Companies are no longer judged solely by their financial performance. Today, stakeholders—investors, consumers, and employees—are keen to understand a company’s impact on the environment, its social responsibilities, and its governance practices.
Companies that fail to meet these standards often face boycotts or worse.
This is where Environmental, Social, and Governance (ESG) reporting comes into play.
ALSO READ: Taxpayers want Gov’t to make tax cuts to stimulate economic growth
ESG stands for environmental, social, and governance; these three pillars represent the main areas companies are expected to report on, capturing the non-financial risks and opportunities in their daily operations.
Egide Clement Kabano Niyitegeka, a partner at BDO East Africa Rwanda, said: "Our world faces several global challenges; climate change, the transition from a linear economy to a circular one, increasing inequality, and the need to balance economic growth with societal well-being.
"Investors, regulators, consumers, and employees increasingly demand that companies be good stewards of both financial and natural resources and have robust governance frameworks in place. More investors are incorporating ESG elements into their decision-making processes, making ESG crucial for securing capital, both debt and equity.”
ALSO READ: Why your business needs payroll services- BDO
BDO East Africa Rwanda provides companies with access to seasoned professionals who navigate them through the ESG and sustainability reporting process. This ensures alignment with the increasing expectations of all stakeholders. Such support is deemed crucial, particularly in a country like Rwanda, committed to a green economy.
Components, importance of ESG reporting
"In the environmental category, we’re examining a company’s energy use, waste management, pollution levels, and climate change strategy. For social, we look at labour practices, diversity and inclusion efforts, community involvement, and impact on human rights. Governance assesses how a company is managed, including its leadership structure, executive compensation, and commitment to transparency and accountability,” he said.
Kabano highlighted the increasing demand for ESG from various stakeholders. "Investors, both potential and current, are increasingly interested in companies that are sustainable and responsible. This is because strong ESG performance can indicate long-term financial stability and reduced risk.
"Consumers, too, are becoming more conscious of the environmental and social impacts of the products they purchase. Companies with good ESG practices can attract and retain customers who prioritise sustainability.”
He also pointed out the evolving regulatory landscape: "More countries are implementing regulations that require companies to disclose ESG information. The newly introduced IFRS S1 and IFRS S2 standards are prime examples of this growing trend,” Kabano explained.
Introduced by the International Sustainability Standards Board (ISSB) in June 2023, these standards aim to provide a global baseline for sustainability disclosures, ensuring consistency and transparency in ESG reporting.
The IFRS S1 standard sets general guidelines for disclosing sustainability-related financial information. Companies must explain how environmental and social factors impact their finances, and outline their governance processes for managing sustainability risks and opportunities.
IFRS S2 focuses on climate-related information. Companies are required to disclose details about their greenhouse gas emissions, the impact of climate change on their business, and their plans for managing climate risks and opportunities.
Why is this reporting important?
"Transparency fosters trust with stakeholders and demonstrates a company’s commitment to responsible business practices.
"Proactive ESG strategies can help companies mitigate environmental and social risks, leading to long-term cost savings. A focus on sustainability can drive innovation in areas like resource efficiency and clean technologies.
"Businesses that prioritise sustainability can gain a competitive edge by attracting top talent, fostering customer loyalty, and potentially reducing operational costs,” explained Kabano.
How do you report?
ESG, originally designed to evaluate the sustainability-related disclosures of listed companies for investors, is now widely viewed as a reporting framework. While Rwanda currently has no mandatory ESG reporting legislation, the rising demand for ESG-related information has made ESG frameworks synonymous with reporting.
There isn’t a standard ESG framework yet, just a broad consensus on the issues it covers, leading to numerous differences at the data point level. Companies often rely on sustainability reporting standards to determine how and what to report.
BDO EA Rwanda assists companies in putting in place ESG Strategy and drafting sustainability reports to showcase their ESG performance. Are you prepared to start your ESG reporting journey?