More than half of listed companies have failed to comply with the new directive from Nairobi Securities Exchange requiring them to make environmental social and governance (ESG) disclosures ahead deadline due to a lack of strict enforcement rules.
Only 29 companies, representing 46 percent listed at Nairobi Securities Exchange (NSE) have integrated ESG disclosures in their financial or annual reports ahead of the November deadline.
NSE issued guidelines in partnership with Global Reporting Initiative (GRI) requiring firms to announce how they deal with issues such as community, number of employees, corruption, customers’ data privacy and environmental impact.
The rules were not compulsory and the NSE has only been persuading them to adopt sustainability reporting mechanisms to increase profitability and investment attractiveness from local and foreign investors.
“Many companies are doing it even though it’s voluntary. Since they are not mandatory requirements, we are just encouraging them to do it,’’ NSE chief executive Geoffrey Odundo told the Business Daily last month.
The ESG reporting will be integrated into the normal annual reports or in separate sustainability reports.
The disclosures are expected to enhance transparency around listed firms, helping unlock new investments, especially from international investors.
This comes as investors in financial markets are increasingly seeking information from firms on climate change action to assess their risks and their pricing before investment.
However, due to the uncoerced nature, majority of the firms are yet to file the disclosures.
Safaricom, East African Breweries, Nation Media Group, Bamburi Cement, KCB Bank Group, Kakuzi, and Standard Chartered are some of the listed firms that have issued an ESG report to the bourse.
“We have provided listed companies with an ESG compliance manual to guide them as they adopt regular sustainability reporting. Embracing these measures enhances their overall investment profile,” added Mr Odundo.
NSE plans to introduce an index to measure disclosures and performance on climate change action including carbon gas emissions by listed companies.
The index will include green revenues, fossil fuel reserves, carbon emissions, and management quality and carbon performance assessment on the firms.
It is also coming up with measurement criteria for how businesses can track the impact of their sustainability programs.
The reforms will see NSE come up with artificial intelligence tools developed jointly with International Finance Corporation (IFC), which will enable the exchange to evaluate sustainability reports and rate them.
Mr Odundo said the Climate Transition Index will allow the firms to attract local and foreign capital based on their policies and processes that reduce emissions blamed for the global raising of temperatures.
In the Absa Africa Financial Markets Index (AFMI) 2022, Kenya ranked three in a pillar that examines progress on ESG policies and frameworks, transparency of financial markets, tax and regulatory environment to foster local and foreign investment.
The country scored 88 out of 100, falling behind South Africa (93) and Mauritius (90).