Kenyan businesses navigate the complex landscape of corporate sustainability amid rising regulatory pressures 

  • 24 May 2024
  • 3 Mins Read
  • 〜 by Asia Mueni

Corporate sustainability has become one of the most intricate and contentious challenges for businesses in Kenya today. Emphasising sustainability too aggressively can invite unwelcome scrutiny while neglecting the escalating global sustainability reporting requirements can lead to hefty fines and severe reputational damage.

In response, many companies have opted to avoid discussing sustainability altogether. A recent analysis revealed a decrease in mentions of terms like “environmental, social and governance (ESG)”, “diversity, equity, and inclusion (DEI)”, or “sustainability” on corporate earnings calls of Kenyan-listed companies.

This phenomenon, known as “green hushing,” is driven by several factors. There has been a localised ESG backlash, with investor groups, lawmakers, and media figures criticising corporate ESG initiatives for allegedly conflicting with fiduciary responsibilities. In 2024 alone, US lawmakers have introduced several anti-ESG bills. According to a report by ISS-Corporate, 13% of shareholder proposals this proxy season focus on countering ESG initiatives. Additionally, new “greenwashing” regulations in the EU, US, UK, and Australia, along with several African nations, penalise companies for making unsubstantiated sustainability claims.

Follow the Rules, Not the Hype

Despite this rising trend of sustainability silence, companies are increasingly required to disclose detailed information about their sustainable practices. These disclosures will take the form of mandated, verified, and highly detailed risk reports, demonstrating real-world business risks and opportunities linked to sustainability strategies.

Several new regulations are driving this change. The European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD) took effect this year, alongside the EU Corporate Sustainability Due Diligence Directive (CSDDD), approved by the Legal Affairs Committee of the European Parliament in March. The International Sustainability Standards Board (ISSB) introduced international standards for corporate sustainability disclosure on climate-related risks last year. In Kenya, the Nairobi Securities Exchange (NSE) has implemented rules requiring listed companies to provide detailed ESG disclosures, aligning with global trends.

While the situation in Kenya underscores the contentious nature of sustainability-focused regulation, business leaders should not be distracted. European regulations and international accounting standards demand that businesses disclose information on risks and opportunities arising from social and environmental issues and the impact of their activities on people and the environment.

The CSRD includes some of the most stringent sustainability reporting requirements, obligating companies to disclose sustainability-related risks within their own operations and those of their suppliers. This information must be independently assessed for accuracy. By including suppliers, many of whom are smaller companies, the regulation ensures widespread compliance beyond Europe’s largest businesses.

Preparing for an Uncertain Future

Ultimately, this increased scrutiny compels companies to take materiality assessments seriously. These assessments identify the sustainability and ESG topics most significant to a business and its stakeholders, guiding how companies report sustainability risks and opportunities and integrate them into corporate strategy and investment plans. They also provide benchmarks for measuring progress and a clear, data-driven approach to reporting sustainability risks akin to financial metrics.

As sustainability compliance requirements evolve under the watchful eyes of politicians, investors, the media, and consumers, companies need robust, real-time solutions for proactive risk management, focusing on hard data rather than emotional appeals. This involves partnering with organisations that offer a comprehensive view of the global regulatory landscape. Companies need a complete understanding of their risk exposures to navigate this new environment successfully.

Predicting public sentiment on corporate sustainability over the next decade is challenging. We believe that the best way to prepare for an uncertain future is to equip companies with comprehensive information to improve processes, streamline compliance decisions, and be ready for whatever comes next.

Corporate sustainability can seem like a minefield, especially with continuously updating regulations and frameworks. Understanding the sustainability landscape is crucial. Whether it’s learning about relevant regulations, standards, frameworks, and requirements within your jurisdictions or ensuring your compliance programmes are robust enough to withstand increased scrutiny, it’s never too early to start preparing for upcoming changes.