Environmental and Social Governance (ESG) practices are quickly being embraced by major players in the public and private sectors.
The United Nations (UN), International Finance Corporation (IFC), UK government and other public and private sector players are at the heart of the ESG development.
A 2004 report of the UN titled Who Care Wins is the pioneer publication that documented the term ESG, following various discussions that took place following the Millennium Summit that set the Millennium Development Goals (MDGs).
Subsequently, several institutions including IFC have contributed to development of ESG Principles and operating frameworks over the last 20 years.
At the same time, the MDGs have evolved to the Sustainable Development Goals (SDGs).
The precursor to ESG is Corporate Social Responsibility (CSR) – a term that was officially coined in 1953 by American Economist Howard Bowen in his publication Social Responsibilities for the businessman. It was however only in the 1971, that the concept of social contract between the business and society was introduced by the committee for Economic Development.
CSR has since evolved and has been widely embraced by most corporations as a way to give back to the community. CSR has in the period from year 2000 began shifting toward ESG principles such as environmental responsibility and sustainable practice.
It has become an essential strategy for many multi-million dollar companies such as CocaCola and Pfizer at the global stage. CSR has been a core strategy of the local companies and has assisted the brand positioning of these companies and their products within the local and international markets.
Locally, blue-chip companies such as Equity Bank, Safaricom and East Africa Breweries have collectively pumped billions of shillings into corporate social responsibility interventions. This has enhanced the companies’ brand value with Equity Bank brand value hitting $ 450 million to become Kenya’s most valuable brand according to Brand Finance.
The investors’ awareness of the role of ESG and sustainability initiatives has continued to increase.
PwC Global survey 2022 found that 27 percent of the sampled investors would be willing to accept a lower rate of return on investment, in a company that undertakes activities that have a beneficial impact on society or the environment.
It is worth noting that two percent more indicated their willingness to accept a lower rate of return if the company undertakes activities that address sustainability issues ‘’relevant to its business’s performance and prospects’’.
Such survey results demonstrates investors awareness on the role of ESG in value creation in both short-and longer-term but more uncertain risk that are critical for an entity’s existence.
It is worth noting that ESG principles have existed over decades and could be centuries old. The advocacy for fair labour practices and the campaign against funding of oppressive regimes such as Apartheid in South Africa are just some of the examples of earlier recognition by government and corporate on their role in shaping the world around them.
The codification of these principles and establishment of an operating framework that enhances improvement in the measurement and reporting of these efforts is laudable.
The last decade has witnessed more principles and frameworks created among them the Principles for Responsible Investment (PRI), Climate Disclosure Standards Board (CDSB), the Sustainability Accounting Standards Board (SASB) and the Sustainable Stock Exchange Initiative (SSE).
At core of these standards is the support to investors in comparing information between companies, supporting efficient allocation of capital and the smooth running of the capital markets. Embracement of such initiatives by Security Stock Exchanges and other key players demonstrate a pursuit for a sustainable and noble initiative that cannot be dismissed an ‘’ESG wave’’. None should be left behind.
Who Care Wins!
