By Dr. Kariuki Muigua, PhD (Leading Environmental Law Scholar, Policy Advisor, Natural Resources Lawyer and Dispute Resolution Expert from Kenya), Winner of Kenya’s ADR Practitioner of the Year 2021, ADR Publication of the Year 2021 and CIArb (Kenya) Lifetime Achievement Award 2021*
The new paradigm for conducting business has seen organizations increasingly embracing transparency and resorting to better ESG reporting to understand, communicate, and better manage their contributions to the SDGs. This is also in tandem with Target 12.6 of the SDGs which encourages companies to adopt sustainable practices and integrate sustainability information into their reporting. Essentially, Sustainable Development Goals (SDGs) initiative sets forth 17 critical areas to solve economic, social, and environmental challenges by 2030 and all 193 UN Member States have agreed to the “Agenda 2030”, calling on all businesses, big and small, to actively and creatively be part of the solutions and take impactful steps to achieve success.[1] UN SDGs have been described as the leading ESG for large companies because as at February 2018 approximately 40% of the G250, the world’s largest 250 companies, acknowledged the SDGs in their corporate reporting and included the global goals in their CEO and/or Chair’s message.[2]
With the upsurge of Environmental, Social, and Governance (ESG) reporting as a strategic and operational agenda of more and more companies, the UN SDGs have become acknowledged as the best tools to use as a framework to improve ESG risk scores and secure long-term business performance. It has been noted that the 169 SDG specific targets present a wide range of opportunities for businesses to make a difference. Thus, the UN Sustainability Goals are used to manage ESG reporting and create long-term financial value. Some of the ways implementing UN SDGs can help improve business ESG risk scores include paying fair share of taxes in countries of operation and avoid tax evasion, including marginalized and underrepresented persons in the value chain, investing in communities, ensuring absence of slavery in the supply chain, paying fair prices to suppliers, practicing inclusion through corporate policies, disclosing GHG emission and climate risk exposure due to business activities.[3]
In addition, companies should also participate in improving processes to reduce waste, including packaging and distribution, educating and encouraging suppliers to adhere to strict standards, building domestic and global partnerships in healthcare, education programs, training, etc. and assessing and correcting gaps in resource use and waste procedures. They should also revise internal policies to eliminate unintended bias and discrimination, develop female leadership programs, understand the impact of business activities on natural resources, water and energy use, support new business models that can deliver clean/renewable energy, establish sustainable procurement policies and supplier codes of conduct, promote responsible consumption through marketing and PR events and sponsor NGO initiatives to restore degraded habitats.[4]
The ESG Manual recommends that as part of the ESG situational analysis that the ESG reporting team work with senior management and departmental heads to prioritise the most relevant Sustainable Development Goals (SDGs) for the organization. It notes that a key emphasis of the SGDs is creating shared value (value to the business and to society) within the organisation’s own core operations. It adds that the reporting process illustrated in the manual can be used to report progress on the SDGs within the ESG report. According to the ESG Manual, the SDGs can also help in the identification of material topics and or impact. Thus, by aligning organisational objectives with the SDGs, organisations can identify significant impact areas that affect their contribution to the SDGs.
As part of opportunity assessment in value creation, the ESG Manual recommends that opportunities should consider to create shared value for the organisation based on the SDGs at this stage. For example, to capture climate related opportunities, organisations can raise capital to finance “green projects” through issuance of green bonds that target an increasing number of ESG focused investors. Organisations can also implement energy efficiency programs and invest in renewable energy to cut future energy costs and ensure compliance with emerging climate related regulations. Such an approach also helps the organisation demonstrate contribution to the SDGs, in this case SDG 13 on Climate Action.
The ESG Manual also recommends that listed companies be encouraged to report their progress and contribution to the Sustainable Development Goals (SDGs). In this regard, the identified material ESG disclosures can be linked with the specific targets for the prioritised SDGs and progress reported using the approach presented in this manual. Listed companies are also encouraged to report progress and contribution to the Sustainable Development Goals (SDGs). The identified material ESG disclosures can be linked with the specific targets for the prioritised SDGs and progress reported using the approach presented in this manual.
The ESG Manual recommends various ways through which the ESG reporting process can demonstrate their contribution to the Sustainable Development Goals (SDGs) by aligning their material ESG topics with the targets contained in SDGs. Indeed, GRI has published a detailed guide on integrating the SDGs into corporate reporting. ESG manual can be applied in SDG reporting in defining priority SDG targets, in measuring and analyzing contribution to SDGs and reporting, implementing and integrating change. The ESG manual recommends a reporting approach that allows progress on the SGDs to be reported within the ESG report rather than as a separate report.
In defining priority SDGs targets, there is need to understand the SDGs generally and their targets in particular and conduct principled prioritization of SDG targets as well as define your SDG-related report content. The ESG Manual recommends that as part of the situational analysis process, the ESG reporting team identifies and prioritizes the relevant SDGs along with their respective targets for the organisation. Further, it is recommended that at the content creation phase it is demonstrated how ESG data such as the SDGs can be collected in a structured way. Measuring and analyzing with respect to SDGs includes setting business objectives, selecting appropriate disclosures and collecting and analyzing data. The ESG Manual recommends identifying appropriate disclosures through the materiality assessment process and linking back the ESG topics with the targets contained in the SDGs. Further, it recommends that collection and analysis of data follow the same data collection process outlined in the manual for ESG performance data.
The ESG Manual also recommends that listed companies consider general features of good practice when reporting on the SDGs as well as data users’ information needs before reporting and implementing change. The ESG Manual recommends that the Reporting Principles be used as a guide on good practice SDG reporting. The stakeholder assessment process be applied to help identify the unique needs of different stakeholders, including how the different SDGs apply to them. Finally, the GRI standards are proposed to be used to report performance and progress on the SDGs. Progress reporting helps measure progress against peers and implement targeted measures to improve performance.
*This article is part of an ongoing series on ESG (Environmental, Social and Governance) in Kenya by Dr. Kariuki Muigua, PhD, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Publisher of the Year 2021 and ADR Lifetime Achievement Award 2021 (CIArb Kenya). Dr. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Dr. Kariuki Muigua is a Senior Lecturer of Environmental Law and Dispute resolution at the University of Nairobi School of Law and The Center for Advanced Studies in Environmental Law and Policy (CASELAP). He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Dr. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Africa Trustee of the Chartered Institute of Arbitrators and the Managing Partner of Kariuki Muigua & Co. Advocates. Dr. Muigua is recognized as one of the leading lawyers and dispute resolution experts by the Chambers Global Guide 2022.
References
NSE, “ESG Disclosures Guidance Manual,” November 2021; Available at: https://sseinitiative.org/wp-content/uploads/2021/12/NSE-ESG-Disclosures-Guidance.pdf(accessed on 04/06/2022).
[1] Global Reporting Initiative (GRI), “Integrating SDG in Sustainability Reporting,” Available at: https://www.globalreporting.org/public-policy-partnerships/sustainable-development/integrating-sdgs-into-sustainability-reporting/(accessed on 04/06/2022).
[2] Huber, B.M. et al, “UN Sustainable Development Goals-The Leading ESG Framework for Large Companies,” Harvard Law School Forum on Corporate Governance, available at: https://corpgov.law.harvard.edu/2018/10/04/ un-sustainable-development-goals-the-leading-esg-framework-for-large-companies/(accessed on 04/06/2022).
[3] Source Intelligence, “What are the 17 UN SDGs and Why Do They Matter for ESG,” March 11, 2021, Available at: https://blog.sourceintelligence.com/un-sdgs-esg (accessed on 04/06/2022).
[4] Ibid.