Africa’s Bold Steps Toward Adoption Of Environmental, Social and Governance Reporting
Photo Credit: The Banker
By EDET UDOH
It is no longer news that the effects of Climate change pose an existential threat to the planet through continued rise in temperatures, droughts and wildfires, decreasing availability of fresh water, floods, rise in sea-level and coastal areas, negative impacts on biodiversity, and erosion of soils among many other negative outcomes which impact society, businesses and economies as well as territories. It’s, therefore, imperative for governments, organizations, the private sector, businesses and society in general, to put measures in place to reverse the negative impacts of climate change and drive concerted efforts for a more sustainable use of all-natural resources.
Environmental, social, and governance (ESG) issues are now more than just a “good to have”; they are an integral “must-have” strategy for any organisation. In essence, ESG is presenting an unprecedented new set of risks to organisations in every sector, influencing all aspects including resource use and sustainability, hiring and retention of talent, board selections, human rights and Investors, regulators, policymakers, consumers and other key stakeholders exerting extreme pressures and scrutiny on every organisations stance on all issues about ESG.
Environmental
How are organizations using energy and managing their environmental impacts as stewards of the planet? Examples: carbon emissions, climate change effects, pollution, waste disposal, renewable energy, resource depletion
Social
How are organizations fostering people and culture, and what kind of impact does that have on the community? Examples: supply chain, discrimination, political contributions, diversity, human rights, community relations
Governance
How are organizations directed and controlled, and how are leaders held accountable? Examples: executive compensation, shareholders’ rights, takeover defense, staggered boards, independent directors, board elections
ESG Reporting Explained
ESG reporting is the disclosure of environmental, social, and corporate governance data. This comprehensive approach allows companies to communicate their commitment to sustainability and responsible business practices to stakeholders, including investors, customers, and regulators. ESG reporting goes beyond financial metrics, providing insight into a company’s broader impact on society and the environment. By disclosing ESG performance metrics, companies demonstrate their dedication to transparent and responsible business practices, fostering trust and credibility with stakeholders.
Importance of ESG Reporting in modern business
ESG reporting has evolved from a regulatory requirement to a strategic imperative for businesses. Today, organisations recognise the value of transparent ESG disclosures in attracting investors, fostering trust, and mitigating risks. By demonstrating a commitment to ESG principles, companies can enhance their reputation, drive long-term value, and differentiate themselves in competitive markets. Furthermore, ESG reporting enables organizations to identify areas for improvement, set meaningful sustainability goals, and track progress over time.
Towards Adoption of ESG in Africa
In Africa, this calls for concerted efforts by all stakeholders including governments, corporate entities, institutions, nonprofit making and none governmental organizations, educational institutions and individuals to drive climate change adaptation and mitigation, champion sustainable/climate finance, mobilise and deploy impact capital on the continent and acceleration of the efforts towards achieving the UN sustainable development goals on the continent. By driving the increasing adaptation and incorporation of ESG principles in all investment decisions, mobilising and deploying more purposeful impact capital to development sectors to champion the uptake and adoption of sustainable, green climate finance across the continent.
Setting Standards/Developing Guidelines
At this juncture, there is a need to set standards and develop guidelines and regulations that will guide and drive the uptake and adoption of sustainable, green climate finance in Africa and one of such standards and guidelines is the Environmental, Social and Governance (ESG) reporting standards, which is the major focus in this article, highlighting what some African countries are doing in this regards.
Globally, regulators and standard setters in various jurisdictions have issued definitive proposals to transform ESG reporting in 2022. The year brought proposed ESG disclosures from the European Union (EU) as part of the Corporate Sustainability Reporting Directive (CSRD), internationally by the International Sustainability Standards Board (ISSB), and in the United States (US) by the Securities and Exchange Commission (SEC). These proposals each detailed expansive sustainability disclosure requirements – although their proposed scopes and other details varied.
Understanding where the frameworks align and diverge will help companies develop the requisite reporting strategy, data-gathering processes, and related controls, providing for a streamlined process and effective deployment of resources.
One of the foundational points of alignment among the frameworks is the incorporation of elements based on the Task Force on Climate-related Financial Disclosures (TCFD) framework. Leveraging this popular framework unites the disclosure frameworks through key themes, including required disclosure of the broad impacts of sustainability-related risks as well as governance and oversight of the related risks and opportunities.
With this, it therefore means that businesses in Africa no longer have an option but to embrace environmental, social and governance (ESG) practices into every aspect of their operations for global competitiveness.
