Navigating the Real Estate Sector Under the Kenya Green Finance Taxonomy Framework

In March of 2024, the Central Bank of Kenya in collaboration with the European Investment Bank launched the first edition of the Kenya Green Finance Taxonomy (KGFT), which provides a framework for classifying environmentally sustainable economic activities in various sectors. In Kenya’s Real Estate Sector, the KGFT introduces stringent criteria for climate change mitigation and adaptation, as well as compliance with environmental and social safeguards. This article explores the implications of the KGFT guidelines on real estate developers, investors, and financiers, focusing on two key practice areas: regulatory compliance and sustainable financing.

 

1. Regulatory Compliance: Meeting the KGFT’s Technical Screening Criteria

The KGFT establishes a classification system for sustainable economic activities, thus providing a framework for the evaluation and recognition of “green” projects. For real estate activities to qualify under the taxonomy, they must Make a Significant Contribution” (MSC) and Do No Significant Harm” (DNSH).

Appendix 7 of the KGFT framework outlines the specific requirements for building acquisition and ownership, which address both climate change mitigation and adaptation goals.

A. Climate Change Mitigation Criteria

To establish a positive contribution to climate change, real estate projects must meet the following criteria:

  • Obtain an Energy Performance Certificate (EPC) Class A, for buildings constructed before December 31, 2020. Class A is the highest attainable energy efficiency rating.
  • Implement energy performance monitoring to ensure efficient operation, for large non-residential buildings (over 1,000 m² or air-conditioning and ventilation systems exceeding 290 kW).
  • Avoid the acquisition of properties to be used for fossil fuel extraction, storage, or transportation. This is strictly excluded from green classification.
  • Use certified green standards. Alternative certifications may be accepted if verified by an accredited third party, such as the International Finance Corporation Excellence in Design for Greater Efficiencies (IFC EDGE) and the Leadership in Energy and Environmental Design (LEED) certifications.

B. Climate Change Adaptation Criteria

Projects must further demonstrate resilience to the adverse effects of climate change by:

  • Ensuring structural resilience. Buildings and infrastructure should be designed or retrofitted to withstand extreme weather events (such as flooding, earthquakes or heatwaves).
  • Utilising water efficiency tactics through the integration of water saving fixtures and systems to enhance responsible water consumption.
    Strictly prohibiting the use of hazardous materials to promote material safety (for example, asbestos, toxic contaminants).
  • Ensuring sustainable and environmentally appropriate site selection for developments as they must not be located on protected natural areas (e.g., UNESCO World Heritage Sites, IUCN Category I-II zones), high-biodiversity land, Strict Nature Reserves, Wilderness Areas and National Parks.

C. Do No Significant Harm (DNSH) Assessment

To maintain compliance with the DNSH principle, developers and investors must ensure they do not adversely impact other environmental objectives. Legal compliance must be demonstrated in the following ways:

  • Sustainable water use which entails strict compliance with Kenya’s Water Act (2012) and Environmental Management and Coordination (Water Quality) Regulations.
  • Biodiversity and Ecosystem protection must be demonstrated as all developments are subject to strict adherence to Environmental Impact Assessment (EIA) requirements under Kenyan law.
  • Pollution prevention tactics must be incorporated to ensure the use of low-emission materials and sustainable construction practices whilst minimalizing environmental harm.

Legal Implications can arise from failure to comply with KGFT criteria and may lead to regulatory sanctions and disqualification from green financing opportunities. It is therefore imperative that developers undertake comprehensive legal due diligence in relation to site selection, energy performance, building materials and certification pathways.

 

2. Sustainable Financing Opportunities for Real Estate

Beyond regulatory compliance, the KGFT opens doors for green financing, enabling developers and investors to access lower-cost capital, tax incentives, and international funding. Alignment with the taxonomy enhances eligibility for various incentives and financial opportunities such as:

A. Green Bonds and Sustainability – Linked Loans

Projects meeting KGFT criteria can issue green bonds or secure sustainability-linked loans. These instruments offer access to dedicated capital pools for sustainable infrastructure and development. The heightened disclosure obligations placed on financial institutions for green financing also enhances transparent reporting of financial figures, such as turnover, capital expenses and operating expenses.

