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What is ESG (Environmental, Social and Governance)?

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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*

Nairobi Stock Exchange (NSE) became the Fourth Exchange in Africa to issue ESG Disclosure Guidance Manual (ESG Manual) to help in guiding listed companies on measuring and reporting ESG matters on 29th November 2021. The ESG Manual gives Listed companies until 29 November 2022 to comply with ESG disclosure requirements. The NSE ESG Manual followed a Central Bank of Kenya (CBK) Guideline to banks on climate-related risk management issued on October 2021. Hence, there is need for the Boards and Management of listed companies, banks and related businesses in Kenya to move with speed to upraise their general understanding of what ESG entails and application of the ESG disclosure requirements to their business to ensure readiness to comply by 29 November 2022.[1] In this article, we shall offer a general introduction of ESG and lay a background for detailed discussion of the ESG Manual and the CBK Guidelines on climate-related risk management in this series.

The growing threat of climate change and climate crisis has forced many investors to embrace sustainability as a key factor in investment decision-making. At the same time, social concerns touching on issues such as human rights, diversity, consumer protection and welfare and protection of animals especially endangered species have led to many companies taking their social responsibilities and especially impact of their commercial activities on the local communities where they operate more seriously than ever. The growth of social media has also increased the public risks associated with socially irresponsible behavior due to more scrutiny on companies and the emergence of socially conscious consumers. Further, there has been growing corporate governance awareness since the 2008 recession which has led to increase shareholder and stakeholder activism in demanding more responsive management structure, better employee relations, and reasonable executive compensation in companies.[2]

As a result, how companies handle environmental, social and governance issues has increasingly become a major concern especially for investors investing money solicited from the public. ESG simply an acronym for Environmental, Social and (Corporate) Governance, the key aspects of sustainable, responsible or ethical investment. The Financial Times defines ESG as “a generic term used in capital markets and used by investors to evaluate corporate behaviour and to determine the future financial performance of companies.”[3] It adds that ESG “is a subset of non-financial performance indicators which include sustainable, ethical and corporate governance issues such as managing a company’s carbon footprint and ensuring there are systems in place to ensure accountability.”[4] ESG has also been defined as standing for the three broad categories, or areas, of interest for “socially responsible investors” who consider it important to incorporate their values and concerns (such as environmental concerns) into their selection of investments instead of simply considering the potential profitability and/or risk presented by an investment opportunity.[5]

Globally, the importance of environmental, social and governance (ESG) issues is evidenced by the change in the legal and regulatory landscape to reflect the expectations of investors, customers, employees and other stakeholders. Increasingly, the investment decisions including assessment and valuation are incorporating ESG criteria with companies that are rated as having strong sustainability programs enjoying more preference from investors. Issues touching on climate change and sustainability dominate current ESG focus. In addition, human rights and especially the rights of indigenous peoples and governance structures of companies are enjoying prominent attention. Many projects investors and sponsors are also demanding more detailed identification and mitigation of environmental and social impacts of investment projects before making commitment or funding.[6]

According to OECD, the growth of ESG approaches by investors has been driven by private and public sector initiatives to reach the objectives of the Paris Agreement and the Sustainable Development Goals (SDGs). This has seen the incorporation of climate transition factors into investment decisions and the growth of what has come to be known as ESG investing as a leading form of sustainable finance for long-term value and alignment with societal values. OECD defines ECG investing as generally refering to the process of considering environmental, social and governance (ESG) factors when making investment decisions.[7] Bloomberg estimates that the value of ESG investing around the world has risen to almost USD 40 trillion in 2021. At the same time, as at 2020 ESG ratings were being applied to companies representing around 80% of market capitalization.

At the same time, the environmental ‘E’ pillar score of ESG rating is being increasingly used as a tool to align investments and capital flows with a low-carbon transition and to unlock valuable forward-looking information on firms’ climate transition risks and opportunities.[8] The environmental considerations in areas such as climate risk, water scarcity, extreme temperatures and carbon emissions are now considered as key issues that can impact competitive positioning for businesses. Companies are expected to appreciate their role as stewards of the natural or physical environment and to take into account the utilisation of natural resources and the impact of their overall operations on the environment, both locally and across its global supply chains. Companies are now required to take precautions against environmental incidents such as oil spills or pollution from mining operations as safeguards against damage to their reputation and shareholder value.[9] At the same time, more than 13,000 companies and 3,000 non-business signatories in 160 countries that are signatories of the United Nations Global Compact (UNGC), which helps businesses contribute positively toward some or all of the 17 United Nations (UN) sustainable development goals (SDGs) by 2030.[10]

