Rwanda's new corporate governance code that was recently launched by Rwanda's Capital Markets Authority (CMA) mandates that listed companies and issuers of securities establish systems to mitigate and manage environmental and social risks.

The new code encompasses environmental, social and governance (ESG) principles, a set of rules requiring companies to be transparent, responsible and conscious of their impact on the environment and society.

According to the International Finance Corporation (IFC), which partnered with CMA to support the integration of ESG standards into the governance code, there are a number of reasons behind the establishment of the new code.

"A good governance code will foster investor confidence, while positively influencing investment decisions," Rose Lumumba, a corporate governance specialist at the IFC said during the presentation of the new code to stakeholders.

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The IFC asserted that companies with better corporate governance realise higher returns, better risk management and lower volatility

Rwanda&039;s new corporate governance code is in line with the revised Principles of Corporate Governance published in 2023 by the Organisation for Economic Cooperation (OECD), which takes into account the global evolutions in corporate governance and capital markets as well as the expectations of investors as far as climate change is concerned.

Key Requirements

Listed companies and issuers in the country will now be expected to identify environmental and social risks and impacts and come up with systems that will help mitigate and manage these risks.

At the same time, the boards of these companies will be expected to come up with policies and offer guidance for code compliance, while the annual reporting will be based on how the code has been applied.

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While reporting their ESG performance, companies are required to put into consideration certain parameters.

On the environmental aspect, companies will be expected to pay close attention to theimpact of their actions on the natural environment, energy, as well as the resources used to operate.

On the social aspect, companies will look at how they manage relationships with their employees, clients, communities and the society in general, while the governance facet will cover the internal policies and procedures used in the decision making processes in the companies.

Implementation

According to the IFC, implementation of the new governance code will require the regulator, company boards, and management to effectively play their roles.

"The regulator should ensure timely and comprehensive ESG disclosures while keeping in line with global standards and developments,” the IFC stated.

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The boards will be tasked with ensuring that ESG issues are fully integrated into their company's vision, purpose and strategy, while the management will track, measure and report the progress and performance on ESG targets.

According to Jean Claude Uwizeyemungu, the Managing Director of Mahwi Grain Millers PLC, which recently listed its first corporate bond on the Rwanda Stock Exchange (RSE), the new governance code will help create a culture of transparency.

"The governance code is an essential tool that creates a culture of transparency and best practices in company operations at different management levels, from the board of directors to the company employees," Uwizeyemungu told The New Times, adding that his company has seen greater investor trust and interest after improving their management structures, while preparing to enter the capital market to raise funds.

He revealed that his company intends to integrate sustainable and ethical practices in its operations and decision-making processes.

"Our plan includes a project to reduce the use of fossil energy by 50 per cent and replace it with renewable energy, most likely solar power, especially in the drying of maize grains,” he said.

According to Bank of Kigali Chief Executive Officer, Diane Karusisi, the bank has taken steps to establish an ESG framework.

"Bank of Kigali has set key milestones to achieve in the next 3-years specifically geared towards establishing an ESG framework, managing climate-related risks and acquiring the necessary tools to comply and report with ESG regulatory requirements while optimizing shareholder value,” she said.

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Her bank is leveraging on long-term relationships with global development finance institutions to acquire the necessary technical assistance and expertise to incorporate ESG in the bank's operations, strategies and reporting.

Bank of Kigali, Karusisi added, has also recently introduced an Environmental and Social management tool which identifies environmental and social risks for projects they finance.

The new corporate governance code, which replaces a 2012 code that governed public companies and issuers, will come into force once officially gazetted.