B. Incentives for Retrofitting Existing Buildings

Owners and developers of existing properties may qualify for green financing by implementing energy efficient upgrades such as:

  • Solar photovoltaic systems
  • Enhanced insulation and ventilation systems
  • High efficiency lighting and HVAC systems

Third-party certifications such as Building Research Establishment Environmental Assessment Method (BREEAM) and Green Star can further strengthen the project’s credibility and financing eligibility.

C. Risk Mitigation for Investors

Real estate projects that are designed to incorporate climate resilient measures are better positioned to withstand future environmental and regulatory risks, enhancing their attractiveness to ESG-focused investors. Additionally, conformance with international standards, such as the EU Taxonomy for Sustainable Activities, facilitates cross-border investment opportunities and access to international green finance markets.

 

3. Implications for Real Estate Stakeholders under the KGFT

The implementation of the KGFT marks a pivotal evolution in the governance of real estate development, offering a structured framework to align Kenya’s urban growth with international sustainability goals. By adhering to the taxonomy’s technical criteria, developers, investors, contractors and other industry stakeholders can access new financing opportunities, enhance regulatory compliance, and contribute meaningfully to Kenya’s transition to a low-carbon economy.

Developers and investors should prioritise energy-efficient design principles and integrate climate-resilient construction standards at the conceptual stage. This entails undertaking Environmental Impact Assessments (EIA) and Do No Significant Harm (DNSH) evaluations early in the project lifecycle to ensure regulatory alignment and financing eligibility.

Financial institutions are encouraged to embed KGFT-aligned screening criteria into loan underwriting practices and bond issuance protocols. They should establish internal mechanisms for verification and due diligence, ensuring that financed activities meet the taxonomy’s green eligibility requirements.

Given the complexity of regulatory and financial requirements, we strongly advise real estate firms to engage both legal and financial advisors at the project design and structuring stage to ensure compliance with the KGFT and maximise the benefits of green financing instruments. Legal Practitioners play a critical role in advising clients on regulatory compliance, green building certifications, negotiation of sustainability-linked financial arrangements and applicable environmental standards.

 

Conclusion

The effects of uncontrolled development in Nairobi and across the broader Kenyan landscape have become increasingly evident—manifesting in environmental degradation, urban inefficiencies, and infrastructure stress. The KGFT emerges as a strategic tool to address these challenges by promoting environmentally sound development while attracting sustainable investment.

Ultimately, the taxonomy is more than a regulatory instrument; it is a blueprint for responsible urban growth with the future in mind. Its successful adoption positions Kenya to not only to meet its domestic climate commitments but also align with the global effort to stabilise climate change and foster resilient, future-proof cities.

 

For further assistance or information, please contact Benson Ngugi, Hellen Waithira or Jessica Obimbo.

H.C Judgement on Lipa na M-Pesa: Implications for Telecom Service Providers

The recent High Court Judgement by Justice Lawrence Mugambi directing the Communications Authority of Kenya (CA) to determine the dispute over Safaricom’s Lipa na M-Pesa PayBill charges has significant implications for telecom service providers. The Judgement reaffirms the CA’s central role in regulating the telecommunications sector and clarifies the scope of its authority in addressing consumer concerns related to service pricing and competition.

Expanded Regulatory Oversight

Section 5 of the Kenya Information and Communications Act outlines the Commission’s core purpose being to license and regulate postal, information and communication services within the framework of the Act. To achieve this, the Commission is granted all necessary powers to perform its functions as outlined in the Act. The court’s decision signals a broader interpretation of CA’s mandate, particularly concerning transaction-related costs on telecom platforms. Traditionally, mobile money services, including M-Pesa, have fallen under the purview of the Central Bank of Kenya (CBK). Furthermore, subsection 3 of the same section of the Act provides that the Commission is authorized to collaborate and associate with other organizations, both domestically and internationally, as deemed appropriate and beneficial to fulfilling its established objectives.