The COVID-19 pandemic, and its diverse implications including healthcare access, workplace safety, cybersecurity and other issues related to the communities that businesses , have proven to be a watershed moment for the often-underappreciated ‘S’ pillar of environmental, social and governance (ESG) considerations with the need to tackle the inequalities exposed and exacerbated by the pandemic becoming a key reason for investors to make allocations for socially conscious investments despite intangibility of social facts.[11] Companies are beginning to appreciate the role taking social responsibility can play in mitigating issues such data theft, worker strikes, litigation, workplace accidents and other people-related disruptions that can hurt a business reputation and finances. The repercussions of work-related injuries and deaths on families including on their financial security are also acknowledged as having a bearing on the United Nations Sustainable Development Goals (SDGs) of no poverty, zero hunger, good health and well-being, decent work and economic growth even as many investors are aligned with these goals.[12]

The “G” Pillar in ESG is the oldest as governance has been an integral part of robust investment for ages. However, what is considered effective governance keeps evolving and the speed of evolution has quickened as institutional investors’ definition of stakeholders continues to broaden beyond shareholders.[13] While older forms of G focused on serving and protecting shareholders, the newer approaches stretch beyond basic dimensions related to financial and accounting misconduct as well as legal and regulatory non-compliance, such as transparency, corporate structures and ethics. Investors are also aligning G with the 17 United Nations Sustainability Development Goals (SDGs), where governance issues include industry, innovation and infrastructure (Goal 9); peace, justice and strong institutions (Goal 16); and partnerships with public and private institutions (Goal 17).[14]

*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. 

[1] Nairobi Stock Exchange (NSE), “ESG Disclosures Guidance Manual,” November 2021, Available at: https://sseinitiative.org/wp-content/uploads/2021/12/NSE-ESG-Disclosures-Guidance.pdf (accessed on 04/02/2022).

[2] Ibid.

[3] The Financial Times Lexicon, Available at: https://markets.ft.com/glossary/searchLetter.asp?letter=E 04/02/2022).

[4] The Financial Times Lexicon, quoted in: ADEC, “What is ESG,” Available at: https://www.adecesg.com/resources/ faq/what-is-esg/ (accessed on 04/02/2022).

[5] CFI, ESG (Environmental, Social and Governance), Available at: https://corporatefinanceinstitute.com/resources/ knowledge/other/esg-environmental-social-governance/

[6] Norton Rose Fulbright, “Environmental, Social and Governance,” Available at: https://www.nortonrosefulbright. com/en-ke/services/203f40d1/environmental-social-and-governance-esg (accessed on 04/02/2022)

[7] OECD (2021), OECD Business and Finance Outlook 2020: Sustainable and Resilient Finance, OECD Publishing, Paris, Available at: https://dx.doi.org/10.1787/eb61fd29-en (accessed on 04/02/2022).

[8] OECD (2021), ESG Investing and Climate Transition: Market Practices, Issues and Policy Considerations, OECD Paris, https://www.oecd.org/finance/ESG-investing-and-climatetransition-Market-practices-issues-and-policy-considerations.pdf (accessed on 04/02/2022).

[9] Standard Chartered, “The E in ESG: Environmental Stewards,” Available at: https://www.sc.com/sg/wealth/ insights/e-in-esg/ (accessed on 04/02/2022).

[10] Ojiambo, S., “Leadership of the UN Global Compact: Message of CEO and Executive Director,” Available at: https://www.unglobalcompact.org/about/governance/executive-director(accessed on 04/02/2022).

[11] Create Research, “Passive Investing 2021: Rise of the social pillar of ESG,” Available at: https://cdn.e-fundresearch.com/files/RcfPdrQdAaVI9tiBgrgLq4baO7Wciz6eepZTODEO.pdf (accessed on 04/02/2022).

[12] Standard Chartered Singapore, “The S in ESG,” Available at: https://www.sc.com/sg/wealth/insights/the-s-in-esg/ (accessed on 04/02/2022).

[13] RL360, “Governance-The G in ESG,” Available at: https://www.rl360.com/row/funds/investment-definitions/g-in-esg.htm(accessed on 04/02/2022).

[14] Standard Chartered (Singapore), “The G in ESG,” Available at: https://www.sc.com/sg/wealth/insights/the-g-in-esg/(accessed on 04/02/2022).