Yara Aziz, an Economist at the Economic and Monetary Policy Institute, Official Monetary and Financial Institutions Forum (OMFIF), in his article “How Africa is making sustainable finance matter,” quoted the African Financial Markets Initiative (AFMI), as saying that “23 countries now integrate ESG measures into their financial market frameworks, a notable increase from previous years. Moreover, 15 countries offer incentives for issuing ESG assets, such as tax breaks, to encourage sustainable investments.
“Countries like Mauritius and Cabo Verde are leading this regulatory push. Mauritius introduced sustainable bond guidelines and listed its first green bond in October 2023. Meanwhile, Cabo Verde launched the Blu-X platform and listed its first green bond in November 2023, building on its 2022 blue bond success in ocean conservation. These efforts highlight a growing trend, with 71% of AFMI countries listing ESG assets in 2024, up from 57% in 2021, reflecting an increased commitment to sustainable finance.
“In a milestone for the continent, Rwanda issued Africa’s first sustainability-linked bond in 2023, linking interest payments to key performance indicators on ESG compliance and gender equality. Kenya, in partnership with the World Bank, is also developing similar bonds targeting rural electrification and social goals. As highlighted during the roundtable, KPIs play a critical role in fostering transparency and ensuring resources are directed where they are most needed.
Adopting Climate Stress Testing
“As climate risks intensify, African nations are adopting climate stress testing to bolster financial resilience. The 2024 AFMI report reveals that eight countries now have climate stress testing guidelines, up from just one (South Africa) in 2021. Rwanda and Zambia are recent additions, with Rwanda introducing mandatory climate risk management guidelines in March 2024. Zambia’s central bank conducted macroeconomic stress tests in May 2024, including an assessment of El Niño-induced drought impacts.
“The Bank of Mauritius is advancing its climate stress testing framework, focusing on helping financial institutions address risks like floods and cyclones. However, panelists at the roundtable noted continuing data challenges, with the central bank relying on proxies and International Monetary Fund support to finalise its framework.
“Other countries are in the early stages of integrating climate risks into stress testing, with support from international institutions. Cabo Verde is part of an IMF programme, while the World Bank is assisting Kenya through training. While these initiatives are critical for integrating climate risks, panelists emphasised that effective stress testing requires a sound financial infrastructure as a foundation for climate-specific analysis.” Yara Aziz, stated in his article.
Regional Collaboration: Potential To Accelerate ESG Adoption
Regional collaboration, according to Yara Aziz, offers major potential to accelerate ESG adoption and strengthen Africa’s financial markets.
“Panelists at the OMFIF roundtable event highlighted the need for a regional equivalent of the Bank for International Settlements to pool resources and standardise ESG frameworks. An entity similar to the BIS could facilitate knowledge-sharing, provide technical assistance and support smaller economies in building capacity and accessing capital. This ensures that ESG principles are embedded more uniformly across Africa’s diverse financial systems.
“Meanwhile, the West African Economic and Monetary Union have published a taxonomy for green, social and sustainability bonds that applies to countries in the union including Benin, Senegal and Côte d’Ivoire. Kenya and Cabo Verde are also developing their taxonomies to align with international ESG standards.
“The South African Reserve Bank (SARB) is also advancing ESG efforts both domestically and regionally. It has integrated ESG factors into its investment strategy, notably investing €150m in a green bond as part of its reserve management framework. As part of its efforts to promote the greening of financial sectors, the SARB is also collaborating with central banks within the Common Monetary Area and the Southern African Development Community by instructing banks to improve their ability to withstand climate risks.
“Elsewhere, encouraging intra-African trade using stable regional currencies could further mitigate currency risks associated with ESG bonds. As one panelist noted, ‘Collaborative frameworks will enhance market accessibility and investor confidence’”.
Aziz noted that “With abundant natural resources and pressing climate risks, Africa is in a powerful position to not only adopt but shape global ESG standards.
A panelist from the roundtable, according to him, mentioned, ‘Sustainability is not an option; it’s the only way forward’. While challenges remain, Africa’s ESG journey promises to reshape its financial markets and offer valuable lessons to the global sustainable finance movement.”
In a new report from Continental Re titled, “ESG: Harnessing Insurance Markets To Achieve A Sustainable Future,” Lawrence Nazare, the Managing Director/CEO of Continental Re Group, stressed that the drive for ESG frameworks in business has developed rapidly in the post-Covid-19 world and no business remains immune.
