ESG 101

ESG is the acronym for Environmental, Social, and (Corporate) Governance, and usually refers to a more stakeholder-centric approach to doing business whereby organisations specifically undertake to conduct themselves ethically in ESG matters. In addition to companies doing this, investors have also begun to embrace ESG criteria to evaluate potential investments. This means that investors go further than checking your numbers and projections, but also look at your organisation’s attitude/approach to ESG to decide whether or not you are worth their investment.

ESG is no longer just a fancy thing to do to “belong”. Significant growth in ESG adoption/investing in recent times have been partially as a result of new risks arising from developments such as climate change, data and internet security risks, expanding regulations and pressure from investors. Good ESG strategies and disclosure of same often signify transparency, resilience and sound risk management which in turn enhance investor and general stakeholder confidence.

In Nigeria today, the increasing importance of ESG is being taken cognizance of and can be seen in the inclusion of ESG and Sustainability related provisions and recommendations as follows:

• CBN Sustainable Banking Principles
• The NCCG (Nigerian Code of Corporate Governance 2018), also with respect to disclosures recommends that Companies disclose highlights of sustainability policies and programmes covering social issues such as corruption, community service, including environmental protection, serious diseases and matters of general environmental, social and governance (ESG) initiatives.
• Nigerian Stock Exchange (NSE) 2018 Sustainability Disclosure Guidelines- As at today, all listed companies in Nigeria must publish sustainability report in line with the Guidelines of the Nigerian Stock exchange.
• The new CAMA (Companies and Allied Matters Act 2020) which applies to all companies also imposes an ‘environmental obligation’ on directors to consider the impact of the company’s operations on the environment in the community where the company carries on business operations.

In summary, ESG is about including ethical practices into your business decisions and consequently, operations. Compliance or otherwise has far reaching effects on perception, reputation – both in the business physical environment and even among talent, risk, access to funding and opportunities for growth; and also business restructuring and combinations. 

Companies should have an ESG management plan and boards should drive and maintain oversight of same.