By Jim McFie, a Fellow of ICPAK
Why ICPAK Should Be Kenya’s Sole ESG Reporting Regulator
On 26 June 2025, the Global Reporting Initiative (GRI) released its newly finalized Climate Change and Energy Standards. Of what concern is that to you and to me? The Nairobi Securities Exchange (NSE) ESG (environmental, social and governance) Disclosures Guidance Manual was published in November 2021.
Its ESG disclosure requirements became compulsory for all companies listed on the NSE with effect from November 2022. The NSE stipulated that listed companies should adopt the GRI standards to report on their ESG activities. One paragraph in the booklet reads: “To help reduce uncertainties on which framework or standards to apply, this manual recommends the adoption of the GRI Standards as the common framework for ESG reporting by listed companies in Kenya.
Listed companies on the NSE that already report publicly on ESG performance have chosen the GRI standards as their preferred framework for ESG Reporting”. FCPA Geoffrey Odundo, then the Chief Executive Officer of the NSE, added that “The GRI Standards are the most widely used framework for sustainability/ESG reporting”. Peter Paul van de Wijs, the Chief External Affairs Officer of the GRI, emphasized that “Transparency on the impacts of a business is essential for continuous improvement as well as for stakeholder relationships. Without transparency, there is no trust – and without trust, markets do not function efficiently, and Institutions lose their legitimacy. That is why the practice of sustainability reporting has been steadily growing over the past two decades, with GRI leading the way by providing the world’s most widely adopted standards for sustainability impacts: the GRI Standards”. The NSE directive requires the CEO of each listed company to provide “sponsorship” for the ESG reporting process: a critical element of this sponsorship is to appoint a Sustainability Manager to the senior management team and give him or her sufficient resources to fully implement ESG practices and reporting. The Sustainability Manager and his or her team has to have a clear understanding of the ESG reporting process. They do this by studying the: (1) Organisational strategy document; (2) Stakeholder engagement guidelines; (3) The CMA Code. (4) The GRI Standards. And: (5) The NSE ESG Disclosure Guidance Manual. One important point is that for a company to claim that their ESG report has been prepared in accordance with the GRI Standards, the ESG report must comply with all the GRI Reporting Principles and with all nine GRI requirements for the report. The GRI’s standards are developed by the Global Sustainability Standards Board (GSSB).
As you may know, there are a number of different entities that issue ESG standards. On 6 September 2023, the Institute of Certified Public Accountants of Kenya (ICPAK) announced its intention to adopt the International Financial Reporting Standards (IFRS) Sustainability Standard S1 General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures. These Standards were issued by the International Sustainability Standards Board, the ISSB. The ISSB was formed by the merger of the Climate Disclosure Standards Board (the CDSB) with the Value Reporting Foundation (the VRF) The Value Reporting Foundation (VRF) itself was created when the International Integrated Reporting Council (IIRC) merged with the Sustainability Accounting Standards Board (SASB), officially announced in November 2020 and finalized in mid-2021. The goal of the merger of the IIRC and SASB was to create a unified organization that could provide businesses and investors with a comprehensive corporate reporting framework. When the creation of the ISSB was announced on 3 November 2021 at the Conference of the Parties (COP) 26 climate conference in Glasgow, Scotland, the IFRS Foundation Trustees announced the planned consolidation of the IFRS Foundation, the Climate Disclosure Standards Board (CDSB) and the Value Reporting Foundation (VRF). The CDSB consolidation was completed in January 2022 and the VRF consolidation in August 2022. Hence a number of ESG standard setters have effectively disappeared: the GSSB is determined that it will not happen to it.
Although the International Integrated Reporting Council has “disappeared” or been subsumed into the ISSB, something it created lives on and thrives. The IIRC generated Integrated Reporting. A number of companies in Kenya, and even the Local Authorities Pension Trust, (LAPTRUST – in existence since 1929), produce an Integrated Report each year. The International Integrated Reporting Council (IIRC) was established in 2010, a response to the global financial crisis, when solutions were needed to mitigate the risk of such a collapse of the financial system happening again. An integrated report gives an account of six capitals which represent different types of resources and relationships that an entity uses. The six capitals are financial, human, intellectual, manufactured, natural, and social and relationship: these capitals can be increased or decreased through the activities of the entity. The IIRC stressed that Integrated Reporting without Integrated Thinking is mere hypocrisy (something which is found in abundance in society today). The discipline of critical thinking consists of making a deliberate and coordinated effort to connect the organization’s strategy, governance, performance and prospects: executives who use integrated thinking base their business decisions on interconnected and forward-looking information across multiple capitals, with a view to sustainable value creation. Over 2,500 companies in more than 70 countries publish their Annual Reports as Integrated Reports. The International Accounting Standards Board (IASB) and the ISSB will co-operate to agree on how to build on and integrate the Integrated Reporting Framework into their standard-setting projects and requirements. The Chairs of the IASB and ISSB actively encourage companies to continue adopting the Integrated Reporting Framework.
Internationally, IFRS S1 is effective for annual reporting periods beginning on or after 1 January 2024 as long as IFRS S2 Climate-related Disclosures is also applied. In Kenya at present, ICPAK has mandated that sustainability disclosures in accordance with IFRS S1 and S2 is voluntary for all organizations. All public interest entities, that is, commercial banks, investment banks, Saccos, insurance companies, listed companies, pension funds, and public trusts that hold assets in a fiduciary capacity for a large number of stakeholders, must report in accordance with IFRS S1 and S2 with effect from 1 January 2027; large entities must do so with effect from 1 January 2028; and the remainder of the private sector must do so with effect from 1 January 2029.
