Kenya’s banks shift billions into climate and inclusive finance as ESG becomes core business

For decades, sustainability occupied the margins of banking. It was largely synonymous with tree-planting campaigns, charitable foundations, annual corporate social responsibility reports and community donations. That model seems to be changing.

A glimpse at Absa Bank Kenya’s 2025 Sustainability and Climate Report offers one of the clearest indications yet that sustainability is no longer being treated as a reputational exercise but as a strategic pillar of modern banking.

The lender disclosed that it disbursed KSh55.3 billion in sustainable finance during 2025, while total assets rose to KSh538 billion, profit after tax reached KSh22.9 billion, and total revenue climbed to KSh60.02 billion.

The report represents a significant departure from Absa’s 2024 Sustainability Report. Whereas the earlier publication largely catalogued sustainability initiatives and community programmes, the 2025 report positions sustainability as an enterprise-wide business strategy that influences lending decisions, governance structures, risk management and long-term profitability.

“From supporting businesses to grow and enabling access to affordable housing, to financing climate-smart agriculture, renewable energy and broader financial inclusion, we have intentionally deployed capital where it can make the greatest difference.,” said Yusuf Omari, Absa Bank Kenya’s Interim Managing Director and Chief Executive Officer, during the launch of the report at Strathmore University, Nairobi.

His remarks reflect a broader transformation taking place across Kenya’s banking sector, where climate finance, inclusive lending and ESG considerations are increasingly viewed not as compliance obligations but as commercial opportunities capable of driving growth while strengthening resilience.

The 2024 report focused on projects, partnerships, community impact and environmental stewardship. The 2025 report, by contrast, is dominated by terms more commonly associated with banking strategy than corporate philanthropy: enterprise strategy, financial materiality, climate risk, capital allocation, resilience, governance and portfolio management.

Sustainability is no longer presented as a standalone department or a collection of CSR initiatives. Instead, the report explains that ESG considerations are embedded throughout the bank’s enterprise strategy, influencing credit underwriting, lending decisions, product development, portfolio management, scenario analysis and enterprise risk management.

The implications extend far beyond Absa. They suggest that Kenyan banks are beginning to assess environmental and social risks alongside traditional financial metrics when determining where capital should flow.

The scale of sustainable lending further illustrates this transition. Absa says it disbursed KSh55.3 billion in sustainable finance during 2025, up from approximately KSh47 billion reported in the previous year’s sustainability disclosures, reflecting continued expansion of lending to projects aligned with environmental and social objectives.

The financing supports renewable energy, climate-smart agriculture, energy efficiency, green buildings and environmentally sustainable housing through products such as the newly introduced Eco Home Loan. Unlike earlier sustainability programmes that largely operated alongside the bank’s commercial activities, these investments now form part of the core lending portfolio.

Globally, sustainable finance has evolved into one of banking’s fastest-growing markets, driven by institutional investors, regulators and customers seeking capital that supports climate resilience and inclusive growth. Kenyan lenders now appear to be following a similar trajectory.

Another feature of the report is its treatment of climate change. Previous sustainability reports largely discussed emissions reductions, tree planting and environmental conservation. The 2025 report goes much further.

Climate change is presented as a material financial risk capable of affecting loan performance, liquidity, operational resilience and long-term profitability.

Absa identifies sectors such as agriculture, manufacturing and tourism as particularly vulnerable to climate-related disruptions. These are industries that remain highly exposed to droughts, floods and changing weather patterns. Those disruptions, the report argues, ultimately translate into increased credit risk and potential pressure on loan portfolios.

Consequently, climate considerations are now integrated into lending decisions, portfolio management, scenario analysis and stress testing as part of the bank’s broader enterprise risk framework.

Dr Festus K. Ng’eno, Principal Secretary, State Department for Environment and Climate Change, said the evolution reflected a wider shift taking place across Kenya’s economy.

“Climate risks have increasingly become financial risks. The resilience of our economies, businesses and communities will depend on the choices we make today.

The banking sector has a unique opportunity—and responsibility—to accelerate Kenya’s transition to a green and resilient economy by financing restoration, renewable energy, sustainable agriculture, circular economy enterprises and other climate solutions,” he added during the launch.

Another notable development in the 2025 report is the sophistication of the reporting framework itself. It introduces concepts such as double materiality, distinguishing between issues that affect society and those that directly influence the bank’s financial performance.

It also aligns its disclosures with international sustainability standards including IFRS S1 and IFRS S2, while incorporating the Central Bank of Kenya’s Climate Risk Management Guidelines into governance and reporting structures.

This alignment suggests Kenyan banks are preparing for a future in which sustainability disclosures become increasingly important to international investors and lenders. Rather than asking which sustainability projects the bank implemented, the report asks which sustainability issues are financially material to the institution itself.

Apart from environmental finance, considerable emphasis has been placed on financial inclusion, particularly among SMEs, women and young entrepreneurs.

Abas says it increased its supplier diversity to 22 per cent, and doubled the number of employees living with disabilities. Women, the report says, now account for 50 per cent of management positions within the organisation.