The region’s largest lender by assets is steering capital towards sustainable development, but faces the contradictions inherent in funding growth on a carbon-constrained continent
By Ethical Business Team
When Joshua Oigara assumed the chief executive role at KCB Group in 2012, Kenya’s largest commercial bank held assets worth 309 billion Kenyan shillings. A decade later, under his successor Paul Russo, the Nairobi-based institution reported assets exceeding 1.4 trillion shillings (approximately $10.8 billion), cementing its position as East Africa’s dominant financial services provider. This expansion, however, has coincided with mounting pressure on African banks to reconcile economic development with environmental sustainability, a tension that sits uncomfortably at the heart of continental finance.
KCB’s evolution mirrors the broader challenge facing African financial institutions: how to fund infrastructure, manufacturing and agricultural expansion whilst simultaneously addressing climate objectives largely defined by economies that industrialised without such constraints. The bank operates across seven countries (Kenya, Uganda, Tanzania, Rwanda, Burundi, Ethiopia and South Sudan) serving 27 million customers as of September 2024, according to its quarterly financial statements. Its lending book, worth roughly 850 billion shillings as of the third quarter of 2024, represents a microcosm of Africa’s development dilemmas.
The fossil fuel question
African banks have historically viewed energy financing through the prism of access rather than emissions. Some 600 million Africans lack reliable electricity, according to International Energy Agency data from 2023, whilst the continent accounts for less than 4 per cent of global carbon emissions despite housing 18 per cent of the world’s population. KCB’s approach reflects this reality. The bank maintains exposure to fossil fuel projects, particularly in oil and gas exploration in Kenya’s Turkana region and Uganda’s Albertine Graben, where Total Energies is developing fields estimated to contain 6.5 billion barrels of crude.
In 2021, KCB participated in a syndicated loan facility for the East African Crude Oil Pipeline, a 1,443-kilometre project connecting Ugandan oilfields to Tanzania’s Indian Ocean coast. The $5 billion infrastructure scheme attracted significant criticism from environmental organisations, with BankTrack noting that the heated pipeline would traverse critical water sources and wildlife habitats whilst displacing approximately 100,000 people. KCB’s involvement, alongside Standard Bank and Sumitomo Mitsui Banking Corporation, underscored the gap between Western environmental expectations and African development priorities.
The bank’s leadership has been relatively forthright about this tension. Speaking at the Africa Climate Summit in Nairobi in September 2023, Russo stated that “African banks must balance the immediate energy needs of our populations with longer-term climate objectives”. This pragmatism, whilst defensible in developmental terms, sits awkwardly alongside the institution’s public commitments to sustainable finance frameworks.
Kenya’s energy minister Davis Chirchir echoed this sentiment at the same summit, arguing that “Africa cannot be expected to forego its natural resources when it contributed least to the climate crisis”. Such statements reflect a continental consensus that shapes lending policies at institutions like KCB, where loan committees weigh environmental concerns against employment creation, tax revenues and energy security.
Green credentials and contradictions
KCB became a signatory to the United Nations Environment Programme Finance Initiative in 2021, pledging to align operations with the Sustainable Development Goals. The bank’s 2023 integrated annual report details commitments to SDG 8 (decent work and economic growth), SDG 9 (industry, innovation and infrastructure) and SDG 13 (climate action), yet the institution has not published sector-specific exclusion policies for coal, oil or gas financing, a transparency benchmark increasingly expected by institutional investors.
The bank has, however, made tangible moves towards green lending. Its Green Energy and Climate Change Action loan product, launched in 2019, offers preferential interest rates ranging from 12 to 14 per cent (compared to standard commercial rates of 15 to 18 per cent) for renewable energy installations, energy-efficient equipment and climate adaptation projects in agriculture. By December 2023, KCB had disbursed approximately 22 billion shillings through this facility, supporting over 5,200 solar home systems, 340 small-scale hydroelectric projects and numerous irrigation schemes designed to build drought resilience.
The institution’s agricultural lending portfolio, representing roughly 22 per cent of its loan book according to 2024 data, increasingly incorporates climate-smart criteria. Farmers adopting drought-resistant crop varieties, conservation agriculture techniques or solar-powered irrigation receive preferential terms. Yet these initiatives remain modest relative to the bank’s overall exposure. Green finance constituted approximately 2.6 per cent of KCB’s total lending in 2023, according to figures disclosed in its sustainability report, a proportion that lags behind comparable institutions in emerging markets such as South Africa’s Nedbank, which reported 8.4 per cent green finance exposure in the same period.
