With a commitment towards a nationally determined contribution (NDC) target of abating greenhouse gas emissions by 32% by 2030, Kenya is now taking its next significant step towards a greener future with the introduction of the draft Kenya Green Finance Taxonomy (KGFT).
“The taxonomy will promote transparency, compliance, innovation and investment opportunities for businesses. By providing a common language and framework for green finance, the taxonomy will help drive opportunities for business to contribute to a more sustainable future and invest in sustainable initiatives, such as renewable energy and sustainable supply chains,” said Agnes Talai, manager of advisory – strategy and operations at PwC.
Under the Central Bank of Kenya (CBK), the KGFT is a part of the ongoing European Investment Bank (EIB)-CBK Greening Financial Systems technical assistance programme launched in October 2023.
The KGFT is a classification system designed to categorise economic activities as “green” or environmentally sustainable. It aims to serve as a guide for both financial institutions and other market participants, enabling them to make informed investment decisions that support Kenya’s transition to a low-carbon, resource-efficient, and sustainable economy.
The key aim of the draft taxonomy is:
- Standardisation: It establishes a unified language and criteria for identifying green investments, promoting transparency and eliminating ambiguity in the financial sector.
- Transparency: By outlining clear disclosure requirements, it enhances the visibility and comparability of green financial products, fostering trust and responsible investment practices.
- Incentivisation: Provides clear and consistent guidelines, aiming to stimulate investment in sustainable projects by bolstering investor confidence in the green sector.
- Regulatory support: Acts as a tool for regulators to monitor and promote green finance initiatives, ensuring alignment with Kenya’s national sustainability goals.
The draft KGFT, which was open for public consultation from April 2024 until 11 June 2024, allowed for stakeholder feedback to ensure that the final taxonomy reflects the needs of the Kenyan financial sector. Although no date is yet available for the finalisation of the KGFT, it is envisioned to be a “live document” subject to periodic updates to keep pace with evolving environmental objectives.
While the use of the KGFT is currently voluntary, financial institutions are likely to be encouraged to align their portfolios with the taxonomy in the future to support Kenya’s climate goals and potentially benefit from emerging regulations.
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