The International Financial Reporting Standards (IFRS) S1 and S2, issued by the International Sustainability Standards Board (ISSB) in June 2023, mark a transformative shift in global sustainability-related financial disclosures. Their implementation is particularly relevant for East Africa and Kenya’s finance sector, which is increasingly aligned with global ESG (Environmental, Social, and Governance) standards and the growing demand for responsible investment.
Overview of IFRS S1 and S2
IFRS S1: General requirements for disclosure of sustainability-related financial Information
IFRS S1 sets out the overarching framework for entities to disclose sustainability-related risks and opportunities that could reasonably be expected to affect the entity’s cash flows, access to finance, or cost of capital over the short, medium, or long term. It requires disclosures across four key areas: Governance, Strategy, Risk Management, and Metrics & Targets.
IFRS S2: Climate-related Disclosures
IFRS S2 provides specific guidance for disclosing climate-related risks and opportunities. It is built upon the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and focuses on transition risks, physical risks, and climate-related opportunities. It includes disclosures on greenhouse gas (GHG) emissions (Scope 1, 2, and 3), climate resilience, and targets aligned with global climate goals.
Relevance and importance in the Kenyan finance sector
Enhancing transparency and investor confidence
With Kenya’s financial markets becoming more integrated into global capital flows, the adoption of IFRS S1 and S2 provides investors with high-quality, comparable, and decision-useful sustainability information. This enhances investor confidence, particularly for international institutional investors seeking climate-resilient and sustainable investments.
Supporting green finance and ESG integration
Kenya has seen a rapid rise in green finance instruments, including green bonds and sustainability-linked loans. IFRS S1 and S2 equip financial institutions with a globally recognized framework for integrating ESG risks into financial decision-making, pricing, and reporting. This helps align capital allocation with Kenya’s national development goals and international commitments such as the Paris Agreement.
Regulatory and policy alignment
Kenya’s regulatory landscape is evolving to integrate sustainability and climate risk considerations, with institutions like the Capital Markets Authority (CMA) and Central Bank of Kenya (CBK) encouraging ESG disclosures. IFRS S1 and S2 offer a structured, credible framework that supports compliance with emerging local and regional regulations, including the African Union’s push for a sustainable finance taxonomy.
Read also: The growing language of corporate sustainability reporting
Climate risk management
Kenya is highly vulnerable to climate change impacts. Financial institutions, particularly banks and insurers, must assess and disclose exposure to climate-related risks. IFRS S2 enables a robust and forward-looking assessment of such risks, helping institutions in stress testing, scenario analysis, and integrating climate risk into enterprise risk management.
Capacity building and market readiness
Adoption of IFRS S1 and S2 also fosters capacity building within financial institutions and among auditors, consultants, and sustainability professionals in Kenya. It encourages local talent development in sustainability reporting, ESG strategy, and climate finance—critical areas for long-term financial sector resilience.
Kenya has established a structured roadmap for adopting the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards—IFRS S1 and S2—tailored to accommodate organizations of varying sizes and capacities.
Kenya’s IFRS S1 & S2 adoption timeline
| Phase | Effective Date | Entities Involved | Description |
| Phase 1: Voluntary Adoption | January 1, 2024 | All organizations | Encourages early adoption to build capacity and familiarize entities with the standards. |
| Phase 2: Mandatory Adoption for Public Interest Entities (PIEs) | January 1, 2027 | PIEs such as listed companies, banks, and insurers | Requires these entities to disclose sustainability-related financial information in line with IFRS S1 and S2. |
| Phase 3: Mandatory Adoption for Large Non-PIEs | January 1, 2028 | Large private companies not classified as PIEs | Extends mandatory reporting to significant non-public entities. |
| Phase 4: Mandatory Adoption for SMEs | January 1, 2029 | Small and Medium-sized Enterprises (SMEs) | Final phase includes smaller entities, allowing additional time for preparation. |
| Phase 5: Public Sector Entities | To be determined | Government organizations | Timeline for public sector adoption is yet to be established. |
This phased approach, as outlined by the Institute of Certified Public Accountants of Kenya (ICPAK), aims to ensure a smooth transition by allowing organizations to build the necessary capacity, gather relevant data, and align internal processes with the new standards.
Key considerations for Kenyan organizations
- Readiness assessments: Before mandatory adoption, organizations are expected to conduct assessments to evaluate their preparedness for compliance with IFRS S1 and S2.
- Capacity building: ICPAK is providing training programs and resources to assist entities in understanding and implementing the standards effectively.
- Alignment with global standards: Adopting IFRS S1 and S2 positions Kenyan organizations to meet international investor expectations and enhances comparability with global peers.
By adhering to this roadmap, Kenya aims to enhance transparency, attract sustainable investments, and align its financial reporting practices with global sustainability standards.
The adoption of IFRS S1 and S2 is not merely a compliance exercise—it is a strategic imperative for Kenya’s finance sector. It positions Kenyan financial institutions to compete on a global scale, build resilience to sustainability-related risks, and contribute meaningfully to the transition to a low-carbon and inclusive economy. Stakeholders, including regulators, financial institutions, investors, and professional bodies, must collaborate to support phased implementation, capacity development, and alignment with Kenya’s Vision 2030 and climate action goals. Impact Africa Consulting Limited is committed to support clients across different sector to adopt IFRS S1 and S2 and provide capacity building trainings across various sectors