Analysing how domestic pension funds could anchor climate‑resilient infrastructure
The boardroom at Nairobi’s Pension Towers overlooks a city already feeling climate’s grip. Outside, matatus idle in flooded streets. Last week’s downpour overwhelmed drainage systems built for a climate that no longer exists. Inside, trustees manage KSH 2.2 trillion (USD 17 billion) in retirement savings, most of it parked in government bonds yielding 16%, inflation-adjusted to barely positive returns.
Here is the paradox: Kenya needs KSH 200 billion annually for climate adaptation. Flood barriers, drought-resistant agriculture, renewable energy. Pension funds have the capital. Yet less than 2% flows toward climate infrastructure. The gap isn’t about money. It’s about whether financial gatekeepers can see flooded streets as investment risk, and seawalls as fiduciary duty.
The scale of need
According to Kenya’s Updated Nationally Determined Contributions, the country needs USD 65 billion to implement Kenya’s mitigation and adaptation requirements from 2020 to 2030. That translates to roughly KSH 650 billion (USD 5 billion) annually. Recent estimates indicate that the country has achieved one-third of the total finance required for investments related to climate change adaptation. As such, there is a yearly resource gap of about USD 3.5 billion, approximately KSH 455 billion.
The physical evidence mounts daily. Five failed rainy seasons resulted in a drought, the worst in 40 years, affecting at least 4.5 million people who require food assistance. Then came months of heavy rain, which led to riverine and flash flooding that impacted more than 306,520 people between March 1 and June 18, 2024.
Enter domestic institutional capital. Kenya’s pension sector now holds KSH 2.23 trillion in assets as of December 2024, according to the 2024 Statistical Digest by the Retirement Benefits Authority. The RBA permits up to 10% in infrastructure investments. Ten percent of KSH 2.23 trillion equals KSH 223 billion. Nearly half the annual climate finance gap, without a single donor dollar.
Yet actual deployment lags. Nearly half of the industry’s money (48.5%) was parked in government securities, while real estate (10.7%) and shares (8.5%) made up much smaller chunks. Climate-specific projects attract almost nothing.
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When safe bets become risky
Pension orthodoxy says government bonds are the safest asset class. True, until the government’s balance sheet becomes unmanageable.
The 2022 to 2023 drought cost KSH 400 billion (USD 3 billion), about 4% of GDP. The 2024 floods caused KSH 150 billion in infrastructure damage. These are not one-off shocks anymore. They are baseline volatility.
Each climate disaster does two things to pension portfolios. First, it depresses returns across sectors. Agriculture underperforms, supply chains freeze, consumer spending drops. Second, it forces government borrowing for emergency response, crowding out productive spending and raising sovereign debt risk.
“The heavy focus on government securities gives stability but also creates risks if too much is tied to one area,” says Charles Machira, CEO of the Retirement Benefits Authority. “That’s why schemes need to diversify into other investments like infrastructure, real estate, and offshore markets.”
Climate-resilient infrastructure, properly structured, doesn’t just generate returns. It protects them. A flood defence in Mombasa protects the import-export economy that drives corporate earnings held in pension portfolios. Drought-resistant irrigation steadies rural incomes, consumer markets, and the tax base backing those government bonds.
Pension funds aren’t being asked to sacrifice returns for virtue. They are being asked to buy insurance that pays dividends.
What is blocking deployment?
Four roadblocks emerge clearly.
Regulatory ambiguity. The RBA’s 10% “alternative investment” cap lumps infrastructure with private equity and real estate. Vastly different risk profiles. No explicit carve-out exists for climate or ESG infrastructure, leaving trustees uncertain.
Pipeline scarcity. The Kenya Pension Funds Investment Consortium received infrastructure and alternative investment proposals worth over Sh700 billion ($5.5 billion) from project sponsors and fund managers at its 2023 conference. Yet a call for proposals in early 2023 brought about 50 potential projects, a dozen of them good prospects for investments, says Ngatia Kirungie, head of the Kenya Pension Funds Investment Consortium (KEPFIC) Secretariat. Massive demand, tiny viable pipeline.
