Beyond the Checklist: ESG Compliance and Green Finance Rules for Kenyan Businesses

ESG compliance in Kenya has moved beyond the voluntary, box-ticking stage that many businesses still associate with it. Listed companies are expected to report on sustainability, banks are working under a dedicated climate-risk regime and a green finance taxonomy, and carbon market projects now sit inside a statutory framework. This article sets out what each source requires, what we verified, and what we could not confirm.

ESG compliance in Kenya for listed companies

The Nairobi Securities Exchange launched its ESG Disclosures Guidance Manual on 29 November 2021, developed with the Global Reporting Initiative. The NSE’s own release describes a one-year grace period from issuance for listed companies to become familiar with the reporting steps, and says listed companies should report publicly on ESG performance at least once a year. The same release states that the NSE had not yet mandated ESG reporting under the guidelines, so check the current NSE listing rules and any later notice before advising a listed client that the Manual is binding.

Whatever its status, the Manual is not the only relevant document, because some underlying duties already exist in company law. Section 143(1) of the Companies Act, 2015 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. In doing so, the director must have regard to a list of matters that includes the long-term consequences of a decision, the interests of employees, business relationships, and, at section 143(1)(d), the impact of the company’s operations on the community and the environment. The duty sits in the Companies Act and not in the Climate Change Act.

The Climate Change Act and private entities

The Climate Change Act gives the Climate Change Council power to impose climate change obligations on private entities, including entities constituted under the Public Benefits Organizations Act, 2013 (section 16(1)). The Cabinet Secretary must make regulations on the nature and procedure of reporting by private entities. The Council may, by Gazette notice, require a private entity subject to such obligations to prepare reports on its performance. The National Environmental Management Authority monitors compliance on the Council’s behalf (section 17). A person can also apply to the Environment and Land Court under Article 70 of the Constitution where another person has acted in a way likely to harm mitigation and adaptation efforts (section 23). These duties arise through instruments made under the Act, so check whether your company has been named in a Gazette notice or falls within reporting regulations.

The stricter regime for banks

Banks face a separate and more prescriptive framework. The Central Bank of Kenya issued Banking Circular No. 4 of 2021 on 15 October 2021, introducing its Guidance on Climate-Related Risk Management. Under the circular, implementation plans approved by each institution’s board were due to the CBK by 30 June 2022, with quarterly updates starting on 30 September 2022. On 4 April 2025 the CBK issued the Kenya Green Finance Taxonomy and the Climate Risk Disclosure Framework for implementation by the banking sector. The CBK’s notice states that the taxonomy is intended to help market participants determine whether economic activities are green or environmentally sustainable, and that the disclosure framework is meant to help commercial banks collect and publish climate-related information. It records that technical assistance from the European Investment Bank commenced in October 2023. The notice does not state effective dates, reporting deadlines or whether compliance is mandatory, so confirm the position in the full documents before advising on penalties.

For a borrower, the practical consequence is that a bank is expected to use the taxonomy to assess its activities, so a project described as green should be able to meet the taxonomy’s criteria.

Carbon markets are now regulated

Carbon market rules are no longer a proposal. The Climate Change (Amendment) Act, 2023 added Part IVA to the Climate Change Act, covering carbon markets (sections 23A to 23I), including trade in carbon markets, participation, environmental impact assessment, social and environmental benefits, a National Carbon Registry and dispute resolution. The Climate Change (Carbon Markets) Regulations, 2024 (Legal Notice 84 of 2024) commenced on 17 May 2024.

Two features matter to project developers. First, the regulations require an annual social contribution to the community in carbon projects on public and community land, of at least 40% of the previous year’s aggregate earnings less the cost of doing business for land-based projects, and at least 25% for non-land-based projects. Second, where the Designated National Authority is satisfied that the proponent has met the requirements, it must issue a letter of no objection within fourteen days of receiving the application. Proponents should also expect a community development agreement with each affected community.

Why this matters to unlisted businesses

A business seeking development finance or impact capital, as discussed in our guide to impact investing in Kenya, will often face ESG due diligence and reporting covenants whatever its listing status. A supplier to a listed company, a multinational or an exporter may be asked for ESG information as a commercial condition. And a business seeking bank finance should expect its environmental and social practices to be scrutinised against the lender’s own climate-risk framework.

Building a programme

• Start with a materiality assessment of which environmental, social and governance issues matter to your operations, instead of a generic checklist.
• Put board-level ownership in place, because both lenders and investors probe board engagement.
• Test green claims against the CBK taxonomy before using terms such as green in a financing or marketing document.

Frequently asked questions

This article is general information on Kenyan law as at its publication date, not legal advice. Reading it does not create an advocate and client relationship.