A.INTRODUCTION: ADAPTING TO NEW EU TRADE

COMPLIANCE RULES

Kenya and the European Union (EU) share a well-established trade relationship,
with the EU ranking as Kenya’s second-largest trading partner. In 2023, total trade
between the EU and Kenya reached €3 billion. The EU imports €1.2 billion worth of
goods from Kenya, primarily vegetables, fruits, and flowers, while its exports to
Kenya amount to €1.7 billion, mainly consisting of mineral and chemical products
and machinery.

The Economic Partnership Agreement (EPA) strengthens this relationship,
granting Kenyan exports duty-free and quota-free access to the EU market.
However, as sustainability regulations tighten globally, including the Corporate
Sustainability Reporting Directive (CSRD), Kenyan businesses face a new
challenge: compliance. Companies that fail to meet evolving environmental,
social, and governance (ESG) standards risk disrupting trade flows, losing market
access, and weakening investor confidence.

ESG ALERT

EMBRACING AND SOLVING THE COMPLEX

B. UNDERSTANDING CSRD

The Corporate Sustainability Reporting Directive (CSRD), which came into effect in
January 2023, is a comprehensive EU regulation requiring companies to disclose
detailed ESG-related data. It expands the scope of its predecessor, the Non
Financial Reporting Directive (NFRD), applying to around 50,000 companies, far
beyond the 11,000 previously subject to ESG reporting obligations.
Under CSRD, companies must report on sustainability performance using the
European Sustainability Reporting Standards (ESRS). This framework mandates
disclosures on climate change, biodiversity, human rights, and supply chain due
diligence. While the directive primarily applies to EU-based companies, its
extraterritorial reach extends to non-EU firms, including those in Africa, that
conduct business with or within the EU.

The CSRD expands reporting obligations for EU companies, including their
subsidiaries and suppliers in Sub-Saharan Africa.

C.CONTEXTUALIZING THE IMPACT

Company A, a Kenyan textile manufacturer, exports garments to Company B, a
fashion retailer based in Germany. Before the EU Corporate Sustainability
Reporting Directive (CSRD), Company A primarily focused on production efficiency
and cost-effectiveness. However, under the CSRD, Company B must disclose
detailed sustainability reports, including the environmental and social impact of
its entire supply chain, including suppliers like Company A.

Company B (EU retailer) now requires Company A to prove that its production
processes are environmentally sustainable and socially responsible. If Company A
fails to meet CSRD standards, Company B might switch to another supplier in Asia
or Europe that already complies.

D. WHAT DOES THIS MEAN FOR AFRICAN BUSINESSES?

For African exporters and businesses with EU ties, CSRD compliance will no longer
be optional. This shift means businesses must move beyond voluntary
sustainability efforts and embed ESG compliance into their core operations. As
such, some key legal considerations by these businesses include:
Contractual Obligations: Businesses trading with EU companies will need to
review and revise their contracts to incorporate CSRD compliance clauses.
1.
Regulatory Due Diligence: Companies must establish internal compliance
programs to meet the heightened due diligence expectations under CSRD. This
includes implementing legal risk assessments, supplier verification
mechanisms, and ESG disclosure frameworks to mitigate liability risks.
2.
Liability Risks and Legal Consequences: Failure to comply with CSRD
requirements could result in contractual breaches, or exclusion from EU
markets.
3.
Corporate Governance and ESG Policies: Kenyan companies will need to
update their governance structures to integrate ESG policies, ensuring
alignment with international legal standards.
4.

EMBRACING AND SOLVING THE COMPLEX

E. WHAT ARE THE LEGAL STRATEGIES FOR COMPLIANCE?

Kenyan businesses must now take proactive legal steps to adapt to evolving ESG
reporting requirements. Sustainability is here to stay, and compliance is now
critical for market access, investor confidence, and legal standing. In Order to
make meaningful progress, business can do the following;
Legal Audits & Compliance Reviews – Conducting ESG audits ensures
alignment with both international frameworks like the CSRD and local
regulations, including the NSE ESG Disclosure Guidelines, for listed companies.
1.
Regulatory & Contractual Compliance – Companies must integrate
sustainability clauses in contracts and governance structures to avoid legal
risks and market exclusion.
2.
ESG Reporting & Training – Businesses should embed ESG principles in their
operations and reporting, aligning with sector-specific laws while ensuring
compliance with NSE reporting requirements.
3.

F.CONCLUSION

The CSRD represents a transformative shift in global trade dynamics. For African
businesses, this directive poses both challenges and opportunities—those that
adapt will secure long-term market access and enhance their competitiveness.
Now is the time for Kenyan companies to integrate legal frameworks into their
ESG strategies to safeguard their market positions and mitigate regulatory risks.