TCFD for East African Banks: Three Years of Mandatory Reporting, and What Still Needs to Change

Mandatory since 2022. Still largely underdeveloped.

The CBK Guidance on Climate-Related Risk Management came into force in September 2022, requiring all commercial banks and mortgage finance companies to integrate climate-related risks into their governance, strategy, risk management, and disclosure frameworks aligned with TCFD. That is not a voluntary suggestion. It is a mandatory regulatory expectation from Kenya's central bank.

Three years into mandatory TCFD reporting, the picture across the sector is mixed. Some banks are producing genuinely substantive climate risk disclosures that engage with physical and transition risks in their specific lending portfolios. Too many are producing disclosures that fulfil the form of TCFD — four pillars, climate policy references, a section heading that says "scenario analysis" — without the substance.

The difference matters. It matters to institutional investors and international correspondent banks that use TCFD quality as a proxy for risk management maturity. It matters to the CBK as it assesses compliance. And it matters to the banks themselves, because the risks TCFD is designed to surface are real.

What TCFD actually requires from a bank

The TCFD framework organises climate risk disclosure around four pillars — but for banks, each pillar has specific content requirements that go beyond generic statements.

Governance: Which board committee has explicit oversight of climate-related risks and opportunities? How frequently does climate risk appear on the board agenda? What is the management structure for climate risk, and how does climate performance link to executive incentives? Banks that say "the board monitors climate risk" without answering these questions have not met the governance disclosure standard.

Strategy: What are the material climate-related risks and opportunities for this specific bank's portfolio? This requires a lending portfolio analysis — identifying which sectors and geographies face the highest physical and transition risks, and how that exposure has shifted over the reporting period. It also requires scenario analysis: how does the bank's portfolio perform under different climate pathways? TCFD identifies three warming scenarios as a minimum — well below 2°C, 2°C, and a higher warming scenario. Most East African banks are still treating scenario analysis as a future aspiration rather than a current reporting requirement.

Risk management: How are climate risks identified, assessed, and managed across the credit lifecycle — from origination through monitoring through portfolio review? How are climate risks integrated into existing credit risk frameworks rather than sitting as a separate parallel process?

Metrics and targets: What quantitative metrics is the bank using to measure climate risk exposure? What targets has it set for portfolio alignment with climate goals? And increasingly: what is the bank's financed emissions footprint?

The financed emissions conversation

This is where most East African bank TCFD disclosures fall shortest — and where the next wave of regulatory and investor expectations is building.

Financed emissions are Scope 3 Category 15 under the GHG Protocol — the greenhouse gas emissions associated with a bank's loans and investments. For most banks, financed emissions dwarf the institution's own Scope 1 and 2 operational footprint by orders of magnitude. A bank's decision to lend to a coal plant or a large agricultural operation has climate implications that its electricity bill never could.

The Partnership for Carbon Accounting Financials (PCAF) has developed the methodology for calculating financed emissions, and it is increasingly referenced by international investors, the EU's SFDR regulation, and the ISSB standards. Kenyan banks with international correspondent banking relationships or DFI partnerships are already facing requests for financed emissions data from their international counterparts.

The calculation is complex — it requires emissions data from borrowers, which in Kenya's SME-heavy lending market is rarely available. But the approach starts with the data you have: sectoral emissions factors applied to lending balances, with progressive refinement as borrower-level data becomes available. Starting is better than waiting for perfection.

The Kenya Green Finance Taxonomy connection

For banks navigating TCFD, the Kenya Green Finance Taxonomy is a complementary instrument that deserves to be used alongside TCFD rather than treated as a separate workstream. The taxonomy's sector-by-sector classification of green versus harmful activities maps directly onto the portfolio-level analysis that TCFD's strategy pillar requires. Banks that have done taxonomy alignment work have, in effect, already done a significant portion of the TCFD portfolio assessment.

Where to focus if your TCFD disclosure needs upgrading

If your bank's current TCFD disclosure reads as a policy document rather than a risk assessment, the highest-impact improvements are: a genuine sector-level portfolio climate risk analysis with quantified exposures, at least a qualitative scenario analysis that names specific physical and transition risks relevant to your borrower base, and a starting-point financed emissions calculation for your largest sectoral exposures.

These are not cosmetic improvements. They are the substance that TCFD was designed to require.

*Ardena Consulting supports Kenyan and East African banks with TCFD implementation, portfolio climate risk assessment, financed emissions calculation, and Kenya Green Finance Taxonomy alignment. Contact us to assess your current TCFD disclosure quality.*