He said: “In the past, companies were heavily focused on corporate social responsibility but now a much broader demand is being made on businesses of all shapes and sizes. For insurers, this is not a business risk but a major opportunity to deliver.
“This is particularly true of the African continent, where millions of people are currently outside the reach of the financial services sector. These people are the most likely to be affected by potentially devastating impact of climate change.”
The good news, said Mr Nazare, is that there is also a sense of growing responsibility to deliver workable solutions to this group and to bring them into the financial services fold.
He said: “ESG has grand designs and ambition, but is it really possible for African insurers to take a lead on this? The answer seems to be a resounding ‘Yes’, if the industry can step up not just as an insurer, but as an investor and as an employer of many thousands of people.”
However, as Emeka Akwiwu, executive director at Continental Re, pointed out, insurance is about pooling risk and not taking on excessive amounts of risk to the point of becoming unsustainable.
It was a delicate balance, he said, and about being able to spread the risk of an event across a numbers of years. “One of the concerns at the moment is that we are occupying a space that our governments should be occupying.
“Insurance is about insuring fortuitous events as they happen. If I am providing cover and it is a one in 10-year event, I have nine years of opportunity to recover those claims costs should a claim be made.
“However, if a flood happens every year, it is no longer fortuitous, it becomes uninsurable, so we are putting ourselves under pressure to provide cover for events that have become predictable – that’s not insurance. We need to be putting our governments under pressure to play their part in providing adaptation that goes beyond mitigation. Then insurance can come in and provide cover in the failure of those adaptations.”
For instance, sustainability disclosure practices in Nigeria are gaining importance in recent years as businesses and stakeholders recognize the need for transparency and accountability in addressing ESG issues. While Nigeria is still in the early stages of developing comprehensive sustainability reporting frameworks, there are notable efforts to promote sustainability disclosures.
Interestingly, stakeholder engagement and collaboration as well as training on ESG reporting have commenced to educate professionals from Corporate Organisations, institutions as well as individuals on ESG reporting.
The Lagos Business School (LBS) Sustainability Centre recently organised a training session to educate professionals from Corporate Organisations, institutions and individuals on the Environmental, Social and Governance (ESG) reporting on the theme “Collaborating in the Changing Reporting Landscape”
This was more imperative as calls for increased transparency in performance and impact measurement heightened, leading to Nigeria’s adoption of the IFRS Sustainability Disclosure Standards, IFRS S1 and S2 in a practical demonstration of its mandate to provide first-class solution-driven training for professionals on various business areas to enhance their capabilities and performance.
The engagement was aimed at helping business executives and sustainability practitioners understand the demands of this changing landscape, collaborate for more robust reporting, deploy responsible business practices and avoid green washing.
Speaking at the meeting, Dr Iheanyi Anyahara, Director, the Financial Reporting Council of Nigeria (FRCN), walked attendees through the evolution of sustainability reporting in Nigeria and the globe, citing the needs that prompted it in the first instance.
He said, “The Corporate Social Responsibility (CSR) reports put together by companies were never standardised, hence, the need for standardised Environmental, Social and Governance (ESG) reporting.
He further added that sustainability brings about innovation which in turn accelerates development, noting that “Little wonder, investors and stakeholders rely on accurate and transparent sustainability reporting to unlock capital, attract Foreign Direct Investment (FDI) and implement FEC 2010 directives.”
Marilyn Obaisa-Osula, Associate Director, PwC Nigeria; gave sustainability insights for organisations and individuals who seek to get it right by ticking the right boxes for performance measurement of impact across critical materialities and metrics.
She said, “Sustainability aims to drive value. Sustainability reporting offers a genuine competitive advantage, and businesses that take the time to learn about and implement sustainability reporting now will be well-placed to succeed in the long term ahead of compliance and regulations. We must look at the opportunities sustainability provides through a local lens, and oftentimes, when we do, they become adopted as globally accepted frameworks.”
She added that “Sustainability does not wipe out profit but tells you to look at your business growth beyond profit. Accountants now see sustainability and understand it because they see the opportunity in it and the funds that can be unlocked from it.”
During the Question and Answer session facilitated by Eunice Sampson, Director, Climate Change & Sustainability at Ernst & Young, she harped on the need for practitioners to stay ahead of regulation by being up to date with new requirements and trends in the industry to keep their organisations afloat.
