The State of Green Construction Finance in Kenya: Identifying Drivers and Barriers for Real Estate Developers

Abstract

The construction sector in Kenya is a primary driver of economic growth but remains a significant contributor to environmental degradation and resource depletion. Despite the global emergence of green construction finance as a tool for sustainable development, its adoption in Kenya is remarkably low. This study seeks to: (i) establish the extent of awareness of green construction finance among real estate developers in Kenya, (ii) examine the drivers and barriers influencing the uptake of green construction finance in Kenya, and (iii) establish ways of enhancing the uptake of green construction finance in Kenya. Employing a cross-sectional census survey of all 69 registered developers under the Kenya Property Developers Association (KPDA), the research achieved a 79.7% response rate. The findings reveal that awareness is primarily limited to technical building aspects rather than specialized financial instruments, with significant knowledge gaps identified regarding tax incentives and application processes. Key drivers for uptake include the potential for lower operating costs, enhanced marketability, and the need for supportive regulatory frameworks. However, these are overshadowed by a web of barriers consisting of high upfront costs, limited access to affordable green loans, and a lack of standardized green finance taxonomies. Based on these findings, the study concludes that the adoption of green construction finance in Kenya remains at a nascent stage, requiring deliberate and coordinated efforts from multiple stakeholders to accelerate its growth. The study emphasizes the need for a synchronized ecosystem involving policy intervention, financial innovation, and capacity building. Recommendations include the implementation of a comprehensive green construction finance policy framework that provides clear guidelines, standards, and incentives for sustainable construction and the promotion of innovative green financial products tailored to the construction sector.