Guests attend an IFC event in the past. The financier's decision could lock out thousands of businesses from its concessional funding. FILE PHOTO | NMG
The International Finance Corporation (IFC) will no longer fund any private sector companies that do not adhere to or report on environmental, social, and governance (ESG) issues, a step that could lock out several firms in Kenya.
ESG standards are considerations on how companies’ business practices impact the natural environment, the people around them, and their employees in the pursuit for profits.
With the growing threat of climate change, ESG has increasingly taken centre stage in the corporate world, with some regulators, such as the Central Bank of Kenya (CBK), now requiring their regulated entities to report on their ESG practices.
IFC’s regional director for East Africa, Mary Peschka told the Business Daily that the financier will no longer “do business” and will pull out of any projects led by entities that show no commitment on closing ESG gaps.
“For us it’s not a trade-off. We will walk away from projects that have clients or sponsors that won’t commit to our ESG standards,” Ms Peschka said.
“When we set out to do business with a client, our specialists and corporate governance team undertake due diligence on the ESG front and then put together a plan to close any gaps related to ESG issues.
“If we see a client that’s not closing the gap, we find out why. Is it a lack of capacity, a lack of understanding? Hopefully, it’s not a lack of will because we shouldn’t start with those clients in the first place.”
This means that thousands of private sector businesses which are not yet adhering to or reporting on ESG issues in the region, will be unable to tap into the concessional lending facilities provided by the IFC.
Currently, only banks are required by CBK to report on ESG issues, but a few other companies listed in the Nairobi Securities Exchange report on them voluntarily.
Across the East African region, there are no mandatory requirements in any sector for ESG reporting, and not many firms have embraced the culture of reporting on their practices.
However, experts argue that ESG is increasingly becoming consequential to private businesses’ profitability as consumers become more aware and conscious of environmental and social issues.
“If you start compromising on your commitments to ESG, it’s a slippery slope. ESG is good business. It’s not just because it’s the nice or morally right thing to do. There’s lots of research that shows it translates to the positive bottom-line,” Ms Peschka said.
Last year, IFC launched a subsidised ESG consultancy programme for Kenyan companies in the manufacturing, agribusiness, financial, and affordable housing sectors to bolster ESG compliance.
It had earlier rolled out similar programs in Rwanda, South Africa, and Tunisia, with the initiative in Kenya extending services to Uganda, Tanzania, and Ethiopia.
