Stanbic Holdings last year issued $122 million (Sh16.2 billion) loans whose pricing in subsequent years is tied to borrowers' achieving pre-agreed environmental, social, and governance (ESG) targets, increasing its focus on sustainability.
The lender discloses in its latest sustainability report covering the year ended December 2023 that lending, classified as sustainability-linked loans (SLL), accounted for six percent of its Sh260.5 billion loan book against the targeted 10 percent.
The amount was a rise from Sh12.5 billion disbursed a year earlier and the Sh6.5 billion it lent in 2021.
The rise came in the period Stanbic Bank Kenya, part of Stanbic Holdings, joined three other banks –Standard Chartered Bank Kenya, Absa Bank Kenya and KCB Bank Kenya— to issue a Sh15 billion SLL to Safaricom.
An SLL is a loan whose proceeds are typically used for a borrower's general corporate purposes but the interest rate is tied to achieving certain ESG goals.
Meeting the pre-agreed goals results in a lower interest rate.
Banks are using SLL and green loans to contribute to sustainability by encouraging firms tapping loans to implement their ESG goals.
Green loans, on the other hand, require borrowers to exclusively use the loan proceeds for preserving or restoring the environment.
“We made significant progress on our green financing commitment allocating a substantial part of our portfolio to sustainable projects.
This includes financing initiatives that support climate change adaptation, green agriculture, and the energy transition,” said Joshua Oigara, CEO at Stanbic Bank Kenya and South Sudan in the latest sustainability report.
Stanbic started the ESG focus by screening customers’ credit for environmental and social risks.
Initially, the lender screened all loans above $3 million (Sh398 million) but lowered this to $1 million (Sh132.9 million) last year.
The lender last year also approved a solar energy product as it aims to deepen its focus on renewable energy financing.
Achieving its targeted 10 percent share of green or SLL in the total loan book would mean raising the current lending by at least Sh10 billion, going by the Sh260.5 billion loan book at the end of December 2023.
Stanbic has drawn the 2024-2026 strategy dubbed ‘One Stanbic’ with one of the focus areas being integrating ESG principles into every aspect of its operations.
‘In the next three years, our focus will be on sustainable financing that empowers marginalized groups, accelerates socio-economic development and contributes to climate adaptation and mitigation,” says the lender in the sustainability report.
The Central Bank of Kenya in March came up with draft rules to guide banks in classifying whether particular economic activities are environmentally sustainable or ‘green,’ in the push to stamp out greenwashing.
The final document from the draft Kenya Green Finance Taxonomy (KGFT) will guide banks in properly classifying projects as either ‘green’ or ‘not green’ so as not to end up funding projects that harm the environment.
