Traditionally firms limited themselves to making financial disclosures in their annual reports, but investors are increasingly keen on learning how the companies are impacting the environment and the wider society.
The ESG disclosures are expected to enhance transparency, helping to unlock new investments, especially from international investors.
The Nairobi Securities Exchange (NSE) #ticker:NSE in partnership with Global Reporting Initiative (GRI) has issued Environmental, Social and Governance (ESG) guidelines for the listed firms.
This, therefore, means that listed companies will now publish annual sustainability reports that show investors how they deal with issues such as corruption, customers’ data privacy and environmental impact.
Traditionally firms limited themselves to making financial disclosures in their annual reports, but investors are increasingly keen on learning how the companies are impacting the environment and the wider society.
The ESG disclosures are expected to enhance transparency, helping to unlock new investments, especially from international investors.
“The NSE guidelines will require listed companies to report publicly, at least annually, on their ESG performance through an integrated report or a separate sustainability report. This is intended to encourage uniformity in ESG disclosures,” said the NSE in a statement.
The coming into place of the guidelines speak to the UN Principles for Responsible Investment.
The UN Principles for Responsible Investment (PRI) is an international organisation that works to promote the incorporation of environmental, social and corporate governance factors into investment decision making.
Launched in April 2006, the PRI has more than 2,700 participating financial institutions, as of August 2021.
These institutions participate by becoming signatories to the PRI’s six key principles and then filing regular reports on their progress.
The core philosophy behind the organisation is that environmental and social considerations are relevant factors in investment decision-making and should be considered by responsible investors.
For example, supporters of the PRI argue it is both financially and ethically irresponsible to not consider the environmental impact of a company when assessing its merits as an investment.
By contrast, many investors have historically viewed environmental and social impacts as negative externalities that can be ignored for purposes of investment decisions.
As ESG increasingly becomes top of mind for directors, it’s essential to consider the global nuances that drive focus region by region.
Strategies, tactics
Companies that adhere to ESG standards agree to conduct themselves ethically in those three areas and can draw on a range of ESG strategies, tactics and solutions.
But with such a wide range of possible approaches and solutions, and a panoply of issues that fall under the ESG umbrella, where should organisations focus? How should they make a start?
A good first step is to identify the issues that fit into the umbrella categories of environmental, social and governance.
It would be expected that listed firms in Kenya that will embrace ESG guidelines will stand in a better position to not only attract investments both locally and internationally but also enhance their corporate performance.
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