All United Nations Member States (2015) adopted the 17 UN Sustainable Development Goals (SDGs) which are at the heart of the 2030 Agenda for sustainable development. It is widely acknowledged that through public and private partnership, realisation is feasible. Private sector is the main contributor of economic development in many economies across the globe and banks for instance are the financiers of the various projects and businesses that drive social economic development thus the due importance of the article. Sustainability means meeting today’s needs, without compromising the ability of future generations to meet their own needs. In this respect, in this article we look at Environmental, Social and Governance (ESGs) aspects as important matters in ensuring sustainability and thus need consideration in decision making by Chief executives and leaders of governments and entities through policies and strategic plans- development while seeking to drive value creation and economic growth. Stakeholders in various capacities are increasingly seeking sustainability stances in relationship establishments while looking at ESG metrics as indicated by entities’ reports and economies around the globe. Aspects of climate change and associated risks on environment are increasingly coming into perspective while looking at sustainability matters. Companies and economies globally are going “green” with stakeholders aligning themselves to sustainable companies while choosing where to invest or who to collaborate with in long-term business relationship and partnerships. For instance, Rwanda’s mission to maintain a clean and healthy environment has been going on since 2008 when it banned the use of non-biodegradable plastic bags and packaging materials in quest to preserve productive land for agriculture a big contributor to the GDP. Currently globally there is a drive to manufacture electric vehicles, which are perceived to preserve the environment, as they have no carbon dioxide emissions, and these have seen for instance Tesla’s share price reach 781.29 (NASDAQ: TSLA) recently, a price driven majorly by the environmental stance – electric vehicles (zero greenhouse emission). This is a very good example of role-play in sustainability drive through innovation and technology. In this regard, private and public sector is expected to continue putting in place environmental strategies that ensure sustainability. Back in Rwanda, electric motor cycles are being rolled out on the market to curb environmental pollution. Socially, questions asked are; how companies manage relationships with workforce, the societies where operational activities take place and the political environment. Governance on the other hand considers factors of decision-making in terms of role distribution such as rights and responsibilities within leadership hierarchy of corporations/entities including the Board of Directors, stakeholder engagements and corporate performance. For instance, according to S&P Global research on governance factors, results have indicated that companies that rank well below average on good governance characteristics are prone to mismanagement and risk their ability to capitalize on business opportunities over time. It assesses companies’ governance performance on four factors: Structure and oversight; code and values, transparency and reporting and cyber risk and systems. Gender diversity and equity is another high-profile governance aspect, where institutional shareholders demand women representation on corporate boards and in executive roles, and equal compensation for women in quest for increased diversity and inclusivity. Currently various ESG reporting frameworks in place require measurement and disclosure of metrics relating to environmental, social and governance performance and therefore confirm how entities are establishing policies that ensure sustainability. Through various metrics/ KPIs (key performance indicators) disclosures, the impact on sustainability is measured and results communicated to stakeholders. Key performance indicators include Environmental - energy usage and greenhouse gas emissions; Social – human capital development, health and safety, Governance – responsible Business practices, codes and programs and Board structure. ESG frameworks include but not limited to Bloomberg Terminal ESG Analysis, Integrated Reporting (IR), Sustainability Accounting Standards Board (SASB) (Nareit) and GRI Standards (www.globalreporting.org). These frameworks avail the opportunity to show case compliance to ESG reporting and effectively demonstrate the due importance given to sustainability matters by stakeholders in the market place around the globe. This may pose challenges in the implementation due to factors such as lack of capacity to analyse the requirements, time and resource limitations. However, it is important to note that there is investors’ growing expectations for companies to disclose ESG matters. For instance, over 73 per cent of investors take Environmental, Social and Governance (“ESG”) disclosure and performance metrics into account when evaluating risk and identifying opportunities (CFA Institute on public ESG disclosure trends. November 2017) and this has been on an upward trend around the globe. With Rwanda’s vision to becoming a financial hub, and the current drive to prepare the ground with policy changes and law amendments in progress, foreign direct investment stakeholders are expected to be keen to look for ESG reporting and related disclosures as there is a growing global demand for sustainability. The developing countries and their associated partners will continue to embrace the stance while seeking value creation or rather investment returns through sustainable investment. While maximizing financial returns for companies’ shareholders is traditionally the target for the entities management, it is now imperative to understand that sustainable financial returns will be realised by a shift in perspective from only corporate interest but also consider public interest and other stakeholder benefits that in turn ensure value creation in the long term. Therefore, this calls for financiers (Banks) of businesses and projects to look ahead in line with financing sustainable investments both in private and public partnerships. One can conclude that the policy makers and drivers of entities and government institutions should prepare to establish policy frameworks that support sustainability reporting, considering that resources optimization is at the heart of the future. Increasingly money is flowing into ‘green’ investments and entities are pursuing ESG standards implementation in quest to obtain financing from ‘green’ investors. The writer is the Manager Financial Accounting at the National Bank of Rwanda The views expressed in this article are of the writer.