By directing the CA to assess the fairness of PayBill charges, the Judgement suggests an overlap between telecommunications regulation and financial oversight. This could set a precedent for increased CA intervention in pricing structures that impact consumers using telecom-based financial services.

Increased Scrutiny on Pricing Practices

Telecom operators now face heightened scrutiny regarding their pricing models, particularly for mobile payment services. The Judgement reinforces the expectation that providers must ensure fair and transparent pricing, aligning with consumer protection principles. The CA’s involvement could lead to greater regulatory interventions aimed at preventing monopolistic pricing strategies, potentially compelling operators to adjust transaction fees to avoid regulatory sanctions.
Strengthened Consumer Protection Mechanisms

The Judgement underscores the need for telecom providers to enhance consumer protection measures. The CA is now positioned as the primary authority for handling disputes related to telecom service pricing. This reinforces the requirement for service providers to establish clear grievance redress mechanisms and comply with CA-mandated pricing regulations to prevent consumer exploitation. The KICA under section 27 provides for the general regulations for telecommunication services. Subsection 2(f) specifically provides that the CA may make regulations with respect to fees and other charges for any matter permitted or matters required to be done under the Act in relation to telecommunication services.

Regulatory Coordination Challenges

The Judgement also highlights the complexities of regulatory coordination between the CA and CBK. While financial transactions remain within the CBK’s jurisdiction, telecom-based payment services intersect with telecommunications regulation. This calls for enhanced collaboration between the two regulators to prevent regulatory conflicts and ensure coherent policy enforcement.

Potential Market Reforms

If the CA enforces pricing adjustments on Safaricom’s PayBill charges, it could prompt broader market reforms affecting all telecom providers offering similar services. Operators may need to revise their business models, ensuring compliance with new pricing directives while maintaining service efficiency. Such interventions could also open doors for increased competition, particularly benefiting smaller telecom players seeking a level playing field in mobile financial services.

Conclusion

The High Court’s Judgement for CA to provide oversight on Safaricom PayBill prices reinforces the Authority’s role in safeguarding consumer interests within the telecommunications sector. While this expands its regulatory reach, it also raises questions about jurisdictional boundaries with other regulatory bodies like the CBK. Telecom providers must prepare for enhanced oversight, potential pricing reforms, and stricter compliance requirements to align with evolving regulatory expectations. This case sets a crucial precedent for the future regulation of telecom-based financial services in Kenya.


This article does not constitute legal advice or opinion. For further assistance, please contact the relevant relationship partner.

Analysis of the Business Laws – Amendment Bill

On 1st November 2024, the National Assembly published the Business Laws (Amendment) Bill, 2024 (“the Bill”) that seeks to amend several laws to enhance consumer protection, boost trade and manufacturing and harmonise our legal framework in the banking sector. We shall highlight and analyse the proposed amendments below and explore the positive and negative impact these changes may have on trade, businesses, manufacturers, financial institutions and potential local and international investors.

The Banking Act, Cap 488

The Bill proposes an amendment to Section 55 of the Banking Act by providing that the Central Bank of Kenya (CBK) can prescribe penalties on financial institutions, credit reference bureaus or any person that fails to comply with the provisions of the Banking Act, Prudential Guidelines or directions issued by the CBK. The CBK can impose penalties of up to Kshs. 20 million for institutions or credit reference bureaus, or an amount that is three times higher than the amount gained or loss avoided by failing to comply. This provision imposes stricter penalties that are aimed at enhancing overall compliance with the laws, rules and regulations that govern the operation of our banking sector.

The Second Schedule of the Banking Act may also be amended to increase the minimum core capital required to operate as a bank or mortgage finance company gradually from Kshs. 1 billion in 2024 to Kshs. 10 billion in 2027. Our current framework is out-of-date as it only sets out the core capital requirements until 31st December 2005. Therefore, this is a welcome amendment that promotes a stable market which aligns with the current growth of our financial industry and available banking products.

