For many years, large corporates around the world have struggled with the multitude of voluntary corporate sustainability reporting standards and requirements. In response, there has been substantial consolidation among the various standard setters, to the point that there are now two primary standards for corporations to consider when reporting their sustainability data and performance.
On the one hand, there is the Global Reporting Initiative (GRI), which is prevalent in Europe, Asia, Latin America as well as in Africa. On the other, there is the Sustainability Accounting Standards Board (SASB), the predominant standard for North American-based corporates. SASB has recently merged with the IFRS, which in November 2021 established the International Sustainability Standards Board (ISSB) as the sustainability reporting governance structure alongside the International Accounting Standards Board, within the IFRS framework.
For the most part, African corporates have not been substantially exposed to stakeholder demands for corporate sustainability reporting in line with the above standards, except for South Africa where GRI reporting for the larger listed firms is the norm. However, this is rapidly changing, and the need for corporates listed in Sub-Sahara African jurisdictions outside of South Africa to undertake such reporting is significantly increasing.
African corporates therefore need to start moving away from a mindset where sustainability reporting is primarily focused on showcasing its Corporate Social Responsibility achievements (driven by the company’s Marketing Department); or else is driven by compliance for development finance lending institutions, who have their own reporting requirements quite independent from standards like the GRI or ISSB.
There are several drivers for this trend but two are noteworthy. Firstly, regulatory authorities in Africa are increasingly feeling the need to promote standardisation in sustainability reporting methodologies. A recent example is the Nairobi Stock Exchange (NSE) guidelines for sustainability reporting (in line with the GRI), which was released in November 2021.
The second trend relates to increasing regulation around mandatory sustainability disclosures within the European Union, combined with a crackdown on inaccurate or misleading sustainability reporting (so-called “greenwashing”) by the European Central Bank and other EU regulatory players.
While these EU-based developments may not directly affect African corporates, they do affect at least some of their current or potential future shareholders. For EU-domiciled shareholders, the need for investees to provide externally assured sustainability reporting undertaken in line with an internationally accepted standards (whether GRI or ISSB) is becoming an increasingly critical requirement from both a compliance as well as a risk perspective.
African corporates need to start viewing sustainability reporting in the same way it views financial reporting – as a serious requirement for shareholders, which requires a professional, accurate, and transparent process that is externally assured by the firm’s auditors. The challenge in developing this type of robust sustainability reporting capability should not be underestimated; and the sooner corporates begin the process of establishing the internal capacity to do this, the better.
Compiled by Elan Theeboom, Arise ESG Specialist