Kenya has taken a bold step toward a sustainable future with the launch of the Kenya Green Finance Taxonomy (KGFT). Developed by the Central Bank of Kenya (CBK) in collaboration with the European Investment Bank (EIB) and supported by the German Federal Ministry for Economic Affairs and Climate Action, this landmark framework aims to channel investments into environmentally sustainable projects while mitigating climate risks.
As one of Africa’s most climate-vulnerable nations, the country faces severe economic threats from climate change, with projections suggesting a potential loss of 7.25% of GDP by 2050 without decisive action. The KGFT is designed to counter these risks by providing a clear classification system for green investments, aligning national priorities with global climate goals.
The taxonomy identifies sectors and activities that contribute to climate change mitigation and adaptation, offering technical criteria to ensure investments meet rigorous environmental and social standards. Key sectors include renewable energy, sustainable agriculture, green manufacturing, and low-carbon transport—all critical to Kenya’s transition to a resilient, low-carbon economy.
For instance, projects in solar energy, afforestation, or eco-efficient manufacturing can now be systematically evaluated and labeled as “green,” boosting investor confidence and unlocking international climate finance. A standout feature of the KGFT is its emphasis on interoperability with global standards, particularly the EU Taxonomy, ensuring compatibility with international markets. This alignment is expected to attract foreign investment, as Kenya seeks to mobilize 13% (Sh1.04 trillion) of the Sh8.01 trillion ($62 billion) required to meet its updated Nationally Determined Contributions (NDCs) under the Paris Agreement while the rest of the Sh6.97 trillion ($54 billion) will be funded through international support and the private sector. By providing a common language for green finance, the taxonomy also combats “greenwashing,” ensuring transparency and accountability in sustainability claims.
The framework is initially voluntary for the banking sector, with an 18-month transition period before mandatory implementation. During this phase, banks will build capacity to integrate the taxonomy into risk management and disclosure practices. Beyond financial institutions, the KGFT is also poised to benefit businesses, policymakers, and development partners by streamlining climate finance flows and supporting Kenya’s Vision 2030 development blueprint.
However, challenges remain, including data gaps and the need for robust monitoring to ensure compliance. The CBK plans to address these through stakeholder engagement and iterative updates to the taxonomy. By fostering a culture of sustainability, the KGFT not only safeguards the economy from climate shocks but also positions the country as a leader in Africa’s green finance revolution.
With climate action becoming inseparable from economic resilience, this taxonomy marks a pivotal step in securing Kenya’s sustainable future.
