The Capital Market Authority (CMA) released its 2018 report on the State of Corporate Governance amongst listed firms in Kenya. One week earlier, BNP Paribas published its Environmental, Social and Governance (ESG) Global Survey 2019, based on interviews of close to 350 fund owners and managers on the incorporation of ESG in their investment-decision making.
A crossed analysis of both reports gives highly valuable insights. 64 percent of listed firms in Kenya have prioritised the development and promotion of a sustainability strategy as part of their commitment to good governance. It is the highest score amongst the various criteria and matches the appetite of international fund managers where 65 percent of them have aligned their investment framework to the Sustainable Development Goals (SDG).
Their motivation to do so is first driven by the positive long-term financial results of companies which have a strong ESG record, closely followed by the enhanced brand reputation that funds derive from such stated policy. This is a criterion that the Investor Relations departments of Kenyan firms should leverage on to attract international funds. Kenya is one of the few countries on the continent where the Capital Markets Authority (CMA) enacted corporate governance and integrated reporting requirements (the integration of social and environmental performance along the financial performance in the annual report). This creates a clear competitive advantage for Kenya, and for listed firms in Nairobi over other countries and firms on the continent, to attract a share of the $30.7 trillion of assets managed under responsible investments principles (according to the Global Sustainable Investment Alliance - GSIA).
The commitment displayed by the CMA to disclose the results is commendable. It not only creates an incentive for listed firms to oblige, but also sends a clear signal of transparency and commitment to the highest standards of governance by our institutions towards an increasingly attentive audience.
The third driver of the fund manager’s appetite for environment, social and governance (ESG) responsible businesses is the resulting decreased investment risk.
As the integration of such principles remains challenging, in Kenya or anywhere, this statistic should encourage our corporate leaders to be bold in doing so – integrating socio-environmental practices in our ways of doing business helps mitigating the risk our companies are exposed to and manage them in a more comprehensive and constructive way.
The BNP Paribas report references the UN SDG’s as a ‘new compass’ for investment and business decisions. For the first time, they noted that KPI’s aligned to the SDG impact are being built into investment frameworks of asset owners and managers. This matches the call of the UN to have the private sector play an increasing role in the attainment of these goals.
As it is becoming increasingly clear that funding of government initiatives will not be sufficient to realise these SDG’s, the contribution that companies can make within the scope of their own operations, become even more relevant.
The writer is director, Africa Practice.