The ESG toolkit challenge
Access to international climate finance remains constrained for African banks, creating something of a vicious cycle. Institutions like KCB struggle to scale green lending without concessional capital, yet cannot access such capital without demonstrating robust environmental, social and governance frameworks. The bank has made progress on disclosure, publishing its first standalone sustainability report in 2022, but gaps remain in critical areas such as Scope 3 emissions accounting, the indirect emissions from financed activities that constitute the majority of a bank’s carbon footprint.
KCB’s ESG toolkit, developed with support from the International Finance Corporation, includes environmental risk screening for loans above 100 million shillings and mandatory environmental impact assessments for major infrastructure projects. The bank requires borrowers in extractive industries to demonstrate compliance with national environmental regulations and, in theory, with the IFC’s Performance Standards on Environmental and Social Sustainability. Implementation, however, varies considerably across KCB’s seven operating markets, where regulatory capacity and enforcement differ substantially.
The institution faces particular challenges in markets like South Sudan and Burundi, where weak governance structures complicate due diligence. A 2023 report by the Natural Resource Governance Institute rated South Sudan’s oil sector transparency at 12 out of 100, raising questions about the environmental and social oversight of projects in such jurisdictions. KCB’s exposure in these markets remains relatively limited (South Sudan operations represent less than 3 per cent of group assets) but the reputational risks are disproportionate to the financial stakes.
In November 2024, KCB announced a partnership with the African Development Bank to establish a $150 million green finance facility, specifically targeting renewable energy projects and climate-smart agriculture across its operating markets. The concessional terms, with interest rates approximately 4 percentage points below commercial rates, are designed to help the bank scale its sustainable lending portfolio whilst managing credit risk. This represents a significant step, though the facility amounts to roughly 6 per cent of KCB’s annual lending volumes.
Balancing development and decarbonisation
The fundamental tension in KCB’s approach reflects a broader policy challenge that African nations have articulated forcefully in international climate negotiations. At COP28 in Dubai in December 2023, the African Group of Negotiators argued that the continent requires $2.8 trillion in climate finance through 2030 to pursue low-carbon development pathways, yet receives less than 12 per cent of global climate finance flows despite bearing disproportionate climate impacts.
William Ruto, Kenya’s president, stated at COP28 that “Africa should not be forced to choose between development and decarbonisation when it has abundant renewable resources waiting to be financed”. This political position directly influences how regulators approach banking supervision and how institutions like KCB structure their lending policies.
KCB’s strategy appears calibrated to this reality. The bank continues financing conventional energy where it perceives genuine development needs, whilst gradually building green finance capabilities and awaiting clearer price signals from carbon markets and international climate funds. This incrementalism frustrates environmental advocates but resonates with shareholders and regulators focused on financial inclusion and economic growth metrics.
The bank’s return on equity averaged 21.8 per cent between 2020 and 2024, demonstrating that sustainable finance commitments have not impaired financial performance. Whether this balancing act remains viable as climate risks intensify and investor expectations evolve is another matter entirely. Severe droughts in Kenya in 2022 resulted in loan defaults exceeding 5.2 billion shillings in agricultural portfolios, offering a preview of climate-related credit risks that will only accelerate.
The Central Bank of Kenya introduced climate risk stress testing requirements for commercial banks in January 2024, forcing institutions including KCB to model potential losses from extreme weather events, transition risks and regulatory changes. Preliminary results, disclosed in August 2024, suggested that KCB could face potential credit losses of up to 40 billion shillings under severe climate scenarios over a 10-year horizon, equivalent to roughly 5 per cent of its current loan book.
What comes next
KCB Group’s trajectory suggests that African banks will pursue environmental objectives on their own terms, shaped by development imperatives that frequently diverge from global climate orthodoxy. For an institution financing everything from Nairobi’s matatus to Ugandan oil wells, the transition will be measured not in quarters but in decades, a timeline that climate science suggests Africa can ill afford, but economic realities may demand nonetheless. As Patrick Njoroge, former governor of the Central Bank of Kenya, observed in 2023, “African financial institutions must walk a tightrope between global sustainability standards and local development needs, and that balance will define the continent’s economic future”.
