The integration of sustainability within businesses has rapidly matured over the last decade. This is indicated by leading companies in East Africa adjusting their growth strategy to position more on being conscious of their impact on customers, employees and the environment. Notably, a number of organisations have evolved their strategies from feel-good CSR initiatives to focus on environmental, economic and social opportunities and risks which, if ignored, could threaten business growth.
Thus, sustainability reporting has become a platform for businesses in the region to reconsider customer and supply chain demand, increase their transparency and disclosure, implement voluntary standards and regulations, and meet investor demands by packaging and disclosing their core values, with an emphasis on non-financial factors.
SUSTAINABILITY REPORTING IN EAST AFRICA
Sustainability reporting is slowly becoming a common practice in the region, with more and more organisations beginning to implement mechanisms to track sustainability data with plans to launch disclosure practices within the next couple of years.
So far, only two companies from Kenya; KCB Bank Group and Safaricom, three from Uganda; Stanbic Bank Uganda (regional), Trust Finance Bank and British American Tobacco Uganda (a multinational), and one from Tanzania; Tanzania Portland Company limited, have disclosed their sustainability performance and produced sustainability reports aligned with the standards of the Global Reporting Initiative (GRI). No companies operating in Ethiopia nor Rwanda have yet produced such reports.
In Kenya, the two mentioned organisations are part of a larger pool of 64 companies listed in the Nairobi Securities Exchange (NSE), a signatory to the Sustainable Stock Exchanges Initiative (SSEI) (whose global members are required to provide guidelines on sustainability reporting to their listed companies). Unfortunately, in 2016 the NSE committed to providing guidelines but has yet to disclose the results.
The other companies from Uganda and Tanzania are listed in their countries’ stock exchanges; Uganda Securities Exchange and Dar es Salaam Stock Exchange.
Interestingly, most of the leading East African companies have some sort of CSR strategies within their structure or are involved to some extent in implementing CSR projects in their community, thus reporting should be an automatic undertaking. To understand this mismatch between implementation and reporting, we delve into the main factors that are hindering the process.
INHIBITORS
Ineffective guiding mechanisms
Leading companies, classified in terms of profitability and regional reach, are listed in their markets of operation and belong to other cluster groups and organisations such as; The Kenya Bankers Association (KBA), Uganda Bakers Association (UBA) and Kenya Private Sector Alliance (KEPSA). They should be leading the way by advocating improved business environments and better operational guidelines.
In the region, all the securities/stock exchanges from Kenya, Uganda, Tanzania and Rwanda have signed commitment letters to the SSEI, which means they should, as per the condition, provide guidance on Environmental, Social and Governance reporting, mandate it as a listing rule and offer sustainability-related indices and training. So far none of the mentioned four exchanges has done so, though the NSE has communicated the commitment to their members and stakeholders, which is a step in the right direction. On the other hand, KBA, UBA and KEPSA are doing their part in promoting sustainability among their members. The KBA, for example, has signed with the Sustainable Finance Initiative and is providing guidelines and awards for best strategies.
Considering the existing opportunities in strategic sustainability strategies and global reporting, it is clear that those under these membership organisations are missing out on the shared value between their brands and stakeholders. It is fair, therefore, to conclude that these cluster associations are yet to deliver on their promise of negotiating and advising their members on sustainable investment options.
Limited Awareness
In our experience working in East Africa and two other continents (the Middle East and Asia), we’ve noticed that most organisations believe they are not ready to implement and/or report on sustainability when in reality they already have many sustainability practices in place. This is partly because the notion of sustainability among many practitioners, including top management, is that of a complicated process requiring lots of investment and capacity, it is often viewed as something which can be postponed.
These companies, however, spend a lot of resources on unstructured CSR activities, which, if well planned and executed, could have a more substantial impact. Effective sustainability reporting requires inputs from all relevant stakeholders, including employees. Limited interdepartmental awareness and participation hinders the feedback process and coordination that is key in materiality analysis. Besides, sustainability reporting is meant to communicate non-financial performance to these same stakeholders.
Top management level “buy in”
Sustainability managers are often faced with the challenge of demonstrating the business case of strategic implementation and reporting on sustainability initiatives. Some of the biggest concerns are the cost, time and allocation of human resources, which financial managers and the board find unnecessary considering the numerous financial challenges in the East African market. Business associations can again play a key role here, by informing and guiding the decision makers towards the right path. To help bridge this gap, we have created an easy to read/interpret “Business Case for Sustainability” to guide sustainability practitioners in their quest to promote sustainability within their organisations.
“Sustainability reporting as a costly venture”
Even with the most feasible strategic plan for sustainability reporting and/or implementation, the main question always remains: “how much will it cost?” Understandably, the process of initiating a sustainability report requires a lot of planning and execution, including the creation of metrics, and the conduction of a thorough stakeholder engagement and materiality analysis to identify the key issues. This requires a certain amount of investment, but the implementation of this activity can significantly help companies’ internal processes, increase their engagement with externals and improve their image and overall impact. Recent research has shown that just because a company is making money, it doesn’t necessarily reflect a healthy all-round business. Examining the non-financial performance of an organisation can provide us with a ‘bigger picture’ regarding a company’s sustainability.
Reporting mechanisms
A number of guiding frameworks in sustainability reporting exist globally. However, GRI is currently the most popular method, both globally and in East Africa. Other frameworks include; the Sustainability Accounting Standards Board (SASB), the International Integrated Reporting Council (IIRC), UN Global Compact and many others. The choice as to which methodology to implement depends on the decision makers and how they interpret the methodology.
In Kenya, for example, businesses have to choose between either aligning with the GRI standards or the integrated reporting (a standard that merges financial and non-financial disclosure) considering various factors, such as available data and finances.
The selection of the best methodology to follow should be based on the issues targeted for reporting, industry expectations, stakeholder demand and the availability of data. From our experience in sustainability reporting, brands should consider reporting on the material issues most relevant to them based on stakeholder engagement and thorough materiality analysis. GRI has partnered with IIRC to merge some of their standards in both GRI and integrated reporting.
Six GRI aligned sustainability reports are currently disclosed in the region, considering the readily available funds and projects in this area, the question remains – why so few? With more interest piling on combining sustainability and financial reporting (Integrated Reporting), we are hoping to see more organisations riding the wave of transparency and disclosure on their sustainability performance. We also encourage government and business associations to take a leading role in promoting Environmental Social and Governance disclosure.
At Sustainable Square, we will continue to work with locally-based organisations in delivering impact through our advanced practices in sustainability, social investment and environmental practices. Sustainability reporting, in our experience, is the most effective way of interacting with key strategic stakeholders. This enhances brand reputation, increases the customer base, opens up government incentives as well as new funding and partnership opportunities. It also gives an opportunity to benchmark globally amongst peers and align with global standards, such as the UN Sustainable Development Goals (SDGs).