In October 2021, the Central Bank of Kenya issued a booklet entitled “Guidance on Climate-related Risk Management”. The document required banks to “develop and submit to CBK a time bound plan approved by the institution’s Board on how they plan to implement the guidance herein that is approved by the Board by June 30, 2022. The plan is to be signed by both the Chairman and Chief Executive Officer of the institution. Subsequently, each institution shall submit a quarterly report to CBK on the progress of its implementation of the Plan within 10 days after the end of every calendar quarter from the quarter ending September 30, 2022”. In addition to all the other risks that banks face, they “should incorporate climate-related risk considerations into their risk management framework, and establish effective risk management processes to identify, measure, monitor, report, control and mitigate climate-related risks”.
In December 2015, another entity that issues ESG standards, the Task Force on Climate related Financial Disclosures (TCFD) was established by the Financial Stability Board (FSB). The FSB is a successor organization to the Financial Stability Forum (FSF). The FSF was founded in 1999 by the G7 Finance Ministers and Central Bank Governors following recommendations by Hans Tietmeyer, President of the Deutsche Bundesbank (the Central Bank of Germany). The G7 Ministers and Governors had commissioned Dr. Tietmeyer to recommend new structures for enhancing cooperation among the various national and international supervisory bodies and international financial institutions so as to promote stability in the international financial system. He called for the creation of a Financial Stability Forum. The FSB was established in April 2009 as the successor to the Financial Stability Forum (FSF), at a meeting in Pittsburgh of the Heads of State and Government of the G20. They endorsed the FSB’s original Charter of 25 September 2009 to assume a key role in promoting the reform of international financial regulations and supervision. The current Chair of the FSB is Andrew Bailey the Governor of the Bank of England. The only members of the FSB from Africa are Lesetja Kganyago, the Governor of the South African Reserve Bank and Duncan Pieterse, the Head of the National Treasury of South Africa.
Let us get back to the Task Force on Climate related Financial Disclosures (TCFD). It developed a set of voluntary, consistent disclosure recommendations for use by companies in providing information to investors, lenders and insurance underwriters about their climate-related financial risks. The CBK decided to select the TCFD recommendations for Kenya’s commercial banks’ ESG reporting, which CBK claims to be a desirable framework for institutions to benchmark their proposed disclosure frameworks, and made them mandatory with effect from 30 September 2022. The CBK stipulated that bank should use the TCFD’s four pillars for disclosure of climate-related risks. These are: (i) Governance: Disclose the organization’s governance around climate-related risks and opportunities. (ii) Strategy: Disclose the actual and potential impacts of climate-related risks and opportunities on the organization’s businesses, strategy, and financial planning where such information is material. (iii) Risk Management: Disclose how the organization identifies, assesses, and manages climate-related risks. (iv) Metrics and Targets: Disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. This information can be included as part of the Annual Report (especially initially), or in a Sustainability Report, or a TCFD Report, or a separate Climate-related risk report.
Banks had to develop and submit to CBK a time bound plan approved by the institution’s Board on how the guidance would be implemented: it had to be approved by the Board by June 30, 2022, and signed by both the Chairman and Chief Executive Officer. Each bank then had to submit a quarterly report to CBK on the progress of its implementation of the Plan within 10 days after the end of every calendar quarter from the quarter ending September 30, 2022.
On April 4, 2025, the CBK released the Kenya Green Finance Taxonomy (KGFT) and the Climate Risk Disclosure Framework (CRDF) for implementation by banks. The KGFT and CRDF are intended to serve as tools to enable market participants classify their particular economic activities as to whether or not these are ‘green’ or environmentally sustainable, and promote the transition to a low-carbon economy. The Climate Risk Disclosure Framework (CRDF) states that a significant milestone in global sustainability reporting was marked in June 2023 with the issuance of the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, IFRS S1 and S2, by the International Sustainability Standards Board (ISSB). IFRS S1 outlines the general requirements for sustainability-related disclosures affecting financial performance. IFRS S2 specifically focuses on climate-related disclosures, in line with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD5). These standards promote improved risk management, transparency, and sustainable investments, ultimately benefiting the entire economy. The focus of this document is on IFRS S2. Nineteen days later, on April 23, 2025, the banking industry umbrella body, the Kenya Bankers Association (KBA), in partnership with the Institute of Certified Public Accountants of Kenya (ICPAK), the World-Wide Fund for Nature Kenya (WWF-Kenya), and Financial Sector Deepening Kenya (FSD Kenya) launched the IFRS S1 and S2 Disclosures Reporting Template for Banks, in an initiative that seeks to standardize sustainability and climate-related risk reporting across Kenya’s banking sector. The CBK’s current literature makes no mention of TCFD. Has a new leadership quietly forgotten about TCFD? Perhaps not until the possibility of fines being raised arises.
So, it can be concluded that ESG reporting is rather similar to a jigsaw puzzle. The various Kenyan regulators should let ICPAK be the sole regulator in respect of ESG reporting so that the cost of doing business in Kenya is kept as low as possible.