She said “ Businesses mostly fail not because of financial issues but because of ESG issues. They lose reputational capital, they lose customer base, and many other things, etc which ultimately lead to business failure. Financial failure is a symptom. Ethics, integrity, accountability and transparency are all governance issues in sustainability,” adding “You must have your business case for sustainability.”
Dr Godwin Ihetu, former Managing Director (MD), of Nigeria Liquefied Natural Gas (NLNG) also gave his remarks, highlighting the importance of sustainability in the oil and gas sector, and its intersection and interconnectedness with climate change and energy transitions.
Sustainability Reporting Standard In Agric Sector
The Africa regional hub of the Global Reporting Initiative (GRI) in partnership with the Lagos Business School Sustainability Centre (LBSSC) unveiled the GRI 13 Sector Standard designed to enhance the quality, consistency and comparability of reporting sustainability impacts for Agriculture, Aquaculture and Fishing sectors.
The event which took place on Thursday, November 30, 2023, at the George Hotel, Lagos, doubled as the Launch of the new reporting standard and a platform for stakeholder dialogue.
The sector-specific reporting standard which they said will come into effect on January 1, 2024, spotlighted businesses in the sector in ways to enable sustainable agricultural practices that enhance fair trade, improve competitiveness and promote responsible business conduct.
In her welcome remarks, Oreva Atanya, Head, Sustainability, Lagos Business School, pointed out the importance of a globally aligned but locally useful and applicable guide for business with sustainability goals and objectives that will be beneficial to our food production systems and the related supply chains.
In his presentation of the GRI13, the Director, GRI Africa, Douglas Kativu who spoke on ‘Driving Responsibility and Accountability in Agriculture, Aquaculture, and Fishing’ maintained that the sector reporting standard is developed to provide information that applies to organisations involved in crop, animal and fisheries production, with 26 likely material topics for the sectors grouped under climate and environment, human rights and communities, equitable livelihoods, ethics and governance, food and health, employment and farming and fishing practices.
The topics align with many authoritative international instruments defining responsible business conduct as well as the Sustainable Development Goals (SDGs) 2030.
There is no doubt agriculture and food systems have an immense impact on the triple bottom line of people, planet and profits, hence, the need to curtail excesses of players in the sector by standardising the quality of systems, products and processes in the agriculture sector for better environmental stewardship, social equity and economic viability. It’s the hope of GRI, LBS and the sector players that the new sector standard will reduce greenwashing and increase the quality of sustainability reporting while enhancing the completeness and compatibility of sustainability information for all organisations in Nigeria involved in the sector.
A panel discussion on “Enhancing Competitiveness Through Responsibility, Traceability, and Shared Value”; proffered solutions to the various traceability and standardisation challenges plaguing the sector in Nigeria. The panel was made of expert speakers drawn from the academia and agro-allied industry namely: Dr Ikechukwu Kelikume, Academic Director, Agribusiness Management Programme (AGMP), Lagos Business School; Dr Helen Emore, Co-Founder, Agro-Verified, and Scientia Partners; Oluwafunmilayo Ajibike Olawale, Chief Operating Officer, JR Farms Africa; and Nnena Jane Ogoke, National Sales Manager, AFEX Commodities Exchange.
This sector-specific reporting standard which comes into effect on January 1, 2024, according to Jonathan Ikeolumba, Affiliate Researcher, Lagos Business School Sustainability Centre, who delivered the summary of learnings, will spotlight for businesses in the sector ways to enable sustainable agricultural practices that enhance fair trade, improve competitiveness and promote responsible business conduct.
Leveraging ESG As Priorities In Insurance Sector
The Lagos Business School Sustainability Centre led the convening of the 2023 Chief Executive Forum on Sustainability Business themed “Leveraging Environmental, Social and Governance (ESG) As Priorities in the Insurance Sector.”
The Forum is a high-level knowledge-sharing platform for business leaders to learn and deliberate on sector-specific sustainability issues, and this year’s spotlight was on the insurance services sector. The event took place on Thursday, November 2, 2023, at the prestigious Lagos Oriental Hotel in Victoria Island, Lagos.
In his opening remarks the Dean, Lagos Business School, Prof Chris Ogbechie, welcomed the C-suites and laid out the forum road map and objectives. He implored the insurers to see Sustainability and ESG as an opportunity and not a cost item, calling on them to leverage the insights and best-case practices the forum will provide.
He added that the “Lagos Business School, through the LBS Sustainability Centre, is committed to supporting the private sector in their sustainability journey and the Chief Executive Forum serves as a platform to extend this support to the insurance sector, fostering collaboration and knowledge sharing among industry leaders”.
