Companies flouting ESG rules will miss IFC funding
Stakeholders from NEMA, NFA, ATC Uganda, Stanbic Bank, Uganda Biodiversity Fund, Vivo Energy plant trees in an effort to restore Mabira Forest last year. PHOTO/ MICHAEL KAKUMIRIZI
What you need to know:
With the growing threat of climate change, ESG has increasingly taken centre stage in the corporate world, with some regulators, such as the Central Bank of Kenya (CBK), now requiring their regulated entities to report on their ESG practices.
The International Finance Corporation (IFC) will no longer fund any private sector companies that do not adhere to or report on environmental, social, and governance (ESG) issues, a step that could lock out several firms.
ESG standards are considerations on how companies’ business practices impact the natural environment, the people around them, and their employees in the pursuit for profits.
With the growing threat of climate change, ESG has increasingly taken centre stage in the corporate world, with some regulators, such as the Central Bank of Kenya (CBK), now requiring their regulated entities to report on their ESG practices. Bank of Uganda has added ESG adherence in the sector to its five-yeat strategic plan.
IFC’s regional director for East Africa, Mary Peschka told the Business Daily that the financier will no longer “do business” and will pull out of any projects led by entities that show no commitment on closing ESG gaps.
“We will walk away from projects that have clients or sponsors that won’t commit to our ESG standards,” Ms Peschka said.
“When we set out to do business with a client, our specialists and corporate governance team undertake due diligence on the ESG front and then put together a plan to close any gaps related to ESG issues. This means thousands of private sector businesses which are not yet adhering to or reporting on ESG issues in the region, will be unable to tap into the concessional lending facilities provided by the IFC.
Currently, only banks are required by Central Bank of Kenya to report on ESG issues, but a few other companies listed in the Nairobi Securities Exchange report on them.
However, ESG is becoming consequential to private businesses’ profitability as consumers become more aware and conscious of environmental and social issues.
“If you start compromising on your commitments to ESG, it’s a slippery slope. ESG is good business. It’s not just because it’s the morally right thing to do. There’s lots of research that shows it translates to the positive bottom-line,” Ms Peschka said.
IFC had rolled out similar programs in Rwanda, South Africa, and Tunisia, with the initiative in Kenya extending services to Uganda, Tanzania.