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Former KCB Company Secretary Sues Over Unlawful Dismissal

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Former KCB Group Company Secretary Joseph Kamau Kania who has sued the Bank for Unlawful Dismissal

Former KCB Group Company Secretary Joseph Kamau Kania has sued the lender seeking reinstatement or be compensated for illegal sacking almost three years ago. Lawyer Kania was the KCB Group company secretary until restructuring of the lender in 2021 that saw some senior executives dropped.

Through the firm of Senior Counsel Wilfred Nderitu, Kamau wants the court to order KCB Group to unconditionally reinstate him to employment without altering any of the contractual terms until his retirement in December 2025.

In his court documents filed before Employment and Labour Relations Court, the career law banker seeks the court to declare the reorganization of the company structure a nullity and amounted to a violation of his fundamental right to fair labour practices as guaranteed in Article 41(1) of the Constitution. He further wants the court to declare that the position of Group Company Secretary did not at any time cease to exist within the KCB Group structure.

He further urged the Employment Court to declare that the recruitment and appointment of Bonnie Okumu, his former assistant, as the Group Company Secretary, in relation to the contemporaneous termination of his employment, was unprocedural, insufficient and inappropriate to infer a lawful termination of his employment.

“A declaration that the factual and legal circumstances of the Petitioner’s termination of employment were insufficient and inappropriate to infer a redundancy against him, and that any redundancy declared by the KCB Group in relation to him was therefore null, void and of no legal effect and amounted to a violation of his fundamental right to fair labour practices as guaranteed in Article 41(1) of the Constitution,” seeks lawyer Kamau.

Kamau says he was subjected to discriminatory practices by the KCB Bank Group in violation of his fundamental right to equality and freedom from discrimination as guaranteed in Article 27 of the Constitution and the termination of his employment was unfair, unjustified, illegal, null and void.

Lawyer Kamau further seeks the court to declare that the Non-Compete Clause in the 2016 Contract is unenforceable by the KCB Group as against him and is voidable by him as against the Bank ab initio, byreason of the termination of the Petitioner’s employment having been a violation of Articles 41(1) and 47(1) and (2) of the Constitution, and of the Employment Act.

He also wants the Employment Court to find that finding that KCB’s group legal representation by Messrs of Mohammed Muigai LLP Advocates law firm in respect of his claim for unlawful termination of employment resulted in a clear conflict of interest by reason of the fact that a Founding and Senior Partner at the said firm lawyer Mohammed Nyaoga is also the Chairman of the CBK’s Board of Directors.

“A Declaration that the circumstances of KCB’s legal representation by Messrs. Mohammed Muigai LLP Advocates resulted in a violation of the Petitioner’s fundamental right to have the employment dispute decided independently and impartially, as guaranteed in Article 50(1) of the Constitution,” seeks lawyer Kamau.

Kamau is seeking damages against both KCB Group and Central Bank of Kenya jointly and severally for the violation of his constitutional and fundamental right to fair labour practices.

He wants  further wants court to declare that CBK is liable to petitioner on account of its breach of statutory duty to effectively regulate KCB Group to ensure that KCB complied with the Central Bank of Kenya Prudential Guidelines and all other Laws, Rules, Codes and Standards, and that, as an issuer of securities, it complied with capital markets legislation.

Kamau through his lawyer Nderitu told the court that he was involved in Shareholder engagement in introducing the Group aide-mémoire that significantly improved the management of the Annual General Meetings, including obtaining approval without voting through the Memorandum and Articles of Association of Kenya Commercial Bank Limited among others.

He said that during his employment at KCB Bank Kenya and with the KCB Group, he initially worked well with former KCB CEO Joseph Oigara until 2016 when the CEO allegedly started sidelining him by removing the legal function from his reporting line.

He further claims he was transferred from the Group’s offices at Kencom House to its offices Upper Hill under the guise that the Petitioner was merely to support the KCB Group Board.

He adds that at that point his roles were given to Okumu for reasons that were not related to work demands.  He stated that Oigara at one time proposed that he should leave his role in the KCB Group and go and serve as the Company Secretary of the National Bank of Kenya Limited, a subsidiary of the Group, a suggestion which he disagreed with to Oigara’s utter annoyance.

Kamau stated that his work was thenceforth unfairly discredited, leading to his being taken through a disciplinary process whose intended outcome failed miserably, and the Petitioner was vindicated.

“More specifically, the Petitioner contends that the purported creation of a new organizational structure towards the end of 2020 was in fact Oigara’s orchestration targeted to remove certain individuals by requiring them to undergo interviews in the pretext that new roles were created, and amounted to a further violation of the Petitioner’s fundamental right to fair labour practices under Article 41(1) of the Constitution,” said in his court documents.

