Investors, lenders and corporate buyers increasingly want evidence of how businesses affect the environment and society. Yet collecting, checking and reporting that information costs money, time and expertise. For East Africa’s smaller firms, the challenge is to prove that their businesses are responsible without allowing the cost of demonstrating it to become a competitive disadvantage.
By Kirimi Mbogo
A manufacturer supplying a multinational company may be asked to disclose its energy consumption, greenhouse-gas emissions, waste management and working conditions. A bank assessing a loan may want information about climate risks. An investor may ask whether a company’s social programmes deliver measurable results.
Each request has a commercial rationale. Buyers need to assess suppliers, lenders need to understand risks and investors want to distinguish credible performance from marketing. But collecting the evidence can be expensive, particularly for a small business without a dedicated sustainability team.
The costs extend beyond preparing a report. They can include installing meters, training staff, calculating emissions, engaging consultants, maintaining records and paying for independent verification. Someone must also reconcile information from different departments and respond when customers introduce new questionnaires.
A large company can spread this work across its finance, procurement, risk and compliance teams. For a small enterprise, the same exercise may compete with production, sales and cash flow.
The question is not whether businesses should measure their environmental and social performance. It is whether the information requested is useful, proportionate to the risks involved and worth the cost of producing it.
What is actually compulsory?
The first distinction is between a legal obligation and a commercial request. They may demand similar information, but they do not carry the same authority.
Kenya has established a phased roadmap for adopting the International Sustainability Standards Board’s IFRS S1 and IFRS S2 standards. Developed by the Institute of Certified Public Accountants of Kenya (ICPAK) in November 2024, the roadmap permits voluntary application for reporting periods beginning on or after 1 January 2024. Its published timetable sets mandatory application for public-interest entities, including listed companies, from 2027, large non-public-interest entities from 2028 and small and medium-sized entities from 2029. Businesses must confirm their classification and the applicable requirements before deciding what they must disclose.
IFRS S1 covers sustainability-related financial disclosures, while IFRS S2 addresses climate-related disclosures. Their purpose is to help users of financial reports assess sustainability-related risks and opportunities that could affect a company’s prospects.
These standards do not mean that every business must immediately produce a comprehensive report covering every environmental and social issue. Nor does a voluntary framework become a legal obligation simply because an international organisation publishes it.
Kenya’s reporting environment also includes requirements for particular regulated entities and listed companies. The Nairobi Securities Exchange’s ESG Disclosures Guidance Manual, published in 2021, provides a framework for environmental, social and governance reporting. Other obligations may arise under employment, environmental, occupational-safety and company laws, regardless of whether a business publishes a sustainability report.
The position is evolving. In September 2026, Kenya’s Insurance Regulatory Authority reported that a national assessment of public-interest entities’ readiness for IFRS S1 and S2 had produced an overall score of 1.51 out of four, classified as “Emerging”. The assessment covered seven regulated sectors and examined governance, strategy, risk management, metrics and targets.
The finding suggests that preparing organisations for the new requirements remains a substantial task. It does not, however, establish how much implementation costs or how prepared smaller businesses are.
Three categories should therefore be kept separate: statutory and regulatory obligations; voluntary reporting frameworks; and information requested by lenders, investors or corporate customers. A company may have no general obligation to publish a sustainability report yet still need credible environmental or labour data to retain an important customer.
When voluntary becomes commercially necessary
Consider an agricultural exporter seeking to supply a large international retailer. The buyer may request information about product traceability, responsible sourcing, water use and working conditions. An exporter unable to provide the required evidence could lose business to a competitor.
This is an illustrative scenario, not a verified case study of a particular East African company. Establishing how often such requests determine supplier selection requires interviews with exporters and buyers, together with procurement documents showing the criteria actually applied.
The commercial mechanism is nevertheless important. Large companies increasingly need information about their supply chains to assess operational and sustainability risks. Some of the work of gathering that information consequently falls to their suppliers.
The burden increases when several customers ask for substantially the same information in different formats. A small manufacturer might repeatedly submit electricity consumption, workforce numbers and waste records, each time using a different template.
