Thursday, June 20, 2024

What do ESG guidelines mean for corporates?


Kenya’s strive to be a sustainability thought-leader was yet again demonstrated by the recent issuance of the Nairobi Securities Exchange (NSE)  Environmental, Social and Governance (ESG) Disclosure Guidance Manual.

This was a strong indicator that Kenya will not be left behind as other global markets such as the UK announced their net-zero aligned financial centres making listed companies publish plans towards a net-zero economy by 2050. In Africa, NSE was the fourth stock exchange after Egypt, Nigeria and Botswana to release an ESG guidance manual that aims at improving and standardising information listed companies report.

But what does this mean for corporates? The guidelines require that companies listed on the NSE report publicly on their ESG performance at least annually. To allow for this, the NSE has offered a one-year grace period from the issuance of the guidelines for listed companies to interact and familiarise themselves with the ESG reporting process.

Furthermore, they have developed the manual to facilitate by guiding on how to identify and measure material ESG topics, how to embed ESG into an organisation’s strategy, operations, and performance management, and how to report on ESG performance, using an approach that meets international standards on sustainability reporting.

Thereafter, listed firms are expected to deliver an integrated or separate ESG or sustainability annual report.

Having a common set of ESG metrics, that provides a full and balanced picture of an organisation’s material topics and related impacts, as well as how these impacts are managed, facilitates comparability of ESG performance of listed companies in Kenya.

Thus, the guidelines recommend the adoption of the Global Reporting Standards (GRI) as the common framework for ESG reporting. Over the years, GRI has led the way to provide the world’s most widely adopted standards for sustainability reporting.

It includes 3 universal standards that apply to all organisations and 33 topic-specific standards that are applicable only based on an organisation’s materiality. Through its materiality assessment, an organisation assesses its operations for issues that can affect it and determines those that matter most and require to be disclosed.

NSE, however, has also gone ahead to propose a list of mandatory ESG disclosures that listed companies must disclose to facilitate compliance with the CMA code and local regulations.

Some of the topics include environmental and social risk management, stakeholder engagement, supply chain screening, human rights, and carbon footprint assessment.

In addition, the rules stipulate that listed firms should conduct the materiality assessment at least on an annual basis and should disclose a structured, documented process on assessment of materiality for ESG disclosure topics.

To integrate sustainability across business strategy, operations and performance management, the guidelines recognise that corporate governance is key and propose that the board and senior management carries the responsibility to oversee, finance and implement, key of which is appointing and resourcing the sustainability manager to specifically oversee ESG matters within the organisation.

Such personnel could benefit from programmes such as GRI Sustainability Training Course and Professional Certification. As a GRI certified training partner, KCIC Consulting offers training that enables professionals to upskill, understand and communicate their organisations’ sustainability impact.

The modules introduce participants to sustainability reporting, the GRI standards and how to integrate Sustainable Development Goals into sustainability reporting. It then dives deeper into the sustainability reporting step-by-step approach including conducting materiality assessment and stakeholder engagement.

That said, ESG or sustainability reporting should never be a stand-alone function. It should always circle back to the strategy which allows organisations to constantly analyse emerging trends in ESG and identify impacts on future strategy and new opportunities for stakeholders.

This could range from operations models that look at existing resources and the subsequent resource efficiencies that could be adopted to products-or-service changing models that inject sustainability into an organizations’ portfolio.

One such example is a tool developed by KCIC Consulting for the financial sector that categorizes projects into high, medium and low risks based on environmental and social considerations. This allows for their financing decisions and the subsequent portfolio to be representative of ESG indicators.

Through such efforts and the planned responsible investment index by NSE in the future, draws the sector closer to a time when stakeholders can correlate financial performance with specific ESG indicators.

Beyond listed companies, the NSE ESG guideline is an indicator that confirms the country’s shift from looking at sustainability as best practice to a mandatory compliance requirement for companies.

Firms need to respond with radical approaches that reinvent how they run their businesses and make products that address changing expectations from society, generate significant value to stakeholders and build organisational resilience.

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