He further adds that this sham reorganization demonstrates how the role of the KCB Group Company Secretary purportedly ceased to be and was then very briefly replaced with a new role of the KCB Group General Counsel. The role of KCB Group Company Secretary then ‘resurfaced’ immediately thereafter, in total violation of legal and regulatory requirements.

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Court of Appeal Upholds Eviction of Radcliffes from Karen Land

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Adrian Radcliffe, the Expatriate Squatter, Evicted from Karen Property by Innocent Purchaser for Value

The Court of Appeal has stayed the decision of the Environment and Land Court purporting to reinstate Adrian Radcliffe into possession of the 5.7 Acre Karen Land by Kena Properties Ltd after eviction by the lawful owners in February 2022. Adrian Radcliffe who was evicted by Kena Properties Ltd, the innocent purchaser of the Land for value.

Before his eviction, Mr. Radcliffe had been living on the land as a squatter expatriate for 33 years without paying any rent. Since he moved into the property as a tenant, he only paid deposit for the land in August 1989 despite corresponding severally with the owner of the land. His attempt to acquire the land by adverse possession claim filed in 2005 was dismissed by Court in 2011 on the basis that he has engaged with the owner of the land July 1997 and agreed to buy the land which he failed to do. The High Court [Justice Kalpana Rawal as she then was] concluded that:

“His [Mr. Adrian Radcliffe] averments that he did not have any idea of the whereabouts of the Defendant and that he could possibly be not alive, were not only very sad but mala fide in view of the correspondence on record addressed by him to the Defendant’s wife. I would thus find that the averments made by him to the contrary are untrue looking to the facts of this case.”

On 10th March 2022, Mr. Adrian Radcliffe and Family purported to obtain court orders for reinstatement into the land. However, the Court of Appeal issued an interim stay of execution of the said orders. The Court of Appeal has now granted the application of Kena Properties Ltd and stayed the execution of the Environment and Land Court Order pending the hearing and determination of the Appeal.

The Court also stayed the proceedings at the Environment and Land Court on the matter during the pendency of the Appeal. In effect, the eviction orders issued by the Chief Magistrate Court for eviction of Mr. Adrian Radcliffe in favour of Kena Properties as the purchaser of the property for value were upheld and the company now enjoys unfettered ownership and possession of the suit property until the conclusion of the Appeal.

The Court of Appeal in granting the orders sought by Kena Properties Ltd concurred with Kena Properties Ltd that as the property owner it had an arguable appeal with a high probability of success which would be rendered nugatory if Adrian Radcliffe a trespasser was to resume his unlawful possession of the suit property, erect structures thereon, recklessly use or abuse the said suit property as he deems fit. In any case, that is bound to fundamentally alter the state of the suit property and render it unusable by Kena Properties Ltd as the property owner.

At the same time, the Appellate Court rubbished the argument of Adrian Radcliffe in opposition to the application for stay that he has been in occupation of the suit property for more than 30 years and that he and his family were unlawfully evicted from the suit property on 4th February, 2022. The Court also rejected Radcliffe’s claim that Kena Properties Ltd has no valid title to the suit property and held that as the purchaser, the company was entitled to enjoy ownership and possession of their property during the pendency of the appeal.

The Court dismissed claims of Mr. Adrian Radcliffe that Kena Properties Ltd as the property owner acquired title to the suit property illegally and unprocedurally finding to the contrary. Further, it rejected Adrian Radcliffe’s claim that Kena Properties as the purchaser cannot evict a legal occupier of a property putting paid to the claim that he was a legal occupier at the time of eviction.

As a matter of fact, Mr. Adrian Radcliffe cannot claim to be the legal occupier of the property having attempted to acquire it by adverse possession before the High Court thwarted his fraudulent scheme on 28th February 2011. Mr. Radcliffe did not appeal the 2011 High Court decision meaning it is still the law that he is not the owner of the land nor the legal occupier of the land having attempted to adversely acquire against the interests of the lawful owner who sold it to Kena Properties.

Mr. Adrian Radcliffe is a well-to-do Water, Sanitation and Hygiene (WaSH) UNICEF consultant and former UN employee (who has been earning hefty House Allowance). Many have wondered why he has been defaulting in paying rent for 33 years on the prime plot of land in Karen while living large and taking his kids to most expensive schools in Kenya. No question, a local Kenyan could never have gotten away with such selfish impunity.

