Introduction
Background of ESG in Kenya
As we move towards a holistic approach to evaluating companies’ performance, the environmental, social and governance (ESG) indicator has now been universally accepted as a valuable metric at gauging the non-financial performance of a company. There has been a global shift towards incorporating sustainability practices in business activities. This shift has been motivated by the collective understanding that corporations have a larger responsibility in reducing the negative social and environmental effects of their businesses. Additionally, there has been a growing body of evidence that good ESG performance is positively correlated with higher returns and financial performance. 1 In essence then institutions have a fiduciary role in promoting the long-term benefits of social and environmental sustainability.
Kenya has made important strides in leading the region by incorporating ESG in its long-term goals. This is evident from 2008 when former President Mwai Kibaki launched Vision 2030, to be the development blueprint for the country. Vision 2030 provided the roadmap necessary for Kenyan companies and foreign corporations interested in investing in Kenya to make concerted efforts to realise social and environmental goals. The Vision 2030 blueprint opened the gateway to the sustainable finance initiative in 2013. 2 This was a banking sector-led initiative that put together a set of Principles: a Kenya-specific set of harmonised guidelines for sustainable development to be adopted across the banking industry in pursuit of meeting Vision 2030. 3 Since then, the Capital Markets Authority and Nairobi Securities Exchange (NSE) have spearheaded the movement on ESG and sustainability. The Stewardship Code for Institutional Investors (Stewardship Code) was gazetted in 2017 and presented a core reform to the corporate governance sector in Kenya. The Stewardship Code encourages companies to operate with a positive social impact. Investors are also encouraged to incorporate social, environmental and ethical initiatives into their investment processes. 4
Additionally, the Kenya Companies Act (Act. No.17 of 2015) requires company directors to specify in their business review a description of the principal risks and uncertainties facing the company. The purpose of this business review is to create an understanding of the development, performance and position of the company. In the same vein, we note that directors are required to, as one of their principal duties, have regard of the impact of the operations of the company on the community and the environment. 5 In the case of a quoted company, this business […]
