Unpacking The Kenya Green Finance Taxonomy

Background

In recognition of the role the financial sector plays in meeting the Nationally Defined Contributions (NDCs) submitted to the United Nations Framework Convention on Climate Change (UNFCC), the Central Bank of Kenya (CBK) issued a guidance on Climate Related Risk Management in October 2021. This guidance was intended to facilitate banks to incorporate climate-risk related considerations in their governance, strategy, risk management and disclosures frameworks.

However, it was noted that there was lack of a common understanding of what constitutes green finance as well as a standardized disclosure and reporting framework. In response, the CBK launched the Kenya Green Finance Taxonomy (KGFT) on April 4th, 2025.The Kenya Green Finance Taxonomy provides a standardized classification system for economic activities considered environmentally sustainable. Access the full Kenya Green Finance Taxonomy here.

What is a green finance taxonomy?

A green finance taxonomy is a classification system that highlights which investments are environmentally sustainable and which are not.

Globally, taxonomies are used to mobilize sustainable finance, mitigate greenwashing, and guide both public and private sector capital allocation. They also help investors and financial institutions in planning and reporting their climate transition pathways.

The Kenya Green Finance Taxonomy is modelled partly on international standards like the EU Taxonomy but tailored to Kenya’s unique climate priorities and economic context.

Why does the Kenya Green Finance Taxonomy matter?

The Kenya Green Finance Taxonomy provides a unified framework for identifying, evaluating, and reporting on green investments. This will improve transparency and consistency in green financing, lower due diligence and reporting costs, promote access to green capital markets by aligning with international taxonomies and enhance Kenya’s ability to attract climate finance.

Who are its intended users?

The Kenya Green Finance Taxonomy is initially targeted at the banking sector actors, companies and project developers for example the manufacturers and mining companies. Other users include the finance market practitioners including asset managers, pension funds, insurance agencies and insurance underwriters, policy makers, multinational development institutions such as the UN and the World Bank, environment and climate action practitioners as well as the civil society. Future editions are expected to broaden the scope to other segments of the financial sector.

Why the focus on the banking sector?

The banking sector sits at the heart of capital flows and is thus well positioned to drive the shift towards climate resilient investments. With climate related risks increasingly impacting credit risk and market stability, banks can mitigate their exposure while enabling green transformation.

What are the environmental objectives of the Kenya Green Finance Taxonomy?

The taxonomy lists six key environmental objectives which are

a) Climate change mitigation

b) Climate change adaptation

c) Sustainable use of water and marine resources

d) Pollution prevention

e) Ecosystem protection and restoration

f) Sustainable resource use and circularity.

Beyond the environment: Social safeguards

The KGFT also incorporates minimum social safeguards including adherence to Kenyan labour laws and human rights standards, ensuring that environmental sustainability does not come at the cost of social equity.

Priority economic sectors covered

The KGFT highlights the following macro economic sectors as priorities for green transformation:

a) Manufacturing

b) Agriculture, forestry and fishing

c) Mining and quarrying

d) Electricity, gas, steam and air conditioning supply

e) Water supply, sewerage, waste management and remediation

f) Transportation and storage

g) Real estate activities

h) Construction

i) ICT

j) Financial and Insurance activities

k) Wholesale and retail trade

The 7 step proves for determining taxonomy alignment

The Kenya Green Finance Taxonomy lays out a seven step process for determining taxonomy alignment or the lack of it.

1. Alignment with core taxonomy principles which are:

a. Substantial contribution towards climate change mitigation or adaptation;

b. No significant harm to any of the other taxonomy objectives; and

c. Compliance with minimum social safeguards

2. Identifying the environmental objective that the economic activity contributes towards.

3. Identifying whether the economic activity is included in the taxonomy under macro sectors

4. Assessing substantial contribution to the intended objective.

5. Assessing performance against the ‘Do No Significant Harm criteria’.

6. Assessing compliance with Minimum Social Safeguards

7. Disclosing the results on taxonomy alignment.

Why does taxonomy alignment matter for the banking sector?

Taxonomy alignment is a strategic enabler of sustainable finance. It will help de-risk lending by identifying economic activities that meet credible environmental and social standards thus reducing exposure to ESG related risks.

By using the Kenya Green Finance Taxonomy as a reference, banks can confidently structure green loans and sustainability-linked products, enhance transparency, and avoid greenwashing.

Effective implementation will help players in the financial sector stay ahead of new regulations.

Why should businesses care about taxonomy alignment?

For businesses, aligning with the Kenya Green Finance Taxonomy will enhance their credibility with investors, lenders, and regulators by demonstrating that their activities meet clear sustainability standards.

Taxonomy alignment can also unlock access to green funding, grants, and incentives, which are often reserved for projects that meet environmental and social criteria.

Given that consumers are prioritizing greener and more responsible practices, businesses that are taxonomy aligned can stay competitive, build trust, and position themselves as leaders in a sustainability driven market.

Conclusion

Kenya Green Finance Taxonomy is currently a voluntary tool that serves to support Kenya’s transition towards a low carbon and sustainable economy. It requires entities to disclose the environmental impact of financed projects thereby providing transparency to stakeholders.

How we can help

Looking to align your business or investments with the Kenya Green Finance Taxonomy? The Sustainability, Climate Change and ESG team at CM Advocates LLP supports businesses, financiers, developers, and investors with green compliance advisory. Our services also included tailored training on green finance obligations and ESG. We also prepare and review policies, and project finance documents to ensure sustainability alignment.

Should you have any questions on this or any other matter, please do not hesitate to contact Emily Gitau on egitau@cmadvocates.com.