The keynote presentation titled ‘Opportunities for Growth in ESG Finance and Risk Management’ was delivered by Mrs Tomi Adepoju, Partner and Head, Enterprise Risk and ESG Service, KPMG West Africa.
She pointed out the unique opportunities for growth in market share, sales volume and profitability for insurers if they understand and mainstream Environmental, Social, and Governance (ESG) principles in their business strategy.
She highlighted business cases across the globe which has become success stories of insurers leveraging creativity and innovation in the design of their policies, premiums, and products, adding that incentivising policyholders to make green choices helps to curb risks that hold great danger to the environment and society.
She said, “When we craft our ESG strategies as insurers, we need to embed ESG into our corporate strategy and then retool our business models to ensure it is ESG focused. How do we ensure we have strong governance via diversity in boards and management? How do we embed risk management within our risk management framework? We need to look at product innovation to optimise ESG in our products and services to encourage risk reduction for policyholders. We can do this through apps and data, so policyholders are incentivised to make green choices and pay lower premiums.”
She also indicated that “countries are reducing carbon footprint, Lagos State just bought Electric Vehicle (EV) buses, do we have insurance for EVs, how do our insurance products take advantage of these market changes driven by Sustainability? “For example, AXA Pay As You Drive offers a 10 percent discount if you do less than 10k km yearly, and increases to 15% if you do less than 5km yearly.” This is to reduce carbon footprint, highlighting that under responsible investments they got 1.3 billion dollars for green businesses in 2023. She submitted that insurers in Nigeria need to invest in green initiatives and ensure they are walking the talk as it relates to ESG with an ESG road map for their organisations.
Roundtable discussions by the C-Suite insurers ensued focusing on key areas that are crucial for the insurance sector’s sustainable growth and impact by leveraging ESG principles.
Goodwill remarks were also delivered by the Chief Operating Officer (COO), United Nations Global Compact (UNGC) Nigeria office, Mrs Tumi Onamade who pointed out that Africa is not the largest contributor to climate change, however, insurers should engage with UNGC for better adaptation measures to curb ESG risks by leveraging the UNGC’s principles to better position themselves to access opportunities that abound in the ESG space, while moving the ESG mandate forward.
Overall, the C-suite insurers were able to explore the implications of climate risk on insurance businesses and discussed strategies to effectively manage and mitigate these risks to accelerate ESG governance in businesses, considering the unique challenges and opportunities in Africa to enhance resilience and sustainability in the insurance sector. The forum harped on inclusivity, innovation, and social responsibility in the insurance services sector in driving sustainable growth in the insurance industry.
Dr Emeka Azinge, Faculty, Lagos Business School, wrapped up the proceedings of the forum in a well-articulated summary of learnings while Jonathan Ikeolumba, Faculty, Enterprise Development Centre, gave the call to action.
In her closing remarks, Mrs Oreva Atanya, Head, Sustainability, Lagos Business School, urged the insurers to stay ahead of regulation by creating principles the regulators can adopt which will guide the insurance players in the sector. She added that the insurers should emulate the bankers’ committee in forging sector-wide principles that create better outcomes for businesses to help curb multi-dimensional risks.
KPMG’s Assessment of Nigeria’s Sustainability Reporting
Data obtained from KPMG’s report on Sustainability Reporting in Nigeria, titled “Big Shifts, Small Steps,” stated that Nigeria’s Sustainability reporting rate stood at 78% compared to global 79%.
The report also examined the Sustainability Reporting rate in Nigeria in comparison with South Africa and the United Kingdom.
South Africa Versus Nigeria
In Nigeria, 55% out of 100 Companies include ESG/Sustainability information in their annual report while 95% of 100 companies in South Africa did so.
Out of 100 Companies that state they follow the International Integrated Reporting Framework, Nigeria scored 4%, and South Africa 84%.
25% out of 100 companies in Nigeria seek assurance for their ESG/Sustainability information, compared to South Africa’s 49%.
41% of 100 companies in Nigeria identify material topics, 86% in South Africa.
Of 100 companies that have a dedicated member of the Board and/or leadership team responsible for sustainability: Nigeria 20% and South Africa 36%; Out of 100 companies that included Sustainability within compensation: Nigeria 14% and South Africa 39%.
Of 100 that identify specific Sustainable Development Goals (SDGs) it considers most relevant to the business – Nigeria 44, South Africa 77; 30% of N100 companies in Nigeria report carbon reduction targets compared to 67% in South Africa.
