Private firms and major corporates are expected to embrace global sustainability disclosure standards to help unlock green financing, as Kenya moves to embrace new international benchmarks.
The Institute of Certified Public Accountants of Kenya (ICPAK) has launched the inaugural sustainability standards IFRS S1 & S2 (International Financial Reporting Standards), developed by the International Sustainability Standards Board (ISSB).
This was alongside the Africa Climate Summit in Nairobi.
The two are aimed at promoting transparency and reliability of sustainability-related information and climate change disclosures for entities in Kenya.
“These new standards usher in a new era of sustainability-related disclosures in capital markets worldwide and will help to improve trust and confidence in company disclosures about sustainability to inform investment decisions,” ICPAK chairman George Mokua said.
The move makes Kenya the first country in East Africa to embrace the latest global move, with other African countries that have adopted the standards being Nigeria, Zimbabwe and Ghana.
For the first time, the standards create a common language for disclosing the effect of climate related risks and opportunities on a company's prospects.
ISSB chairman Emmanuel Faber officially launched the Standards at the IFRS Foundation's annual conference on June 26, 2023, and through a week of events hosted by stock exchanges worldwide.
The Institute, through its initiatives and technical committees, is focusing on the role that the newly issued ISSB Standards will play in ensuring that companies disclose globally comparable information about sustainability-related risks and opportunities that is decision-useful for investors.
In July last year, the institute was involved in setting these new standards by commenting on the ISSB's Exposure Drafts on Sustainability.
IFRS S1 provides a set of disclosure requirements designed to enable companies to communicate to investors about the sustainability-related risks and opportunities they face over the short, medium, and long term.
IFRS S2 sets out specific climate-related disclosures and is designed to be used with IFRS S1.
Both fully incorporate the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
The ISSB developed IFRS S1 and IFRS S2 with extensive market feedback and in response to calls from the G20, the Financial Stability Board, the International Organization of Securities Commissions (IOSCO), and business and investor community leaders.
This support for a comprehensive global baseline of sustainability-related disclosures demonstrates the widespread demand for a consistent understanding of how sustainability factors affect companies’ prospects.
The ISSB Standards are designed to ensure that companies provide sustainability-related information alongside financial statements in the same reporting package.
The Standards have been developed to be used with any accounting requirements. They are also built on the concepts that underpin the IFRS Accounting Standards, which more than 140 jurisdictions require.
Director standards and technical services, at ICPAK, Catherine Asemeit, said the move could help leapfrog carbon trading in Kenya.
According to Ndidi Nloli-Edozien,member ISSB-IFRS Foundation, creating globally comparable comprehensive reporting systems are crucial in terms of being able to unlock capital flows for economies, especially Africa that is already hit by climate related factors.
“Whether it is carbon credit or raising green bonds, you need requisite data, disclosure, comparative information, the right governance, strategy, risks and opportunity evaluation and targets,” she said.
Kenya’s first green bond was listed for trading on the Nairobi Securities Exchange in January 2020, offering investors the chance to put money into an environmentally-friendly fixed income security.
The Sh5.7 billion green bond programme, partially guaranteed by GuarantCo, was cross-listed on the International Securities Market (ISM) of the London Stock Exchange.
Global Green Bond Issuance hit $517 billion (Sh75.5 trillion), demonstrating the resilience of the green bond market.
However, Africa accounts for no more than one per cent of global green bond issuances, data shows.
The continent, experts say, is expected to be hardest hit by the adverse impacts of climate change in the absence of a significant scale-up of investment in climate mitigation and adaptation.
Green bonds are debt securities, the proceeds of which are expected to refinance projects and assets with environmental benefits, one of the innovative channels being used to raise capital for Africa.