Environmental, Social & Governance Framework for Kenya

Issues of Environment, Social and Governance (ESG) are increasing of interest to investors in their investment approach for sovereign issuances. Investors assess how ESG factors could impact the financial performance of their investments. The Development Partners are also signing up to the United Nations Principles for Responsible Investment (UN PRI), affirming their commitment to incorporate ESG issues into investment analysis and decision-making.

The debt managers more often than not are increasingly facing questions on issues such as human rights, income inequality, human capital, energy transition and energy security, natural disaster risk, land use, biodiversity conservation, progress on the Sustainable Development Goals (SDGs), and climate commitments.

Furthermore, credit rating agencies consider environmental, social, and governance (ESG) factors in their ratings, rating outlooks, and assessments, looking specifically at the impact these factors have on a sovereign issuer’s perceived capacity and willingness to meet its financial commitments.

This practice has been recently reflected by the increasing number of rating actions driven by COVID-19 (which is considered to increase social risk). For instance, S&P recently revised Kenya’s outlook from B+ to B or “stable” citing the impact of the COVID-19 pandemic on country’s Gross Domestic Product (GDP) growth and the associated negative impact it will have on public finances.

Kenya is taking deliberate steps to mainstream ESG factors in her development strategy and consider how the country’s debt management strategy and borrowing plans can fully capitalize on the ESG factors. Such an approach will provide an opportunity to make national sustainable development strategies and public funding programs more integrated, coherent, and connected.

To mitigate the impact of deforestation and climate change, and to enhance the provision of water facilities, The Government of Kenya has taken steps to rehabilitate wells, water pans and underground tanks in the Arid and Semi-Arid areas; flood control measures; and Greening Kenya Campaign through Tree Growing campaigns to manage risk and build resilience to climate change and other natural hazards.

This category pays particular attention to the internalization of environmental externalities created by economic activity. This category also accounts for sustainable energy access and food security, crucial factors for stable long-term economic growth.

Kenya aspires to build a just and cohesive society that enjoys equitable socioeconomic development in a clean and secure environment by investing in the people. The Government in the Medium term, has prioritized health as one of the big four agenda, which aims at affordable Health for All. This has seen the Government pilot on Universal Health Coverage (UHC) is select Counties. Housing is also one of the Big Four agenda by focusing on affordable housing for all. Under Education, Government has ensured education for all and there is 100 per cent transition from primary education to Secondary education.

The Kenya Vision 2030 envisages a democratic political system that is issue-based, people-centred, result-oriented and accountable to the public. The Governance Sector aims at ensuring an effective, accountable and ethical leadership; and promotion of a just, democratic society in line with the Constitution and laws of the country. It is also intended to provide a secure environment and strong governance institutions that will propel citizens to full attainment of stable and sustainable socio-economic and political development. Credible elections is a critical component for issue-based politics to be achieved through constitutional and legal requirements governing electoral processes to ensure free, fair and credible elections. In addition, the government commits to implement laws related to economic governance through formulation and implementation of the National Policy on alternative dispute resolution, and improvement of ease of doing business. The Government also remains committed on the fight against corruption which inhibit economic growth and development through loss of funds.