Environmental, Social, and Governance (ESG) reporting in the past year has gained significant traction globally. Investors, the general public, and relevant third parties are putting pressure on private and public sector companies to disclose and measure sustainability and societal impact. In this article, we will explore the legal requirements and best practices surrounding ESG reporting, with a specific focus on Nigeria, other African countries, and the United States.
Understanding ESG Reporting:
ESG reporting refers to the process of transparently communicating a company’s environmental, social, and governance performance to stakeholders. The objective is to provide a comprehensive view of a company’s sustainability practices, ethical considerations, and adherence to governance standards. By disclosing this information, companies demonstrate their commitment to responsible business practices and enable stakeholders to make informed decisions.
Legal Requirements for ESG Reporting in Nigeria:
In Nigeria, ESG reporting is still in its early stages of development, the Nigerian Stock Exchange (NSE) strongly encourages listed companies to voluntarily disclose ESG-related information in their annual reports. The NSE released the Sustainability Disclosure Guidelines in 2019, providing a framework for companies to report on their sustainability initiatives. Although these guidelines are not legally binding, they serve as a blueprint for companies seeking to enhance their ESG reporting practices. To further promote sustainability reporting, the Financial Reporting Council of Nigeria (FRC) inaugurated the Adoption Readiness Working Group (ARWG) for Sustainability Reporting. The ARWG is tasked with developing a roadmap for the implementation of the International Sustainability Standards Board’s (ISSB) IFRS sustainability disclosure standards in Nigeria.
In line with this commitment to sustainability reporting, the FRC announced that Nigeria will be an early adopter of the IFRS sustainability disclosure standards. This means that Nigerian companies will be required to disclose information on their ESG performance in accordance with the IFRS standards, starting in 2024.
ESG Reporting Landscape in Other African Countries:
African countries are taking a position and slowly recognising the importance of ESG reporting. Some have taken proactive steps to implement regulations. For example, South Africa’s Companies Act requires listed companies to disclose non-financial information, including ESG-related matters, in annual reports. Ghana, Morocco, and Kenya have also introduced guidelines or recommendations for ESG reporting, albeit in varying degrees of specificity and enforcement.
ESG Reporting Obligations in the United States:
In the United States, ESG reporting requirements are primarily driven by market forces and investor demands, rather than comprehensive federal regulations. However, the Securities and Exchange Commission (SEC) has recently taken a more pronounced view on the importance of ESG-related disclosures. In 2021, the SEC announced its intention to enhance ESG disclosure requirements, signaling a move towards more standardised and consistent reporting practices.
Additionally, some states in the US, such as California and New York, have introduced legislation in 2023 mandating specific ESG-related disclosures for certain companies. Companies operating in the US are also subject to the increasing influence of ESG-focused investors and rating agencies, who consider ESG performance as an important factor in investment decisions.
Best Practices for ESG Reporting:
In spite of an uneven legal landscape, there are widely accepted best practices for ESG reporting. These include:
– Disclosing measurable and relevant ESG metrics aligned with internationally recognised frameworks such as the Global Reporting Initiative (GRI) or Sustainability Accounting Standards Board (SASB).
– Setting clear goals and targets to track progress and demonstrate commitment to sustainability and societal impact.
– Providing qualitative narratives that explain the context, challenges, and strategies behind ESG initiatives.
– Ensuring the accuracy, completeness, and reliability of reported information through internal controls and independent verification.
– Regularly engaging with stakeholders to understand their expectations and concerns, incorporating their feedback into reporting practices.
ESG reporting is gaining increasing importance globally, with different countries implementing various requirements and guidelines. While Nigeria currently does not have specific legislation on ESG reporting, it is advisable for companies to align with international best practices and voluntarily disclose their ESG-related initiatives.
In other African countries and the United States, companies should navigate the evolving regulatory landscape and investor demands to ensure transparency and accountability in their ESG reporting processes.
By embracing ESG reporting obligations and adhering to best practices, companies can strengthen their reputation, attract responsible investors, and contribute to more sustainable and inclusive business practices, benefiting both themselves and the communities in which they operate.