NAIROBI, Kenya – Most Kenyan firms have yet to prepare adequately for new sustainability disclosure standards that will become mandatory next year, with an industry assessment showing major gaps in data collection, reporting systems and assurance.
The Institute of Certified Public Accountants of Kenya (ICPAK) found that 289 of the 385 entities that provided substantive responses, representing 75 per cent, remained in the Nascent or Emerging readiness categories.
Only 23 entities, equivalent to six per cent, had reached the Advanced stage.
The findings have raised concern as Kenya approaches the first mandatory phase of implementing IFRS S1 and IFRS S2, the sustainability disclosure standards developed by the International Sustainability Standards Board.
The standards will apply to public interest entities for accounting periods beginning on or after January 1, 2027, leaving companies with only a few months to close the gaps identified in the assessment.
ICPAK assessed 512 entities in its readiness exercise. Of these, 444 completed the assessment, representing an 86.7 per cent completion rate, while 385 submitted substantive responses that could be included in the readiness scoring.
The entities recorded an average preparedness score of 1.51 out of four, placing the market in the Emerging category.
“Of the 512 entities in the assessment register, 444 completed the assessment, representing an 86.7 per cent completion rate. Of these, 385 provided substantive responses that were included in the scoring analysis. The national readiness score is 1.51 out of 4, placing the market in the report’s ‘Emerging’ band,” ICPAK chair Elizabeth Kalunda said.
The assessment found that Kenyan companies are increasingly recognising sustainability and climate change as business issues, but many lack the systems needed to translate that recognition into reliable financial and operational information.
Governance emerged as the strongest area, scoring 1.60 out of four.
However, metrics and targets scored only 1.22, making it the weakest area assessed.
The gap means some companies have started assigning responsibility for sustainability matters but still struggle to quantify their environmental and climate-related risks.
Business Daily reported that firms are finding it difficult to translate board-level interest in climate change into measurable financial and operational data. The study describes this gap between strategic intent and reporting capability as a “readiness paradox.”
Companies will need to produce information that can show how sustainability and climate-related issues could affect their businesses, rather than simply listing corporate social responsibility activities.
IFRS S1 sets general requirements for disclosing sustainability-related financial risks and opportunities that could affect an entity’s prospects.
IFRS S2 focuses specifically on climate-related risks and opportunities.
Under the framework, companies will need to provide information that helps investors understand how sustainability and climate issues could affect their cash flows, access to finance or cost of capital.
For climate reporting, this can include information relating to climate-related risks, opportunities, emissions and the potential effects of the transition towards a lower-carbon economy.
This makes the new standards different from traditional corporate sustainability reports. Companies will need systems capable of linking sustainability information to their financial reporting and business strategy.
The ICPAK assessment identified weaknesses across several parts of the reporting process.
Data and systems readiness scored 1.76 out of four, while assurance readiness stood at 1.54.
Connectivity of information scored 1.49, while completeness and use of guidance scored 1.45.
Decision-usefulness and faithful representation performed better at 1.77.
The figures show that even companies already producing sustainability information may struggle to connect that information to financial reporting or provide sufficient evidence for independent scrutiny.
The challenge is particularly important because sustainability disclosures will increasingly be expected to carry the same level of credibility as other information contained in corporate reports.
Other listed companies recorded the highest readiness score at 2.40, followed by State corporations reporting under IFRS at 2.23 and commercial banks at 2.04.
Fund managers scored 1.73, insurance companies 1.63, pension schemes 1.34, while deposit-taking SACCOs recorded 1.26.
The differences suggest that companies facing stronger regulatory, investor and market pressure have generally made greater progress.
The reporting changes are expected to give investors more comparable information when assessing companies.
Capital Markets Authority Director of Corporate Services Mathew Mukisu said Kenyan companies could not ignore the global movement towards sustainability disclosures.
“Kenya cannot stand apart from this shift. Our listed companies compete for capital. Investors are increasingly seeking comparable information on how companies manage climate risk, resource use, human capital and governance before providing funding,” Mukisu said.
He warned that companies unable to provide credible information could face higher financing costs or risk losing capital to better-prepared businesses.
ICPAK chief executive Grace Kamau said companies should use the assessment to identify weaknesses and improve their reporting systems rather than view the results simply as a compliance scorecard.
“As we launch this assessment, let us treat it not as a final judgement, but as a baseline for action. It should help entities understand their gaps, prioritise investments and strengthen their reporting systems,” Kamau said.
ICPAK has also reopened its sustainability reporting readiness assessment portal for public interest entities that had not completed the exercise. The final deadline is October 17, 2026, and the institute says completing the assessment is a preparatory requirement rather than compliance with the substantive IFRS S1 and S2 standards.
With three-quarters of substantively assessed entities still in the Nascent or Emerging categories, the immediate challenge is no longer simply recognising the importance of sustainability.
Companies must build the data, systems, targets, governance and assurance processes needed to demonstrate how climate and other sustainability-related risks can affect their businesses.
