Rwanda’s regulatory landscape is transforming ESG (Environmental, Social, and Governance) reporting from a mere option to an essential requirement.
This shift is creating opportunities for business advisory firms like BDO East Africa (Rwanda)Ltd, which targets private equity funds and blue-chip companies needing to track and implement sustainability practices.
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Simply put, adopting ESG principles means that corporate strategy focuses on environmental, social, and governance factors.
The 2021/22 planning and budgeting call circular mandated all sector-leading institutions and districts to incorporate environment and climate change priorities and indicators into their action plans. Additionally, a checklist for environment and climate change mainstreaming was introduced, requiring all budget agencies to include an annex reflecting these priorities in their budget submissions.
As sustainability considerations become increasingly central in mergers and acquisitions, more investors are abandoning potential acquisitions over ESG concerns.
ALSO READ: ESG and sustainability reporting: Why it matters for your business
A 2023 survey by BDO of 625 CFOs from organisations with revenues ranging from $50 million to over $3 billion revealed that 66 per cent of middle market CFOs view ESG as, primarily, a compliance exercise, or are just beginning their ESG journey.
Among the five sectors surveyed, healthcare CFOs were the most likely to consider their ESG programmes as mature and deeply integrated into their organisation’s business model.
Some industry giants have established dedicated resource hubs, services, and tools to enhance equitable access to quality healthcare. While some healthcare leaders are still catching up, the overall ESG maturity in the industry is a positive indicator for the future.
ALSO READ: New law tightens Rwanda's banking sector with ESG integration and overarching supervision
Challenges for emerging market businesses
"There’s a lack of awareness and expertise among businesses when it comes to ESG principles and the benefits they can bring,” explained Roy Nkandau, a partner at BDO East Africa(Rwanda)Ltd.
"Implementing ESG practices requires investment in new technologies, processes, and training. Many businesses in emerging markets operate on tight budgets and may struggle to allocate the necessary resources.”
According to Nkandau, ESG criteria differ between developed and emerging markets. In developed markets, there is often a greater emphasis on governance and transparency due to established regulatory frameworks and stakeholder expectations.
In emerging markets, environmental and social issues may take precedence, reflecting local challenges such as resource management and social equity.
"Reliable data is crucial for monitoring and reporting ESG performance, but in emerging markets, the availability and quality of such data can be limited, making it difficult to track progress and demonstrate compliance,” he said.
Driving sustainability in Rwanda
Daniel Ishimwe, a Senior Manager in audit at BDO East Africa(Rwanda)Ltd, highlighted a successful ESG initiative: "One notable example is Volkswagen Rwanda, which launched electric vehicles assembled in Rwanda for the people of Rwanda. The introduction of environmentally friendly transport services will accelerate the reduction of air pollution levels.
"E-mobility presents great opportunities to substitute expensive fuel imports with electricity generated in the country. In 2018, fuel products were the largest single import category into Rwanda, accounting for 12 per cent of all imported goods.”
Volkswagen Rwanda’s ESG efforts have reduced carbon emissions, decreased reliance on fossil fuels, created jobs, generated new business opportunities within the local community, and reduced the price of EVs on the market.
On how more companies can be facilitated to adopt ESG strategies, Ishimwe said, "The government can drive ESG integration through clear regulations, incentives, and support programmes. For instance, tax incentives for renewable energy projects or subsidies for green technologies can encourage businesses to adopt sustainable practices.
Establishing national ESG standards and reporting requirements will help businesses understand expectations and align their practices accordingly, creating a level playing field and encouraging widespread adoption.
"The next step is facilitating access to capital. Financial institutions must develop ESG-linked financial products and services, making it easier for businesses to access funding for ESG initiatives,” he said.
Emerging trends, opportunities in ESG integration
According to Rosette Niwewarwego, a Senior Manager in audit at BDO East Africa(Rwanda)Ltd, the future of ESG integration in emerging markets like Rwanda presents promising trends and opportunities: "There will be increased investment due to the growing recognition of ESG, attracting more capital into sustainable projects.
"Advances in technology, such as digital finance and renewable energy, are creating new pathways for ESG integration. Rwanda, with its focus on becoming a tech hub, is well-positioned to leverage these innovations.”
Niwewarwego emphasised the importance of building local expertise and capacity in ESG practices: "Ongoing efforts will enable businesses to implement more effective and tailored strategies. Partnerships with international organisations and NGOs can support these efforts.”
She also noted the development of Rwanda’s regulatory framework: "As Rwanda continues to develop its regulatory framework, clearer and more robust ESG guidelines will emerge, providing businesses with the direction and confidence needed to invest in sustainable practices.”
The Ministry of Finance and Economic Planning has already initiated climate budget tagging to effectively monitor climate finance flows across sectors for climate-resilient interventions.
Substantial resources have been allocated to climate financing, such as the Resilience Sustainability Facility (RSF) through the IMF, which provides $310 million to finance the climate-proofing of national investments.
At COP27, Rwanda unveiled Ireme Invest, an investment facility designed to help the private sector access green finance and bolster its role in the country’s climate change response. The facility has already mobilised $104 million, employing a value-chain approach to funding green and climate-resilient projects.
In 2023, Rwanda also launched Intego, the Nationally Determined Contributions (NDC) facility, to finance public sector-led climate mitigation and adaptation projects at central and local government levels. Capitalised through €46 million (approx. Rwf65 billion) grant from KfW Development Bank, priority projects under this facility include disaster risk management, renewable energy, sustainable transport, forestry, integrated water resources management, climate-smart agriculture, biodiversity conservation, and sustainable cities and settlements.
Developing and implementing an ESG strategy takes time, and investing in an ESG programme requires cross-functional support. Trusted partners can help transform vague terminology and unclear priorities into actionable risk mitigation strategies and Return on Investment (ROI).
Uncertain about your next steps? For support on your ESG journey, reach out to BDO's seasoned ESG leaders or learn more about how BDO can assist you.