April 30th, 2025

Green finance presents counties with a unique opportunity to unlock funding for environmentally friendly initiatives that drive socio-economic development. Recognising the role of green finance in achieving climate resilience, Kenya has made significant progress in establishing a regulatory framework to facilitate county-level access to green financing instruments. Key policies such as the Green Fiscal Incentives Policy, which leverages tax policies and subsidies to encourage sustainable practices, and the Kenya Green Finance Taxonomy (KGFT), which classifies climate-friendly economic activities, have provided a strong foundation for green investment.

Recognising the role of green finance in achieving climate resilience, Kenya has made significant progress in establishing a regulatory framework to facilitate county-level access to green financing instruments. Key policies such as the Green Fiscal Incentives Policy, which leverages tax policies and subsidies to encourage sustainable practices, and the Kenya Green Finance Taxonomy (KGFT), which classifies climate-friendly economic activities, have provided a strong foundation for green investment.

A major step in integrating green finance at the county level was the enactment of the County Climate Change Act (CCCA) by all 47 counties. This legislation mandates counties to mainstream climate action into their development plans and establish County Climate Change Funds (CCCFs) to finance local adaptation and mitigation projects. Despite these advances, the actual amount of green financing accessed by counties remains low. While the legal framework is in place, counties face several barriers, including complex regulatory requirements, limited access to diverse financial instruments, and a lack of capacity to develop investable projects. Many counties continue to rely heavily on grants rather than exploring other financing models such as green bonds, concessional loans, and blended finance. Additionally, most counties struggle with financial stability and creditworthiness, making it difficult to attract investors. Weak revenue generation and debt management further limit their ability to mobilisze the necessary resources for green initiatives. These challenges were highlighted during the county green finance assessment conducted by FSD Kenya.

Recognising these challenges, the county green investment facility was established to support counties in identifying and preparing investable green projects for investment. Currently supporting 10 counties – Embu, Kirinyaga, Kisumu, Laikipia, Nairobi City, Makueni, Nandi, Taita Taveta, Vihiga, and Wajir – the facility builds on findings from the county green finance assessment conducted between October 2022 and May 2023. This assessment highlighted key investment opportunities and constraints at the county level. A major outcome of this initiative has been the formation of County Green Investment Working Groups (CGIWG) in nine of the 10 counties. These groups, composed of technical experts from various sectors, provide a platform for counties to leverage skills from national government agencies, private sector players, and civil society to identify viable green investments.

Initial engagements with counties revealed that issuing green bonds and other debt instruments remains a significant challenge. Many counties lack adequate financial capacity and clear frameworks needed to issue debt, leading to an exploration of alternative financing options such as leasing arrangements with private investors, public-private partnerships (PPPs), and joint ventures. Grants remain a critical component of green financing, especially for projects that lack an immediate revenue-generation model but are essential for long-term sustainability. For example, building a dam to supply water for irrigation is vital for agricultural development but may not attract commercial investors without additional financial incentives. Counties participating in the County Aggregation and Industrial Parks (CAIPS) programme must also allocate budgetary resources for land acquisition and infrastructure, with matching contributions in the form of grants.

Through the County Green Investment Facility, key investment themes have emerged across the participating counties. Water management is a critical priority, with counties such as Wajir and Taita Taveta struggling to provide adequate water for domestic use. Others, like Kisumu, Nandi, and Embu, have untapped potential for small-scale hydropower projects to enhance renewable energy production. Waste management is another pressing issue, particularly in counties such as Makueni, Embu, and Kisumu, where inefficient waste collection and processing systems have led to environmental and public health challenges. Renewable energy also presents significant opportunities, especially in counties like Wajir, Taita Taveta, and Makueni, which have high solar potential but lack the capital investment required for large-scale solar farms. Additionally, agricultural counties such as Embu, Kirinyaga, Vihiga, and Kisumu are keen to invest in aggregation, value addition, and processing centres to reduce post-harvest losses and stimulate local economies. However, challenges such as duplication of projects, limited market linkages, and weak marketing strategies continue to hinder the effectiveness of these investments.

Despite the obstacles, there is growing interest among investors in county-level green projects. The facility seeks to bridge the gap between counties and investors by addressing key challenges such as technical capacity constraints, data and information gaps, and high investor risk perception. Many county officials lack adequate expertise needed to structure projects that meet investor requirements, necessitating continuous capacity-building initiatives. Additionally, most projects lack detailed feasibility studies, environmental impact assessments, and financial models, making them less attractive to investors. To address this, the facility is working with various stakeholders to fund critical assessments and studies. Investor confidence remains a major hurdle, with counties often perceived as high-risk investment destinations due to governance concerns and uncertain financial sustainability. Structuring projects through lease arrangements, special-purpose vehicles, and joint ventures can help de-risk investments and attract private sector participation.

County leadership engagement also plays a crucial role in accelerating green finance uptake. However, competing priorities and bureaucratic processes sometimes delay decision-making, slowing down project implementation. The establishment of CGIWG has helped mitigate this by delegating authority to technical teams with the capacity to make informed investment decisions. At the national level, coordination with key stakeholders such as the National Treasury and Economic Planning is essential to streamline policy and regulatory processes, ensuring that counties can efficiently access green financing mechanisms.

Unlocking green finance for counties requires a multi-faceted approach that includes strengthening technical capacity, improving project bankability, diversifying financial instruments, and fostering investor confidence. By addressing these critical areas, counties can enhance their ability to secure sustainable financing, drive climate-resilient development, and contribute meaningfully to Kenya’s green growth agenda.

This blog is one of the articles in FSD Kenya’s 2024 annual report. Click here to read the full report (PDF).

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