The European Commission has recognised this problem. On 30 July 2025, it recommended a voluntary sustainability reporting standard for small and medium-sized enterprises, developed by the European Financial Reporting Advisory Group. The standard is intended to help smaller businesses respond to information requests from larger companies and financial institutions. The Commission said it would “reduce administrative burden on SMEs”.
The European recommendation is not East African law. Its relevance is the principle behind it: suppliers should be able to provide useful information without repeatedly preparing different reports for different customers.
A common template can reduce duplication. It cannot eliminate the cost of collecting information a business has never measured, however, or guarantee that the resulting data are accurate.
What should credible measurement cost?
There is no defensible universal price for ESG reporting across East African small businesses. Costs depend on the sector, the size of the operation, the availability of records, the scope of reporting and whether independent assurance is necessary.
A small services firm may be able to assemble basic information from electricity bills, payroll records and existing policies. A manufacturer may need more detailed energy and waste data, emissions calculations and occupational-safety records. An agricultural exporter may also need information from farms and other suppliers.
These are different measurement problems. Quoting a single consultancy fee as the typical cost of ESG compliance would conceal those differences.
The distinction between measuring activity and proving impact matters just as much. Counting workers trained is relatively straightforward. Establishing whether training improved productivity, raised earnings or reduced workplace injuries requires further evidence.
Similarly, the number of trees planted does not establish whether an ecosystem has been restored. The quantity of waste collected does not show how much was recycled. Spending on a community programme does not, by itself, prove that living standards improved.
Measurement should therefore begin with the issues that matter most to a business’s operations, financial prospects and actual environmental and social impacts. Existing records should be used where reliable, with more demanding measurement introduced where the risks or potential consequences justify it.
For East African firms, the immediate evidence gap is practical: how much do businesses spend on data collection, staff time, consultants and verification, and what proportion of those costs recurs each year? Without documented invoices, staff-hour estimates and comparable examples, claims that reporting is either cheap or prohibitively expensive remain unproven.
Does the information change decisions?
Reporting has commercial value when it changes a decision or helps a business manage a material risk.
A lender might use climate information to assess whether flooding threatens a borrower’s premises or supply chain. A corporate buyer might examine labour records before approving a supplier. An investor might consider energy consumption when assessing a company’s exposure to rising operating costs.
But the existence of a report is not proof that any of these decisions changed. Nor does completing a questionnaire establish that a company has improved its environmental or social performance.
The test should be specific. Did the information affect a lending decision, procurement award or investment assessment? Did it help management identify waste, reduce energy expenditure or address a material workplace risk? Were the resulting benefits sufficient to justify the cost of gathering the data?
Answering these questions requires evidence from actual East African businesses and the organisations making the decisions. Interviews alone may establish what participants believe; procurement records, financing decisions and documented costs would help establish what happened.
The same standard should apply to claims that reporting is unnecessarily expensive. If businesses cannot show what compliance costs, and buyers cannot explain how the information influences their decisions, neither side has a reliable basis for judging proportionality.
The Claim Check
Three tests can distinguish useful accountability from expensive paperwork.
Check the obligation. Is the requirement imposed by law, contained in a voluntary framework, requested by an investor or lender, or written into a customer’s contract? Identify the precise rule, the businesses it covers and the reporting period.
Check the evidence. Can the business trace its claims to invoices, meter readings, payroll records or other appropriate documents? Are estimates identified as estimates? Does independent verification add meaningful confidence, and is it required or merely requested?
Check the consequence. What decision will the information change? If the answer is unclear, the business and the organisation requesting the data should reconsider the scope of the exercise.
Larger companies and financial institutions have a responsibility to make their requests relevant, consistent and proportionate. Asking a small supplier for elaborate information without explaining its purpose can raise costs without necessarily improving accountability.
Smaller firms, meanwhile, have an interest in building reliable records that support management as well as meeting legitimate commercial requirements. Avoiding measurement altogether may leave them unable to identify operational risks or compete for contracts that require credible evidence.
East Africa’s sustainability reporting debate should be judged by more than the number of reports produced. The better test is whether the information improves decisions, identifies material risks and demonstrates actual results. The next step is to establish, through documented cases, who pays for that evidence and whether the benefits justify the bill.
