Listed firms' CEOs now face fines, jail time for sustainability lies

For years, Kenya’s listed companies have filled their annual reports with glossy promises of planting trees, saving water, and going carbon-neutral, claims that investors largely ignored as public relations fluff.

But starting next year, those same claims could land directors in court. New rules criminalise greenwashing when a company fakes its environmental record. This happens, for instance, when a bank claims it is “green” but cannot show how much of its loan book goes to polluters.

Or when a telco says it is “carbon neutral” but cannot measure the diesel burned by its backup generators powering its towers.  

Starting January 1, 2027, those unverifiable claims will become illegal. Directors who sign off on lies or such PR stunts face fines, prosecution, and prison. 

Investors often treated sustainability claims as public relations exercises, nice to read, but irrelevant to a stock’s true value. 

That era ends on January 1, 2027, says the Nairobi Securities Exchange (NSE). 

Under the sweeping new rules to be enforced by the Nairobi bourse and the Institute of Certified Public Accountants of Kenya, every listed company must now, by law, integrate climate and sustainability risks directly into its audited financial statements.  

The same rules that govern how companies report profits, debts and assets will now apply to how they report drought threats, supply chain emissions and carbon taxes. 

And for the first time, non-compliance carries real consequences. These include financial penalties of up to Sh5 million, regulatory sanctions and personal liability for corporate directors. 

“Sustainability disclosures are therefore not isolated reporting outputs; they form part of the issuer’s overall market disclosure obligations,” the NSE and ICPAK said in a joint market advisory issued earlier this week to all listed issuers.  

With less than one year remaining before the first mandatory reporting period, the regulators added, “listed issuers are expected to accelerate readiness efforts. 

While the first mandatory accounting period begins on January 1 2027, the compliance requirements start much sooner. 

Every listed firm must submit a “Sustainability Reporting Readiness Assessment” to the NSE with a copy to ICPAK at least six months before that date, effectively by June 30, 2026.  

The assessment must cover four pillars. They include governance, strategy, risk management, and metrics with targets. 

“The Exchange will review these submissions as part of its issuer engagement processes and ongoing monitoring of disclosure readiness,” the advisory states. 

The NSE says it is not simply collecting paperwork. It says it will actively monitor whether companies are prepared and flag those that are not. 

To understand the magnitude of the shift, consider three analogies. The balance sheet as a weather forecast. Traditionally, a balance sheet was a historical snapshot. It showed cash on hand, owned buildings, and debt owed.  

Under the new IFRS S1 regime, it becomes a forward-looking document. An agricultural listed company, for instance, that depends on reliable rainfall must now disclose that a prolonged drought, increasingly common in Kenya, could force production cuts. That risk must be quantified and reflected in financial planning. 

“Entities should ensure that sustainability disclosures are consistent with information presented in the financial statements, management commentary and other general-purpose reports,” the advisory says, “thereby enabling users to understand how sustainability considerations affect enterprise value.” 

At the same time, a manufacturer sourcing raw materials from a flood-prone region must now map every link in its value chain, a requirement known as Scope 3 emissions.  

This is the hardest data to collect, but often the most dangerous to ignore. If the government imposes a carbon tax on diesel, and a company’s suppliers use diesel trucks, the company’s costs will rise. Under IFRS S2, that future cost must be disclosed today. 

Under the new rules, directors are now personally on the hook. Under Kenya’s Companies Act, signing off on financial statements that omit material climate risks could be treated no differently from signing off on fraudulent accounts.  

If a company claims to be carbon-neutral but an audit finds otherwise, directors can face civil and criminal prosecution. 

The risks are not theoretical; experience shows. Consider Kakuzi Plc, the agricultural firm that grows avocados for export. In 2024, excessive rainfall caused waterlogging, slashing avocado profits to Sh361 million from 1.37 billion the previous year.  

The company also reported a pre-tax loss of Sh167 million, citing “adverse weather conditions” and disruptions to shipping routes that forced vessels to take a two-week detour around southern Africa. 

Under the new rules, Kakuzi would have had to disclose, in its then annual report, that its key crop was highly vulnerable to changing rainfall patterns and show how it was adjusting irrigation, diversifying crops or buying insurance.  

This will enable investors to price that risk in advance. Without the disclosure, the NSE reckons investors would be blindsided. 

Consider KCB Group, Kenya’s largest lender by asset size. The bank has already designated climate-related risk as a “principal risk category” within its Enterprise Risk Management Framework.  

In 2024 alone, it screened loans worth Sh578.3 billion for environmental and social risks. KCB is the only NSE-listed financial institution confirmed to have published an IFRS S1- and S2-aligned sustainability report with limited assurance by Deloitte. 

Under the new rules, every bank must do the same. If a bank lends heavily to a sugar company that depends on predictable rainfall, and rainfall becomes unpredictable, the bank must disclose that its loan loss provisions may rise. That changes how analysts value the bank’s stock. 

Also consider Safaricom, Kenya’s most profitable company. It is the only Kenyan company whose sustainability report is currently audited by PricewaterhouseCoopers.