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environmental, social and corporate governance ESG guidelines

Client Alert: Nairobi Securities Exchange ESG Disclosure Requirements

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“A Company’s primary purpose can no longer be simply to make a profit for shareholders”

Milton Friedman

Over the last few decades, there has been a concerted effort within the business community to align company operations with the values and aspirations of their clients. Today there are myriad ways of achieving this goal and different actors have taken different approaches. Sustainability reporting has been the standard for compliance in big business.

Sustainability Reporting is an Organization’s practice of reporting publicly on its economic, environmental, and/or social impacts, and hence its contributions – positive or negative – towards the goal of sustainable development. Through this process, an Organization identifies its significant impacts on the economy, the environment, and/or society and discloses them in accordance with a globally accepted standard. Such disclosures enable investors to make informed decisions by identifying companies that may pose a risk or perform less well due to sustainability or ESG failings. In this regard, ESG reporting is not only important as a public good, but as part of the Strategic Risk Assessment Framework of the Organization.

While the industry has led the charge, regulators have not been left far behind. Recently at the COP26 Conference, echoes of the Paris Agreement and the earlier Rio ’92 Earth Summit rang out, with calls for tighter regulation by Nations to ensure a safer, more ethical business environment.

In this regard, the Nairobi Securities Exchange has developed guidelines on Environmental, Social and Governance (ESG) Disclosures for use by all NSE listed companies. Listed companies on the NSE are to report publicly on their ESG performance at least annually, with mandatory reporting beginning November 2022.

Further, the Central Bank of Kenya (CBK) has developed Guidance on Climate-Related Risk Management for the banking sector. The aim of the Guidance is to sensitize the banking sector on mitigation of climate-related risks and harnessing of opportunities. It also offers guidance on the development and implementation of appropriate climate-related strategies and policies. This reporting is also going to be mandatory for all Banks beginning September 2022. Climate reporting is a sub-set of ESG reporting.

The guidelines issued offer a comprehensive guide on the expected disclosures as well as the recommended standards to be used in the process. Reporting is a crucial duty of the Board of a public company and efforts must be made to adhere strictly and meaningfully to the requirements set forth by the regulator. It is therefore important to have on board qualified professionals who can advise on and guide the process of ESG Reporting.

For more information and help in developing an Environmental, Social and Governance Framework and Implementation Strategy, please reach out to our Sustainability & Climate Change practice team or the Regulatory Compliance and Corporate Advisory practice team, through Partners Jinaro Kibet, Stephen Mallowah or Head of Corporate and Commercial Law Bryan Muindi.

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