Determinants of GRI-aligned climate disclosures among East African commercial banks

Abstract

The banking sector faces increasing pressure to disclose climate risk management strategies, yet many institutions, especially in developing countries, provide limited information. In 2023, Kenyan banks launched a Climate-Related Financial Disclosures Template to enhance transparency. Globally, inadequate climate disclosures could expose financial assets to risks totalling up to $24.2 trillion. In East Africa, GDP per capita could decline by up to 16% by 2050 under high-warming scenarios. The data analysis offered some critical insight into the issues that influence the disclosure of climate related information. This study examined the influence of firm and corporate governance characteristics on climate-related disclosures among East African commercial banks. Using panel data, secondary panel data was sourced between 2017 to 2023 from published financial and sustainability reports of 37 banks that met the study criteria of disclosing Global Reporting Initiatives (GRI) and reported on environmental aspects resulting in a total of 197 observations. The study applied Feasible Generalized Least Squares (FGLS) regression to control for heteroskedasticity and panel-specific variations. The regression results revealed that Bank size, Bank profitability (ROA), Board independence, and gender diversity positively and significantly impacted climate-related disclosures, Conversely, financial leverage and board size exhibit a negative and significant effect on these disclosures. The study recommended the need for regulatory enforcement to standardize climate-related disclosures, banks to prioritize having more independent and gender-diverse boards, and balance financial risk and an effective and agile board to increase climate related disclosures. While the study provided valuable insights, it was confined to a single sector, limiting the generalizability of its findings. Additionally, reliance on publicly available disclosures and financial reports may have introduced data availability and reporting gaps. Future research should consider cross-sectoral analyses and incorporate more robust data collection methods to address these limitations.

Key words: Global Reporting Initiatives, Climate risk, Disclosures, Sustainability, Banking sector, Financial risk, Feasible Generalized Least Squares,