Out of 100 that recognise the loss of biodiversity/nature as a risk to the business – Nigeria 22%, South Africa 68%; of 100 companies that acknowledge climate change as a financial risk to business – 34% in Nigeria and South Africa 92%.
Of the 100 companies that acknowledge social elements as a financial risk to business – Nigeria 45%, South Africa 92%, and out of 100 companies that acknowledge governance elements as a financial risk to business – Nigeria 41% and South Africa 91%.
United Kingdom Versus Nigeria
In Nigeria, 55% out of 100 Companies include ESG/Sustainability information in their annual report while 93% of 100 companies in the United Kingdom.
Out of 100 Companies that state they follow the International Integrated Reporting Framework, Nigeria scored 4%, compared to the United Kingdom’s 12%.
25% out of 100 companies in Nigeria seek assurance for their ESG/Sustainability information, compared to the United Kingdom’s 69%. 41% of 100 companies in Nigeria identify the material topics, 80% in the United Kingdom.
Of 100 companies that have a dedicated member of the Board and/or leadership team responsible for sustainability: Nigeria 20% and the United Kingdom 83%; Out of 100 companies that included Sustainability within compensation: Nigeria 14% and the United Kingdom 59%.
Of 100 companies that identify specific Sustainable Development Goals (SDGs) it considers most relevant to the business – Nigeria 44%, United Kingdom 87%; 30% of 100 companies in Nigeria report carbon reduction targets compared to 98% in the United Kingdom.
Out of 100 companies that recognize the loss of biodiversity/nature as a risk to the business – Nigeria 22%, the United Kingdom 77%; of 100 companies that acknowledge climate change as a financial risk to business – 34% in Nigeria compared to the United Kingdom’s 94%.
Of the 100 companies that acknowledge social elements as a financial risk to business – Nigeria 45%, the United Kingdom 95%, and out of 100 companies that acknowledge governance elements as a financial risk to business – Nigeria 41% and the United Kingdom 95%.
According to KPMG Nigeria’s analysis of the 100 data, Nigeria’s sustainability reporting rate decreased by 7% between 2020 (85%) and 2022 (78%). This decline is mostly attributable to a change in the list of Nigerian 100 companies with the highest revenues; some companies that appeared on the 2022 100 list did not disclose their sustainability performance, as contrasted to companies that were on the 2020 100list.
“However, 35 countries that participated in the KPMG global survey, including Canada, China, the United Kingdom, and the United States, recorded an increase in their reporting rates between 2020 and 2022.
“We anticipate that there would be a lift in sustainability reporting in Nigeria as a result of two key factors. First, the trend toward mandatory sustainability reporting is growing. For example, in November 2021, Nigeria enacted The Climate Change Act, which mandates sustainability reporting for businesses with more than 50 employees. In addition, Nigeria has established the National Council on Climate Change (NCCC) to implement the Act and has set a net-zero emissions goal by 2060. Secondly, the introduction of non-financial reporting regulations would also catalyse sustainability reporting in the future.
“Sector-specific regulations/frameworks also have a crucial part to play e.g., the Petroleum Industry Act (PIA) and the Nigerian Sustainability Banking Principles (NSBPs). We forecast that as the legislative, judiciary, and executive arms of government begin to recognise the role of sustainable development, this would act as a push factor for more regulatory support for sustainability reporting in Nigeria. In addition, as institutional investors’ (commercial banks, pension funds, insurance, and mutual funds companies, etc.) consideration for sustainability-related metrics grows due to the adoption of Principles of Responsible Investment (PRI), it is expected that sustainability reporting rates will also soar.
“Though there was a decline in Nigeria’s sustainability reporting rates from 2020 to 2022, data shows that since 2015, Nigeria’s reporting rate has always been significantly greater than the global average (particularly from 2015 to 2020).
“However, the synthesis of data shows that South Africa (the current African sustainability reporting champions) has always had higher sustainability reporting rates than Nigeria. Moreso, South Africa’s sustainability reporting rates have always exceeded 90% in the past 10 years, a trend that was also observed in the United Kingdom. This may be explainable as companies on the Johannesburg Stock Exchange in South Africa are mandated to report on sustainability. Thus, sustainability reporting and financial reporting are integrated in South Africa.
ESG Reporting Adoption In Angola
The Business Year in its article “ESG and Sustainable Investment in Angola,” noted that ESG has become a link in the chain of sustainable commercial practices, hoisting Angola up to international standards.
