Financial institutions in Kenya are entering a new season of transparency and accountability. With the Institute of Certified Public Accountants of Kenya (ICPAK) adopting IFRS S1 and IFRS S2, sustainability reporting has moved from being an optional showcase to a mandatory requirement. Among the four pillars of IFRS S1, governance is the foundation on which all the others stand. Without strong oversight from the top, strategies, risk processes, and performance targets risk becoming hollow.

IFRS S1 in Context

At its core, IFRS S1 is about telling a coherent story of how sustainability risks and opportunities affect an organisation’s financial position. It is not designed as a glossy sustainability brochure but as a framework that allows stakeholders to assess resilience and decision-making. The standard asks institutions to address four areas: governance, strategy, risk management, and metrics and targets.

Governance comes first for a reason; it is the starting point for credibility and the assurance that sustainability is embedded into leadership and decision-making.

Moving Beyond Box-Ticking

The governance requirements in IFRS S1 are straightforward. Institutions must identify who at the top holds oversight responsibility, how this person or body is informed, the frequency of engagement, and the manner in which sustainability is integrated into strategic decisions. But naming a board member or pointing to an occasional agenda item is not enough. What matters is whether governance actually works in practice. Investors, regulators, and other stakeholders will look beyond titles to see whether sustainability is taken seriously as a matter of strategy and performance.

This is precisely what has enabled some Kenyan financial institutions to unlock opportunity. Equity Bank, for instance, in 2022 secured US$165M funding through a partnership with the International Finance Corporation (IFC) to support climate-friendly projects. That level of financing and recognition was possible because its governance systems assured IFC that oversight and accountability were in place.

Similarly, KCB Bank secured a US $150 million IFC facility to scale climate finance, a partnership that also built capacity for climate risk reporting. The confidence that enabled this financing rests squarely on governance.

Choosing a Governance Structure

Institutions face a choice in how to structure sustainability oversight. One option is to have a dedicated sustainability committee. The upside of this approach is that it signals seriousness and gives sustainability its own platform, allowing complex issues such as climate change or social impact to receive focused attention. The downside is that it risks creating a silo where sustainability is treated as a separate agenda, and this risks introducing unnecessary bureaucracy.

The other option is to integrate sustainability oversight into an existing committee, most commonly the risk committee. This approach recognises sustainability for what it is: a set of risks and opportunities that must be managed as part of the wider enterprise risk framework. It also avoids creating new governance layers and embeds sustainability directly into the core of business oversight. The challenge is ensuring that sustainability receives adequate attention alongside traditional financial risks, and that committee members are equipped to interpret non-financial data with confidence.

The second approach is likely to be more effective. Anchoring sustainability oversight within the risk committee ensures that sustainability risks and opportunities are effectively managed as part of the broader risk management framework. Such a centralised system promotes coherence and efficiency. To external stakeholders, such as investors, it also underlines that sustainability is not a side issue but central to the organisation’s business resilience and competitiveness strategy. 

From Structure to Substance

However, establishing a committee, whether new or existing, is only the beginning. What makes governance effective is the flow of information, the clarity of roles, and the willingness to link oversight with accountability. Boards must formally update their mandates to include sustainability, build the competence of members through training or external expertise, and receive consistent, structured updates from management. This ensures sustainability is not only discussed but is understood, scrutinised, and acted upon.

On the management side, accountability must be clear. Institutions need designated leadership, whether through a Chief Sustainability Officer or a management-level committee, to drive implementation. Sustainability data should be treated with the same rigour as financial reporting, with proper internal controls and verification processes. This is especially critical where disclosures relate to technical issues such as carbon emissions or climate risk exposure.

Why Strong Governance Matters

Robust governance in sustainability is not simply about checking compliance boxes. It is about building confidence with investors, unlocking access to green finance, and protecting institutions from reputational and regulatory risk. The lesson is consistent across contexts. In Mauritius, Bank One strengthened its governance framework around climate risk with IFC support, enabling it to expand green lending with confidence. In Pakistan, governance reforms in the banking sector have underpinned access to sustainable finance through risk management manuals and sector-wide training. In every case, strong governance has acted as the gatekeeper to new opportunities.

Weak governance leaves institutions vulnerable, but strong governance creates a platform for competitive advantage. It shows stakeholders that the institution is serious about long-term value creation and resilient growth.

The Bottom Line

Kenya’s financial institutions are at a turning point. Embedding sustainability into governance, will help them move beyond compliance to demonstrate leadership in sustainable finance, both locally and across Africa.

The institutions that act decisively will attract capital, build trust, and strengthen resilience. Those that treat governance as a formality risk being left behind. The question is no longer whether compliance is possible, but whether governance structures are strong enough to drive meaningful change.