Sustainability Reporting: Shifting from Voluntary To Business Survival Requirement

December 17, 2021 - Reading Time: 3 minutes - By The Vellum Team

In 2015, the Paris Agreement became an international pact by some of the United Nations members to put mechanisms and measures to ensure the world reaches a global peak of greenhouse gas emissions as soon as possible to achieve a climate-neutral world by mid-century. Also, in that year, 17 Sustainable Development Goals (SDGs) were adopted by world leaders to ensure a sustainable and inclusive future for all, leaving no one behind and ensuring that by 2030 all people enjoy universal peace and prosperity.

The SDGs guide the global social, economic, and political challenges facing the world to protect life on earth and bring prosperity.  To ensure these global goals are achieved, there is a great need to mainstream environmental, social, and governance strategies in private sector operations.

It’s been more than 20 years since sustainability reporting was established as a concept, and various reporting standards have been put on the table. The most widely used standard of reporting has been Global Reporting Initiative (GRI), founded by CERES and the UN Environment Programme (UNEP). In 2000, GRI launched its first version of the Sustainability Reporting Guidelines and separated from CERES, the organization, in 2001.

Meeting Environmental, Social, and Governance (ESG) criteria has become an important goal for private sector organizations. Customers and market demands are exerting pressure on corporations to engage in sustainable business practices, and investors are increasingly using ESG metrics to evaluate the companies they might want to invest in.

Some companies have shown great responsibility by embracing sustainability reporting and global brands have not been left out on ESG reporting as Unilever first set their sustainability goals in 2010 and has been adding to them since then. They have been named industry leader in personal products in the S & P Dow Jones Sustainability Index (DJSI) 2020, achieving a score of 90 out of 100 across a range of 27 environmental, social, and governance (ESG) criteria.

KCB, the largest commercial bank in East Africa by capitalization, embraced ESG in 2008 and published their first sustainability report in 2013. The Bank believes that sustainability ensures long-term business success while contributing towards economic and social development, a healthy environment, and a stable society. Using the Global Reporting initiative, they annually disclose key materiality topics affecting their business.

On the other hand, Kakuzi, an agribusiness firm in Kenya, just published their second Environmental, Social, and Governance (ESG) report, which presents their holistic approach to measuring their sustainability impact across their business. Their goal is to pursue regenerative agriculture.

Most companies have been reporting on their ESG metrics remarkably. However, a few opportunities for improvement have been identified, and there are aspects investors need to see action from the companies.  There are risks caused by extreme weather events, floods, famine, wildfires, etc. With the link between ESG and risk increasingly becoming explicit, companies must find ways to bring market-based incentives to address these climate risks. There is also a great need for companies to Identify material ESG issues by conducting material analysis to identify key topics to be improved.

A few gaps have been identified in ESG reporting, and they need to be addressed to streamline accurate reporting. The Central Bank of Kenya (CBK) recently released the guidelines for climate-related financial disclosures to enable banks evaluate and integrate the opportunities and risks arising from climate change in their line with capital allocation.  In the same breadth the Nairobi Securities Exchange (NSE) released guidelines, giving listed companies one year to align for incoming regulations by the Capital Markets Authority to mainstream transparency, accountability and disclosure in line with the incoming regulation from Capital Markets Authority. Listed companies have been called to interact with ESG reporting guidelines and start reporting on ESG metrics, however, there’s a gap in capacities, hence the need for capacity building on ESG reporting.

Various reporting standards have been identified, however, GRI has taken pole position in this race. There is a great need to diversify these reporting standards for companies to align with the framework that best serves their interest in line with becoming open, transparent and compliance.  

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