The Central Bank of Kenya Act, Cap 491

The proposed amendments to this Act largely broaden the definition of digital credit and digital credit providers by replacing it with non-deposit taking credit providers. The objective of this proposal is to cover all non-deposit taking credit providers, which includes digital lenders and peer-to-peer lenders. The CBK will also have the power to register, license and regulate non-deposit taking credit providers, including determining pricing parameters and prescribing a Code of Conduct that such entities must adhere to.

The Bill further increases the scope of the CBK’s regulatory powers by ensuring that the CBK licenses and monitors the operations of credit guarantee companies that are not currently regulated under any other written law. Credit guarantee companies typically act as guarantors to financiers by absorbing all or a part of the financier’s risk on a credit facility made to a Borrower in the event that the Borrower defaults on repayments.

Under the proposed law, the CBK will have the power to determine the capital adequacy standards, minimum liquidity requirements, anti-money laundering procedures, permissible and prohibited activities and corporate governance of the entity, including certifying whether a significant shareholder is a fit and proper person. Should this amendment pass, it’s crucial for the CBK to draft further regulations and directions on the requirements on the operations of credit guarantee companies. This ensures that there is further oversight and supervision over institutions operating in the financing sector to ensure standard levels of market conduct, transparency in credit dealing, integrity of our financial systems, and the prevention of predatory lending practices that protect borrowers.
Microfinance Act, Cap 493C.

The Bill proposes an amendment to Section 4A of the Act by including that a person cannot carry out any non-deposit taking microfinance business without being properly registered under the Companies Act and licensed under the Microfinance Act.

Additionally, non-deposit taking microfinance businesses would be obligated to furnish borrowers with accurate information on the procedure and conditions of loans, the cost implications and their rights and duties. They cannot collect additional fees, penalties or charges unless this is allowed under the agreement they have with borrowers.

The proposal also increases the duties these institutions owe to Borrowers because they cannot harass, oppress or threaten borrowers, loan guarantors or any person when collecting or recovering debts. It is evident that these new provisions are aimed at ensuring consumers are protected and abuse is prevented, particularly for digital lenders who would now fall under this purview. The amendments to the Act create a structured framework for their operations, fostering accountability and a more regulated environment.

The Standards Act, Cap 496

The Bill proposes the addition of several provisions for the registration of manufacturers and quality testing of products. It seeks to ensure that any person that wishes to manufacture goods and products must be registered by the Kenya Bureau of Standards (“KEBS”). This brings every manufacturer within the scope and regulatory compliance framework of KEBS, ensuring they meet minimum quality standards throughout the production process before products are available for consumers.

This is further evident in the proposed inclusion of Section 10D which details the duties of manufacturers to ensure every product is designed and manufactured in accordance with the relevant standards, conduct sample testing is before product releases, establish procedures for tracing products from the factory to end-consumers, ensure appropriate labelling, and investigate and keep records of all complaints.

The Bill further proposes the inclusion of Section 12A and 12B into the Standards Act which would allow KEBS to establish or designate competent labs to offer testing services, issue test certificates and develop national measurement standards. Section 14D enables KEBS to appoint an inspection body for goods in the country of origin to verify that the goods conform to Kenya’s standards. Such bodies are liable to pay taxes in Kenya. These three proposals create efficiency in the testing and examination of products, which will enhance our quality standards and ability to enforce product quality specifications. However, if Kenya doesn’t have a double taxation agreement with the country in which they appoint an inspection body, such bodies may be subject to double taxation.

These amendments may lead to the improved quality of products manufactured and increased accountability for manufacturers enhancing consumer safety. The Bill further provides a stronger regulatory framework that may counter the prevalence of substandard goods entering the Kenyan market. However, these provisions may impose additional costs on manufacturers including registration fees, and compliance costs which may disadvantage the small-scale manufacturers.

