Stakeholders in the country’s sustainable finance landscape are now banking on the Central Bank of Kenya (CBK) generated Draft Green Finance Taxonomy, Draft Climate Risk Disclosures Framework and adoption of International Financial Reporting Standards (IFRS) S1 and S2 to weed out rogue elements engaging in greenwashing.
Greenwashing refers to tactics used to misguide the public into believing that an entity is doing more than it actually is in aligning its day-to-day practices with sustainability goals.
The world’s largest off-grid solar pay-as-you-go company, Sun King, argues that green washing has been a major distortion in the sustainable finance market, crowding out well deserving companies from much needed capital.
“Green washing distorts the competitive landscape. It includes both misreporting and selective reporting. You for example have many companies that talk about usage of recycled paper yet they are the same ones polluting water bodies. When you have sustainable finance go into projects that are green washed, genuine projects which are actually creating an impact are crowded out,” Sun King’s Chief Finance Officer, Krishna Swaroop, says.
The CBK published the Draft Green Finance Taxonomy in March 2024 to provide a reference point in guiding the country’s transition into a green economy as well as catalyse the inflow of green finance by aligning with internationally recognised norms.
The Draft Climate Risk Disclosures Framework was published in August 2024 and is geared towards improving climate change related risk management through greater transparency in disclosures made to potential investors and market watchers.
IFRS S1 and S2 are sustainability related reporting standards with IFRS S1 requiring entities to disclose information regarding sustainability related risks that could materially affect its cashflows. IFRS S2 places emphasis on disclosures on specifically climate related risks.
“We see mainly two forms of sustainable finance. There’s that which right from the onset disbursement is pegged on the use of proceeds and that makes it easy to guard against green washing. It is the second one which is sustainability linked financing which tends to have a significant green washing challenge because it means an entity continues with its normal business only that it is providing assurances that this will be done in a sustainable manner. This is where the taxonomy will be instrumental in validation,” Absa Bank Kenya’s Managing Principal for Corporate and Investment Banking James Agin says.
Whereas disclosures related to IFRS S1 and S2 have are not mandatory for companies in Kenya, stakeholders view gradual voluntary adoption as a key stride being made in tightening safeguards against green washing.
“We are moving towards more guidelines around reporting which will provide clarity around what projects are to be financed, what are the expected improvement targets, and that provides a mechanism to guard against green washing. This will also equip investors, especially fund managers to ask the right questions to their investees,” FSD Africa’s senior specialist in green finance Cecilia Bjeborn Murai says.