The article emphasized that Angola must reach the key signposts of commercial viability on the road to economic diversification away from hydrocarbons.
These signposts, the article stated, “lie in the physical sphere of infrastructure, technology, and workforce. But they also rely on the legal framework, environmental stance, and adopted commercial practice. Numerous, then, are the considerations that the government must factor into economic policy consistent with a formalized economy, and not least to ensure that prospective growth does not chase immediate returns at the cost of the environment.”
For context, it quoted KPMG’s 2022 Global CEO Outlook study which revealed that “69% of CEOs recognize significant stakeholder demand for greater transparency and reporting on ESG issues (58% in 2021). A significant 72% expect the ESG attention to climate change and gender equality to accelerate. And tellingly enough, over a third of CEOs feel their firm is still behind the curve.
“According to KPMG’s 2022 Global Survey of Sustainability Reporting, 79% of the leading 100 companies in each country surveyed currently report on sustainability. The figure rises to 96% among the world’s top 250 firms. The real battleground, not least for Angola, is the vast majority of firms in a largely informal economy.
“For some time, the world’s advanced economies have built environmental, social, and governance (ESG) considerations into corporate strategy and financial reporting. Today’s sustainability report is almost as ubiquitous as a Starbucks by an office complex. Because as an ecosystem in itself, sustainability is baked into business analysis with non-financial impacts and initiatives weighed up to fine-tune corporate strategy. Employees increasingly expect a certain corporate mindset from their employers; moreover, firms expect the same values across their value chains; this determines who they do business with.
“Angola is keen for economy and environment alike to benefit from the rigours of ESG reporting. Having suffered a recession since 2014, its economy has been impacted by declining oil prices, production, and the COVID-19 pandemic. Relying on strategic reform, the remedial response was the National Development Plan (NDP 2018-2022), resting upon the pillars of macroeconomic stabilization, privatization and diversification.
“Before the march on environmental and social imperatives began, Angola shored up its tax base in 2019 by introducing value-added tax (VAT). In a TBY interview, José Viera Nuno Leiria, President of The General Tax Administration (AGT), spoke of the system’s overall success. With a domino effect, he explained, “Businesses that are not in our database have been brought into the system by their partners who they conduct business with, namely other taxpayers in our database.” And it gets better because “today, VAT, outside of oil tax revenue, brings in the highest tax revenues, accounting for around 29% of total non-oil revenues [and] is currently the state’s main source of tax revenue.”
“ESG initiatives can only be built on international financial and commercial compatibility, including environmental standards. And so, in 2021, Angola presented its pioneering Voluntary National Report (VNR) on implementing the 2030 Agenda for Sustainable Development. Spearheaded by the Presidency and coordinated by the Ministry of Economy and Planning, the Platform for SDGs was launched in 2020, a UN-partnered initiative hitched to the relevant economic sectors.
“The Council of Supervisors of the Financial System was tasked in 2022 with building on the sustainability pillar towards establishing a sustainable economy based on global criteria confirming national commitment to the UN Global Compact and the Paris Agreement on Climate Change. And while the country lacks an ESG disclosure framework, in January 2023 that same council launched a strategic plan to develop ESG policies, along with best practice guide encompassing compliance and disclosure information.
“Now, the National Bank of Angola (BNA) has grabbed the bull by the horns by prompting financial companies to deliver an annual ESG initiative report en route to alignment with international standards. BNA revealed the details in 2023 at the Sustainable Banking Initiative in the ESG Era and the Future of Governance event staged in Luanda by KPMG. Accordingly, the bank recommended establishing communication channels between regulators, banks, and other financial system agents and uniform compliance in laying down the sector’s ESG agenda.
“BNA highlighted familiar shortfalls, including achieving inclusion, diversity, and a sufficiently skilled workforce, identifying commercial risks regarding social inequality, and the need to monitor social investments systematically. However, as BNA stressed at the time, the mere adoption of relevant international standards was insufficient. Angola must also “develop effective mechanisms to mitigate risks associated with the social, environmental and management dimensions.
“According to KPMG, it seems that among the 100 largest Angolan companies, one-third already present sustainability information—including worker welfare, gender equality, and so on—along with their financials. The study data came from a sample of companies from all sectors, predominantly oil and gas companies at 67% and financial services at 21%.” (Source: https://thebusinessyear.com/article/esg-and-sustainable-investment-in-angola/)
ESG Reporting Adoption in Ghana
Managing Director of the Ghanaian Stock Exchange (GSE) Mr. Ekow Afedzie in his Forward written for the “ESG Disclosures: Guidance Manual, highlighted Ghana’s level of adoption of ESG thus as published in gse.com.gh.
