Does ESG Actually Matter in a Kenyan M&A Deal?

Yes. ESG due diligence matters in a Kenyan M&A deal because three ordinary pieces of Kenyan law already turn environmental, governance and conduct risk into legal exposure for the acquirer: the directors’ duty in section 143 of the Companies Act, 2015, the licence transfer rules in the Environmental Management and Co-ordination Act, and the duty to maintain bribery prevention procedures in the Anti-Bribery Act. Most Kenyan acquisitions still run due diligence around financial statements, tax, litigation and title. ESG due diligence rarely gets its own workstream, even though each of these areas can become a liability the buyer inherits at closing.

Why ESG due diligence is a legal question

The legal hook is not a listed-company sustainability regime. It is the general duty of directors. Section 143(1) of the Companies Act requires a director to act in the way the director considers, in good faith, would promote the success of the company for the benefit of its members as a whole, and in doing so to have regard to a list of matters that includes the interests of employees, the impact of the company’s operations on the community and the environment, and the desirability of maintaining a reputation for high standards of business conduct (section 143(1)(b), (d) and (e)). After closing, the buyer’s nominees sit on the board and carry that duty for a company with whatever history the target brings.

That makes it hard to treat environmental, labour and governance questions as soft. A buyer that does not ask about them is not avoiding a values debate; it is leaving a category of legal risk unpriced.

Environmental licences and the transfer rules

Under section 63 of the Environmental Management and Co-ordination Act, the National Environment Management Authority may issue an environmental impact assessment licence on terms and conditions it considers appropriate. Section 65 then governs transfer. A licence may be transferred by the holder to another person only in respect of the project for which it was issued (section 65(1)). The transferee and the transferor must jointly notify the Director-General in writing not later than thirty days after the transfer (section 65(2)), the transfer takes effect on the date the Director-General is notified (section 65(4)), and if no joint notification is given the registered holder is deemed to be the owner or the person with charge, management or control of the project (section 65(3)). A contravention of the section is an offence (section 65(5)).

The structure of the deal changes how this applies. On a purchase of the business or assets, where the licence has to move to a new holder, section 65 is the mechanism and the notification deadline becomes a closing item. On a share purchase, the licence holder remains the same company, so the section 65 transfer does not itself arise; instead the buyer takes control of a company with its full compliance record. In both cases, the licence certificate alone proves little. Section 68 gives the Authority responsibility for environmental audit of activities likely to have a significant effect on the environment, and allows an environmental inspector to enter premises to determine how far activities conform with the statements in the environmental impact assessment study report. A buyer should therefore ask for the study report, the licence conditions, any audit or monitoring reports, and any notices from the Authority, and compare operations on the ground with what was approved.

Governance and anti-bribery controls

The Anti-Bribery Act (enacted in 2016, and cited by that short title on the current consolidated text) applies to the public, public officers, public entities and private entities (section 4). Section 9(1) says a public or private entity shall put in place procedures appropriate to its size, scale and the nature of its operation for the prevention of bribery and corruption. Under section 9(2), where a private entity fails to do so with the consent or connivance of a director, a senior officer or a person acting in that capacity, that individual commits an offence.

The corporate offence in section 10 is that a private entity commits an offence if a person associated with it bribes another person intending to obtain or retain business or an advantage in the conduct of business for the entity. Section 11 defines an associated person broadly: anyone who performs services for or on behalf of the entity as an agent, an employee or in any other capacity, decided by reference to all relevant circumstances. For a buyer, that means the conduct of the target’s agents, distributors and consultants is part of the diligence. A court sets the fine for a private entity convicted under section 10 (section 18(4)) and may order repayment of any advantage received (section 18(6)).

Check whether the target has written anti-bribery procedures, whether anyone follows them, how it vets and pays intermediaries, and whether it has ever received an inquiry. A company with a clean litigation history can still have no working controls. Our article on anti-bribery procedures for foreign subsidiaries in Kenya sets out what appropriate procedures look like in practice.

Scoping a proportionate ESG workstream

For most Kenyan deals the scope does not need to match a listed-company sustainability audit. A workable scope covers four things: the target’s environmental licensing position and compliance history, not just the current certificate; its labour and statutory contribution compliance, including pending disputes and claims; whether anti-bribery procedures exist and are followed; and, for a target holding a regulated licence, whether the conditions attached to that licence are being met. This sits alongside financial and legal due diligence and covers risks those reviews are not designed to catch.

The timing matters. A gap found during diligence is a negotiating point: a price adjustment, a specific indemnity, or a condition to closing. The same gap found after closing is the buyer’s problem, with no leverage left.