reporting Guidelines, UNEP Finance Initiative (UNEP-FI) Guidelines, UN Global Compact Principles, ISO 26000:2010, Kenya's National Climate Change Policy (Draft), and the Kyoto Protocol.

The Guiding Principles, which were formerly adopted on 31st March 2015 by the KBA Member Banks as an industrywide policy, are as follows:

Principle 1: Financial Returns versus Economic Viability.

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.

Principle 2: Growth through Inclusivity & Innovation.

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.

Principle 3: Managing & Mitigating Associated Risks.

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 indirect 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.

Principle 4: Resource Scarcity and Choice.

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.

Principle 5: Business Ethics & Values.

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.

About Kenya Bankers Association

Founded on 16th July 1962, KBA (www.kba.co.ke) is the umbrella body of the banking sub-sector with a membership of 46 banks that are licensed and regulated by the Central Bank of Kenya (CBK). KBA has undertaken major industrywide initiatives, including aligning standards on payments; promoting pricing transparency through the introduction of the Annual Percentage Rate framework (costofcredit.co.ke); and the modernization of the National Payments System through the Automated Clearing House, which KBA owns and operates. In line with the Government's policy on public-private partnerships, the Association and CBK have implemented key milestone projects such as the Real Time Gross Settlement System (RTGS), and the Kenya Credit Information Sharing Initiative, which introduced the use of information collateral provided by credit reference bureaus to enhance credit access for borrowers.

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