“Businesses across the world have moved beyond just profitability and now focusing on the impact of their operations on the larger community which requires transparency with various stakeholders.
“There is a strong call for businesses to be more responsible and transparent with their operations to positively impact the environment, society, and corporate governance.
“Sustainability reporting has been embraced by organisations in various sectors to contribute towards the campaign for a sustainable world to be bequeathed to the next generation. Sustainability reporting helps companies communicate both positive and negative impacts of their actions on the environment, society as well as the economy, and accordingly set priorities.
“Governments, market regulators, stock exchanges, civil society, and other stakeholders continue to place huge demands on companies to get information on the impact of their sustainability programs across the globe. Global Reporting Initiative (GRI) standards expect disclosure of efforts and progress being made by businesses to reach the environmental, social, and governance (ESG) goals.
“The call for sustainability reporting is growing and it’s now a topical subject in many boardrooms and corporate strategic sections. A lot of businesses in various sectors who are yet to subscribe to the ESG initiatives are increasingly gravitating towards embracing fully, the ESG goals to be seen as partners in supporting this global cause. Businesses also see it as a way of enhancing their corporate image as a responsible and transparent organisation.
“Though sustainability reporting is not new in the Ghanaian landscape, there has been an increasing trend by businesses in embracing ESG goals to boost global competitiveness. The various business associations are championing its importance through multiple workshops and encouraging their members to embrace it if they want to be globally competitive. In the long term, sustainability reporting helps companies assess risks and opportunities and help them drive green operations, align with CSR strategies, and increase cost-saving opportunities.
“The GSE is very proud to collaborate with the African Securities Exchanges Association (ASEA), Swiss State Secretariat for Economic Affairs (SECO), and Seven Levers LLP for their support in producing this new ESG guide, which helps Ghanaian companies to be more accountable for the impact of their businesses and position themselves to be globally competitive by embracing the ESG initiatives.”
He pledged the nation’s commitment to continue to work with relevant organizations and other partners in support of the sustainable future that is desired by all.
Importance Of ESG in Attracting Finance for Sustainable Development In Africa
“The importance of ESG disclosure for attracting finance for sustainable development in Africa cannot be overstated. It is no longer an optional add-on; it is a necessity if Africa is to thrive and not just survive in the 21st century,” stated Solomon Quaynor, African Development Bank Group Vice-President in opening the inaugural Africa ESG Forum on October 23, 2024, in Abidjan, Côte d’Ivoire.
The two-day event, jointly organised by the African Development Bank, the Multilateral Cooperation Center for Development(link is external) Finance (MCDF), and Making Finance Work for Africa (MFW4A) was themed “Building a Sustainable Finance Ecosystem for Africa: A Collaborative Approach for ESG Disclosure.”
The forum aimed to catalyse collaboration and knowledge sharing on ESG issues, paving the way for establishing a centralised Africa ESG Information Disclosure Hub and embedding ESG principles into the continent’s development strategies.
MFW4A is a platform for African governments, the private sector, and development partners to coordinate financial sector development across the continent. Its secretariat is hosted by the African Development Bank Group.
Quaynor, the Bank Group’s Vice president for Private Sector, Infrastructure, and industrialization, emphasized the urgency of adopting robust ESG practices. “Achieving sustainable development requires substantial financial investments, which will not come without trust, transparency, and accountability,” he said.
He also highlighted that Africa faces low awareness of ESG’s importance, inadequate infrastructure for data collection, and inconsistent policy engagement. Fragmented ESG disclosure standards could lead to Africa being excluded from global capital markets that increasingly prioritise sustainability.
Quaynor noted, “By facilitating better data availability and promoting best practices, we can enhance stakeholder engagement and foster greater trust between investors and businesses. This is essential for building a sustainable finance ecosystem that benefits everyone.”
A Call for Action
Since ESG reporting is all about disclosing information covering an organization’s operations and risks in three areas of environmental stewardship, social responsibility, and corporate governance; consumers look to ESG reports to figure out if their dollars are supporting a company whose values align with theirs; investors are looking for both qualitative and quantitative information to help them screen investment opportunities; therefore, experts believe that there is need for all and sundry to embrace ESG to guarantee a sustainable future for unborn generations.
