It will be mandatory for all Kenyan public interest entities (PIEs) to disclose sustainability-related financial information starting January 2027, the Institute of Certified Public Accountants of Kenya (ICPAK) has announced.

This requirement encompasses listed companies, credit institutions, and insurance firms, among others deemed significant due to their business nature or size. Philip Kakai, ICPAK chair said that this initiative aligns Kenyan practices with international standards, specifically the International Financial Reporting Standard (IFRS) Sustainability Disclosure Standards (S1 and S2).

The rollout will occur in phases. Voluntary adoption began in January 2024, mandatory for PIEs from January 1, 2027, and large non-PIEs by 2028. Small and medium-sized enterprises (SMEs) will follow in 2029, though timelines for public sector entities yet to be established by ICPAK.

Build capacity

 “This approach will allow organisations to build capacity, gather necessary data, and align their internal processes with the new standards,” Kakai stated.

The IFRS S1 standard sets general requirements for disclosing sustainability-related risks and opportunities, while IFRS S2 focuses on climate-related disclosures. These standards aim to enhance transparency and comparability across companies, assisting investors in making informed decisions.

Currently, many Kenyan businesses adhere to various frameworks like the Nairobi Securities Exchange (NSE) ESG Disclosure Guidance and the Central Bank of Kenya Climate Risk Guidelines.  By adopting the IFRS standards, Kenya seeks to unify sustainability reporting, improving consistency and reliability in disclosures. Kakai emphasised that the roadmap developed with the International Sustainability Standards Board (ISSB) simplifies reporting processes and equips Kenya with a global standard for sustainability.

Grace Kamau, ICPAK chief executive noted that the increasing demand from investors for businesses to disclose their environmental and social practices alongside financial performance positions them favourably in attracting investment amid the growing global emphasis on sustainability.

 Despite these advancements, only about one in four listed firms on the NSE currently comply with ESG reporting requirements.

As of late 2023, only 15 out of 61 publicly traded companies had adopted ESG disclosures since guidelines were released in December 2021.  Immediate former NSE Chief executive Geoffrey Odundo said that while many companies engage in integrated reporting, there remains a significant gap in compliance.

The introduction of mandatory sustainability reporting is expected to boost corporate reputation and stakeholder trust by demonstrating a commitment to sustainable practices.

  The integration of sustainability reporting into financial disclosures marks a crucial shift for Kenyan businesses.