Special Economic Zones Act, Cap 517A

The Bill empowers the Cabinet Secretary for Investments, Trade and Industry to set the minimum requirements for acreage of land and thresholds for investments for land that may be considered for declaration as a special economic zone. The Bill also clarifies that goods that remain within a customs-controlled and special economic zone are entitled to the tax benefits conferred under the Act. Tax benefits and incentives that are granted to enterprises and developers in these zones last for 10 years from the date of issuance of a license.

The proposed amendment to Section 11 of the Act seeks to streamline the administrative process of creating and managing special economic zones by establishing a one-stop shop for all enterprises to channel their applications for permits, approvals and licenses and ensuring compliance with the law. These amendments encourage large-scale investments and emphasise the role that special economic zones play in the development of trade, manufacturing, industry growth and ultimately, our economy.

The Kenya Accreditation Service Act, Cap 496A

The proposed Bill aims to modify the Act by adding new sections that outline the accreditation process for foreign Conformity Assessment Bodies functioning in Kenya and to set up an Accreditation levy at a rate of 3% on the value of any accredited service delivered to a third party by an accredited conformity assessment body.

This may lead to various advantages, including a more competitive market with the entry of more international players, the introduction of a new revenue stream allowing for better funding of regulatory activities and enhancement of services provided to certified bodies and the improvement of Kenya’s trade relationships by ensuring that foreign goods and services meet specific quality and safety standards. It has, however, several disadvantages which include increased stringent and time-consuming accreditation procedures and increased prices for services which may be passed down to the consumers.

The Scrap Metal Act, Cap 503

The Bill proposes to amend the Act by making changes to the composition of the Scrap Metal Council. The chairperson will now be appointed by the President, with additional representation for collectors, agents, smelters, and millers, ensuring inclusivity and balanced decision-making. This aims to enhance inclusivity and representation which provides a more diverse range of perspectives in decision-making through increased oversight and stakeholder engagement.

Conclusion

The Bill has been submitted for public participation before it is put before the National Assembly for consideration. Our team is closely monitoring the developments and will continue to provide updates and advice as the process evolves.

 

A polite note: The Business Laws (Amendment) Bill, 2024 has now been assented into Law.

For further assistance or information, please contact Benson Ngugi, Kabu Karanja or Jessica Obimbo.

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LEGAL ALERT: Compliance with Beneficial Ownership Information Requirements

On 17 October 2024, the Registrar of Companies issued a public notice mandating that all companies and Limited Liability Partnerships (LLPs) comply with the beneficial ownership disclosure requirements under the Companies Act (Cap. 486) and the Limited Liability Partnership Act (Cap. 30). Non-compliance will result in removal from the Register of Companies. Private limited companies must meet the requirements by 30 November 2024. As of October 2024, 399,595 of Kenya’s 794,741 registered companies (representing 50.28%) have not disclosed their beneficial ownership information as required by law, thus risking delisting.

Beneficial Owners and Beneficial Ownership Information

A beneficial owner is a natural person who, either individually or jointly, directly or indirectly, holds at least 10% of a company’s shares, exercises 10% or more of its voting rights, can appoint or remove a majority of its board of directors, or has significant influence or control over the company (usually financial).

The legal framework for beneficial ownership information disclosure in Kenya includes the Companies Act, the Companies (Beneficial Ownership Information) Regulations, 2020, the Limited the Liability Partnerships Act, and the Business Registration Service Guide on Disclosure of Beneficial Ownership Information. These regulations are part of Kenya’s response to the Financial Action Task Force’s (FATF) recommendations to combat money laundering, terrorism, corruption, and organized crimes.

Companies are required to identify and verify their beneficial owners and record specific information about them including their full name, national identity card or passport number, KRA PIN, nationality, addresses, occupation, nature of ownership or control, and the date on which any person became a beneficial owner of the company. Companies must maintain this information in a register and submit a copy to the Registrar.

Companies must also document if they are aware of a beneficial owner whose details are incomplete, if a warning was issued and ignored, if a restriction notice was given, or if there are ongoing court proceedings concerning beneficial ownership.