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Review: Journal of Conflict Management and Sustainable Development, Vol. 9, No. 1

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The Journal of Conflict Management and Sustainable Development, Volume 9, Issue No. 1, which is edited by and published by Dr. Kariuki Muigua, PhD is out and stays true to the reputation of the journal in providing a platform for scholarly debate on thematic areas in the fields of Conflict Management and Sustainable Development. The current issue published in September 2022 covers diverse topics including Resolving Oil and Gas Disputes in Africa; National Environment Tribunal, Sustainable Development and Access to Justice in Kenya; Protection of Cultural Heritage During War; The Role of Water in the attainment of Sustainable Development in Kenya; Property Rights in Human Biological Materials in Kenya; Nurturing our Wetlands for Biodiversity Conservation; Investor-State Dispute Resolution in a Fast-Paced World; Status of Participation of Women in Mediation; Business of Climate Change and Critical Analysis of World Trade Organization’s Most-Favored Nation (MFN) Treatment.

Dr. Wilfred A. Mutubwa and Eunice Njeri Ng’ang’a in “Resolving Oil and Gas Disputes in an Integrating Africa: An Appraisal of the Role of Regional Arbitration Centres” explore the nature of disputes in the realm of oil and gas in Africa taking a look into the recent continental and sub-regional developments in a bid to establish regional integration. Additionally, it tests the limits of intra-African trade and dispute resolution and the imperatives for the African regional courts and arbitration centres. In “National Environment Tribunal, Sustainable Development and Access to Justice in Kenya,” Dr. Kariuki Muigua discusses the role played by the National Environment Tribunal (NET) in promoting access to justice and enhancing the principles of sustainable development in Kenya. The paper also highlights challenges facing the tribunal and proposes recommendations towards enhancing the effectiveness of the tribunal.

Dr. Kenneth Wyne Mutuma in “Protecting Cultural Heritage in Times of War: A Case for History,” argues that cultural heritage is at the heart of human existence and its preservation even in times of war is sacrosanct. It concludes that it is thus critical for states to take positive and tangible steps to ensure environmental conservation and protection during war within the ambit of the existing international legal framework. In “The Role of Water in the attainment of Sustainable Development in Kenya,” Jack Shivugu critically evaluates the role of water in the attainment of sustainable development in Kenya and argues water plays a critical role in the attainment of the sustainable development goals both in Kenya and at the global stage. The paper interrogates some of the water and Sustainable Development concerns in Kenya including water pollution, water scarcity and climate change and suggests practical ways to enhance the role of water in the Sustainable Development agenda.

Dr. Paul Ogendi in “Collective Property Rights in Human Biological Materials in Kenya,” reflects on property rights in relation to human biological materials obtained from research participants participating in genomic research. He argues that property rights are crucial in genomic research because they can help avoid exploitation or abuse of such precious material by researchers. In “Nurturing our Wetlands for Biodiversity Conservation,” Dr. Kariuki Muigua notes that Wetlands have a vital role in not just delivering ecological services to meet human needs, but also in biodiversity conservation. Wetlands are vital habitat sites for many species and a source of water, both of which contribute to biodiversity protection. The paper examines the role of wetlands in biodiversity conservation and how these wetland resources might be managed to improve biodiversity conservation.

Oseko Louis D. Obure in “Investor-State Dispute Resolution in a Fast-Paced World,” preponderance of disputes between States or States and Investors created need for a robust, effective, and efficient mechanisms not only for the resolution of these disputes but also their prevention. He notes that developing states lead in being parties to Investor-State Disputes (ISD) particularly as respondents. He proceeds to conceptualize and problematize investor-state disputes resolution in a fast-paced world. Lilian N.S. Kong’ani and Dr. Kariuki Muigua in “Status of Participation of Women in Mediation: A case Study of Development Project Conflict in Olkaria IV, Kenya” review the status of participation of women in mediation to resolve conflicts between KenGen and the community. The paper demonstrates a need for further democratization of the mediation processes to cater for more participation of women to enhance the mediation results and offer more sustainable resolutions.

Felix Otieno Odhiambo and Melinda Lorenda Mueni in “The Business of Climate Change: An Analysis of Carbon Trading in Kenya analyses the business of carbon trading in the context of Kenya’s legal framework. The article examines the legal framework that underpins climate change into the Kenyan legal system and provides an exposition of the concept of carbon trading and its various forms. Michael Okello, in “Critical Analysis of World Trade Organisation’s Most-Favored Nation (MFN) Treatment: Prospects, Challenges and Emerging Trends in the 21st Century,” highlights the rationale behind MFN treatment and also restates the vision of multilateral trade to achieve equitable and special interventions with respect to trade in goods, services and trade related intellectual property rights in the affected states.

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