In a move that could serve as a model for climate-vulnerable nations across Africa, the Reserve Bank of Malawi (RBM) has responded to the climate crisis by expanding its role in greening the financial sector.
The initiative, supported by the UNEP Copenhagen Climate Centre and funded by the NDC Partnership, culminated in the release of a feasibility study and internal roadmap that lay out a phased, actionable plan for accounting for climate-related financial risk in Malawi’s financial system.
Malawi, and most other developing economies, are highly vulnerable to climate change and the physical risks to people, infrastructure, and land, threaten to endanger financial stability.
A Climate Crisis with Financial Consequences
Greening the financial sector is the process of integrating environmental considerations into financial institutions’ practices, policies, and strategies. The goal is to reduce environmental and climate-related financial risks and accelerate the transition to a low-carbon economy by increasing the mobilization of sustainable finance.
Malawi, like many African nations, is on the frontlines of climate change. From floods and droughts to cyclones, the country faces escalating physical risks that threaten not only lives and livelihoods but also the very stability of its financial system. For the Reserve Bank of Malawi, whose core mandate is price and financial stability, climate change is no longer a peripheral concern—it is a central risk.
From Vision to Action: A Roadmap for Reform
In a promising development, the Reserve Bank of Malawi wasted no time in translating the study’s recommendations into action. Shortly after the launch, the Bank announced the establishment of a dedicated Climate Change Centre—an essential first step in institutionalizing climate considerations within the Bank. Meanwhile, further steps to implement the actions recommended in the feasibility study are undertaken.
Franklyn Khoza, Manager of the Climate Change Centre, was part of the work of the initiative, and has since been instrumental in implementing its recommendations.
“A cross-departmental effort is ongoing to integrate capacity building needs related to climate change into the Reserve Bank’s training plan. Furthermore, the Reserve Bank, with assistance with from a multilateral development partner, has started work on producing a green taxonomy for Malawi,” he states.
The roadmap outlines near-, medium-, and long-term actions, which range from issuing climate risk disclosure guidelines and joining international climate finance networks, to launching green bonds and greening pension funds. The feasibility study is accompanied by a capacity gap assessment guiding the Reserve Bank in the implementation of the recommended actions.
A Blueprint for Africa?
The Malawi case offers valuable lessons for other African central banks aiming to green their financial sector. It shows that even with limited resources, meaningful progress is possible through buy-in from senior leadership in central banks, technical exchanges and consultations with affected stakeholders including in the financial industry, and effective cooperation between the central bank and the key ministries.