Penalties for non-compliance

Failure to keep and file a register of beneficial ownership information with the Registrar of Companies is an offence punishable by a KES. 500,000. Continuing non-compliance incurs a further fine of up to KES. 50,000. Additionally, failure to file amendments to the beneficial ownership register within 14 days of a change attracts an administrative fine of KES. 2,000 for the company and each defaulting officer, with an additional penalty of Ksh. 100 for each day the default continues.

Companies have recourse under the regulations to issue warning notices and restrictions to beneficial owners who fail to provide the required information.

Conclusion

With the compliance deadline fast approaching, companies must act to comply with the disclosure requirements or risk removal from the register. This enforcement underscores Kenya’s commitments to global standards to combat money laundering, terrorism, corruption, and organised crime.

Should you require assistance to comply with the Registrar’s directive, please get in touch with Benson Ngugi, Kabu Karanja, or Jessica Obimbo.

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A REVIEW OF THE COMPETITION (AMENDMENT) BILL 2024 (the Bill)

Introduction

The Competition Authority of Kenya (CAK) has proposed a series of changes to the Competition Act Cap. 504 Laws of Kenya (the Act) in response to emerging regulatory issues, such as those presented by digital marketplaces. CAK also aims to incorporate lessons learned from its enforcement experience and international best practices.

Some of the areas that the Bill seeks to amend include abuse of buyer power, mergers, criteria for determining dominant position, and financial penalties.

We will provide an overview of some of the key provisions of the Bill below.

Key Provisions

New Definitions

The Bill introduces some new definitions to the Act. The terms “business consumer”, “digital activities”, “product information standards”, “strategic market position” and “superior bargaining position” have all been introduced to the Act.

Superior Bargaining Position

The proposed Bill aims to replace the term “abuse of buyer power” with “superior bargaining position.” According to the Bill, a superior bargaining position refers to the ability of an enterprise to control, direct, define, or determine business operation conditions with counterparties, in a manner that benefits the enterprise, regardless of its dominant market position or power. The Bill prohibits any conduct that amounts to abuse of superior bargaining position in the Kenyan market or a substantial part of it. The Bill also grants the CAK the power to monitor the activities of any sector or enterprise that it believes is experiencing or likely to experience abuse of superior bargaining position. CAK is authorized to impose reporting and prudential requirements to ensure compliance and establish a code of conduct for such sectors.

Some behaviours that constitute abuse of a superior bargaining position include delays in payment without justifiable reasons, unilateral termination or threats of termination of a commercial contract without adequate notice, unilateral variation of contractual terms, transferring costs to the counterparty, and imposing unfair commercial risks meant to be borne by the other party.

Additionally, demanding preferential terms unfavourable to the other party, setting purchase or service prices below competitive levels, unreasonably collecting and/or processing personal data of the counterparty, imposing unduly difficult conditions for the termination of services, and obstructing business activities or interfering in the counterparty’s management of its business also amount to abusing a superior bargaining position.

Those found guilty of abusing their superior bargaining position can face imprisonment for up to five years, a fine not exceeding KES. 10 million, or both.

Mergers

The Bill proposes adding mergers of institutions that have been privatized to section 41 of the Act, which defines a merger. CAK may also request public input on a proposed merger within 14 days of receiving notification of the proposed merger.

Financial Penalty

The Bill introduces a financial penalty of up to 10% of the immediately preceding year’s gross annual turnover in Kenya for an undertaking that contravenes any lawful order given by CAK under the Act.

Consumer Protection

The Bill proposes to strengthen consumer protection measures, including mandatory disclosure of product information and prohibition of withholding material information about product quality and use.

Conclusion

The Competition Authority of Kenya (CAK) states that the proposed amendments are intended to enhance its ability to carry out its mandate and ensure efficient operation of the Kenyan market.

CAK has invited the public to provide comments on the Bill. Feedback can be submitted through the Bill and Stakeholder Feedback Tool, which is accessible at: Stakeholder Views Collection Matrix.xlsx (live.com).

For More Information Please Contact

kabu.karanja@attorneysafrica.com

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