Introduction
Impact finance is a purposeful investment that generates positive social or environmental impacts alongside a considerable financial return. Impact finance, which includes sustainable, green, and climate finance, is governed by a combination of sector-specific and cross-sectoral regulations, policies, and voluntary market guidelines.
Currently, there is no single piece of legislation governing impact finance in Kenya. Instead, the regulatory framework is dispersed throughout various statutes, regulations, and institutional mandates, each addressing different aspects of financing that generate social, environmental, or developmental outcomes.
Key Regulatory Framework
Public Finance Management Act – Regulates public borrowing and debt management, establishes structures for transparent and accountable use of public resources and aligns public spending with national development priorities. This allows the Government to structure its financing to achieve positive social or environmental impacts, such as access to water, the internet, and infrastructure, as well as green projects.
The Finance Act 2022 was introduced to increase revenue and align tax laws with Kenya’s development agenda, including green growth and sustainability. The Finance Act, 2022, provides that companies that operate a carbon market exchange or an emission trading system certified by the Nairobi International Financial Centre Authority will be subject to a 15% income tax under ITA for 10 years after the commencement of their operations, and revert to the 30% resident corporate tax rate thereafter. In addition, the Act excluded licensed microfinance institutions from thin capitalisation rules, which enhances their capacity to attract impact investors by removing restrictive debt-to-equity limitations.
The Capital Markets Authority, which regulates the issuance of securities, introduced a Green Bond Regulatory Framework to guide the operational regulatory environment on Green Bonds in Kenya. A green bond is a listed or unlisted fixed-income instrument on a security exchange whose returns are directed toward financing or refinancing projects, whether new or existing, that create environmental or climate benefits. Unlike conventional bonds, green bonds require issuers to allocate proceeds exclusively to eligible green projects, maintain transparency through regular reporting, and often obtain external verification of their environmental claims.
The Retirement Benefits Authority (RBA) regulates pension schemes under the Retirement Benefits Act. In Kenya, pension funds are one of the largest sources of long-term capital, making them an important participant in impact finance. In 2025, FSD participated in an ESG (Environmental, Social and Governance) workshop hosted by the Retirement Benefits Authority (RBA) Kenya to build capacity and deepen understanding of ESG integration within pension fund management.
The RBA has created an ESG toolkit that offers trustees, fund managers, and service providers helpful advice on integrating ESG factors into investment decision-making. To position pension funds as important players in Kenya’s impact-finance ecosystem, the ESG Toolkit is designed to help pension plans allocate capital to generate quantifiable social, environmental, and economic benefits alongside long-term financial returns.
Green Finance Taxonomy: In April 2025, the Central Bank of Kenya (CBK) launched the Kenya Green Finance Taxonomy (KGFT). This is a tool that helps to define what counts as environmentally sustainable economic activity. The taxonomy enhances transparency, reduces greenwashing, and provides clarity for investors and financial institutions deploying climate and sustainability-related capital.
As part of public policy and the national framework, Kenya participates in the Integrated National Financing Framework (INFF). This ensures a holistic national strategy for mobilising and aligning public, private and development finance with Sustainable Development Goals (SDGs). INFF emphasises better coordination across government, civil society, and private investors, thus helping to articulate impact financing needs. This has greatly helped guide and support Public-Private Partnerships (PPPs) by providing a framework for aligning project-level investments with national development priorities.
Conclusion
All the above-mentioned legal frameworks continue to evolve, which shows the government’s commitment to aligning financial aspects with national development priorities and sustainable development goals, while encouraging private-sector participation. The possibility of further expansion of the impact finance ecosystem in Kenya is high and will, in return, attract capital that delivers both financial, social and environmental benefits.