Can new ESG investment framework save forests?
Students of Namulonge Church of Uganda Secondary School sit under a tree during the commissioning of a classroom block on November 8, 2024. Lessons were conducted under the tree shade until audit firm Grant Thornton constructed the new classroom blocj (in the background) as part of their ESG programme. Photo/Stephen Otage
What you need to know:
- ESG concept looks at ensuring that as countries, institutions as well as individuals strive to develop, whatever actions they undertake, should bear in mind the need to use natural resources in a sustainable manner and also take care of the environment where they operate.
It is an investment principle attempting to strike a balance between development, environmental conservation for future generations, and management of social issues.
The environmental, social, and governance-based (ESG) investing framework is the buzzword among audit firms, in boardrooms, conferences, workshops, corporate institutions and environmental conservationists, among others.
Initiated jointly by financial institutions at the invitation of the United Nations in a report titled, ‘Who Cares,’ in 2004, ESG, which started as a social corporate responsibility initiative, has grown into an integral global business strategy phenomenon.
It is an investment principle attempting to strike a balance between development, environmental conservation for future generations, and management of social issues, from national, individual and corporate governance perspectives.
Why ESG?
According to Mr Benson Mwesigwa, the associate director of KPMG Uganda, ESG is a broad concept that tries to balance industrialisation, development and environmental aspects such as conservation of natural resources and the environment for future generations, social governance, climate change, the community and human life, among other issues.
“The question is how do we limit greenhouse gas emissions? This is why we came up with ESG. Today we are seeing wildfires, droughts, and floods on a global scale. There is no uniform standard. That is why every country is coming up with its regulations setting targets to reduce carbon emissions,” he said in an interview.
He explained that ESG is a concept which was born under the United Nations Framework Convention on Climate Change Conference of Parties and it is closely linked to sustainable development goals.
The concept looks at ensuring that as countries, institutions as well as individuals strive to develop, whatever actions they undertake, should bear in mind the need to use natural resources in a sustainable manner and also take care of the environment where they operate.
For instance, ESG governance principals believe that for a company to operate and continue making profits sustainably, it should have good corporate governance structures.
ESG principles
The board of directors should be knowledgeable about the ESG principles so that as they lay down the guidelines and policies for running the company, they are in tandem with the former.
For example, they should ensure that employees are not exploited by paying them low salaries and wages because in the end, it compromises the quality of their health.
The board should also be able to conduct regular energy audits to understand how much it is contributing to carbon emissions and also institute measures to reduce them
“Have you put policies in place to ensure that women have opportunities to take up leadership roles? Does the board recognise these global concerns? Is there a safe environment for implementing these issues? If you are employing casual labourers, how sure are you that they are not going back home to cut down trees to cook food,” Mr Mwesigwa wondered.
He explained that with climate change now a reality, natural disasters such as epidemics, drought, floods, and wildfires are posing a threat to human existence because natural resources such as forests and wetlands have been encroached on for different development projects ranging from agriculture to infrastructure.
Mr Mwesigwa said every individual, company or country is expected to collectively contribute towards the reduction of such effects.
Cardinal role
Forests and wetlands play a very important role in absorbing carbon dioxide, which is the primary driver of climate change. Under the ESG agenda, countries, individuals, regions and institutions are required to embrace a shared responsibility of reducing carbon emissions. At the company level, the board of directors, which is the highest decision-making organ, is expected to be cognisant of the above as they make decisions.
Speaking during the third Corporate Governance Awards last Friday, Mr Geoffrey Kihuguru the president of the Institute of Corporate Governance Uganda, said the role of corporate governance in building resilient organisations today cannot be overemphasised.
The awards which were started in 2018 to highlight the importance of corporate governance and also celebrate the institutions which are embracing it, have attracted many participating organisations which have reported increased productivity, profitability, and better working environment.
“The world as we know it today is dynamic, shrinking and fast-moving due to digitisation. What works in our neighbouring countries and beyond, inevitably impacts on us in the Ugandan boardroom and vice versa,” Mr Kihuguru said.
“The global economy needs structures that are understood across oceans. Corporate governance is one of these necessities and for robust health of any organisation small or big, following principles and practices of good corporate governance is a must,” he added.
He explained that all over the world, corporate governance has evolved over the years and it has been replaced by ESG.
He said ESG now focuses not only on the enterprise and its bottom line with allegiance being purely to the shareholders, but it now expands its area of focus to the broader society, which is impacted by an organisation.
He says global trends now call for companies to be more transparent in matters ESG, which involves having more robust structures in terms of innovation and adaptability to climate change diversity in the workplace and within the boardroom.
During a keynote address at the same event, Ms Patricia Ojangole, the executive director of Uganda Development Bank, highlighted that all economic activities depend on services and benefits provided by nature. As a bank, she said they have come up with a climate finance facility from which when they get projects, they ask the applicants for their climate change agenda.
Through this, they can measure the greenhouse gas reduction impact that they are creating for what they call green projects.
Ms Ojangole also said they are planning to come up with a sustainability strategy to incorporate aspects of employee wellness, green buildings, compute emissions, and environmental risk assessment as they strive to become a net zero company.
Way forward
The Institute of Certified Public Accountants of Uganda last month released the sustainability disclosure standards, a framework for companies to include in their annual financial reports how they have handled ESG.
Under this framework, the public is able to see how much profit a company is making, its structures of governance, and the mechanisms it has put in place to ensure sustainability.
To domesticate ESG reporting, China Communications Construction Company (CCCC) last week released its 2023-2024 ESG Report. Mr Li Jincheng, the general manager, said in August 2023, Chinese President Xi Jinping told Chinese companies that GDP growth without consideration for the environment doesn’t lead to sustainability. He urged the Chinese investors to start making annual reports regarding their sustainability initiatives.
Some of the measures the company is implementing are energy-saving measures and energy management, renewable energy utilisation, biodiversity and ecological environment protection
Others are addressing climate change and greenhouse gas emissions, waste management, water resource management, circular economy measures and technological innovations.
The social initiatives include community relations, contribution to local socio-economic development, diversified and equal employment, customer rights protection, localisation management, employee rights and development and protection of indigenous rights.
Governance initiatives include anti-corruption, business ethics, risk management, supply chain management, digital production and project quality management.
About ESG
ESG is a concept which was born under the United Nations Framework Convention on Climate Change Conference of Parties and it is closely linked to sustainable development goals. Forests and wetlands play a very important role in absorbing carbon dioxide which is the primary driver of global impacts of climate change.
Under the ESG agenda, countries, individuals, regions and institutions, are required to embrace a shared responsibility of reducing carbon emissions.