Capacity gaps. Most pension trustees are actuaries and accountants, skilled at bond portfolio management. Evaluating infrastructure cashflows? Different competency. “Infrastructure is a new asset class for our members,” observes Kirungie. The funds needed to build capacity “on what a viable investment would look like,” notes Swee Ee Ang, senior financial specialist at the World Bank.
Return expectations. Infrastructure yields 8% to 10% over 15 to 20 years. Solid real returns, but optically lower than 16% government bonds. The Acorn housing deal carried a blended return of 18.3 percent, compared to 14 percent for the typical sovereign bond, states Kirungie. Yet these successes remain outliers.
Precedents and pathways
Kenya is not inventing this model. South Africa’s Government Employees Pension Fund directs 5% to developmental infrastructure, averaging 9% returns. Nigeria’s National Pension Commission raised infrastructure caps from 5% to 15% in 2020.
KEPFIC itself provides proof of concept. KEPFIC has mobilised $113 million into two housing projects, with a third project in road infrastructure in the pipeline. Yet despite there being 1,075 registered pension schemes in Kenya, only 88 have actively participated in infrastructure investments through KEPFIC, highlighting a significant untapped opportunity.
The lesson? Pension funds move when three conditions align: regulatory permission, deal-flow pipeline, and blended finance de-risking early stages.
A roadmap forward
Four levers matter most.
Regulatory clarity. The RBA should create an explicit “climate infrastructure” sub-category within the alternative investments cap, with indicative allocation guidance of 5%. In September 2024, Kenya launched its National Retirement Benefits Policy. “Through prudent management and investment of these resources, we can unlock significant capital for national development projects and secure shared prosperity for our country,” Dr. Chris Kiptoo, Principal Secretary at the National Treasury, said during the launch.
Blended finance vehicles. In September 2024, Dhamana Guarantee Company Ltd reached a major milestone marked at an event in Nairobi. Dhamana aims to mobilise private sector finance to support the development of sustainable businesses. It will do so by issuing guarantees to commercially viable projects, businesses, and institutions that tackle the climate crisis. This credit guarantee model can crowd in pension fund investment.
Project aggregation. Launch a National Climate Investment Pipeline, vetting and bundling projects to pension-fund scale. Individual solar installations are too small. A portfolio of 20 becomes investable.
Capacity building. “J-CAP provided the technical assistance such that our members are able to assess these infrastructure opportunities,” Kirungie explains. Scale this model: sustained capacity-building for trustees in infrastructure evaluation and ESG integration.
The real fiduciary question
“Kenyan pension schemes are in search of profitable, secure, and impactful investments for better returns for their members. Infrastructure and alternative assets are an attractive but untapped new asset class,” reveals Kirungie.
The question facing trustees isn’t whether to optimise for this quarter’s returns. It is whether to optimise for their members’ actual retirement, 20 years hence, in a Kenya either climate-vulnerable or climate-resilient. Teachers, nurses, county workers will retire into the Kenya trustees build, or fail to build, today.
The fiduciary duty is not to maximise nominal returns. It is to secure real purchasing power in the economy members will actually retire into.
Climate infrastructure is not philanthropy. It is portfolio insurance with a coupon attached. The question is not whether Kenya’s pension funds should fill the KSH 200 billion gap. It is whether trustees can recognise that gap as the real risk in their portfolios.
The boardroom overlooks flooded streets. The next question is whether those inside see liability, or opportunity.
What This Means: Kenya stands at an inflection point where domestic capital can anchor climate resilience, or remain sidelined while risks compound. Whether that capital moves depends on regulatory courage, institutional coordination, and trustees willing to see climate as fiduciary duty, not distraction. The infrastructure Kenya needs already has funding. It’s waiting in Pension Towers.
By Staff Writer
