1. INTRODUCTON

In the ever-evolving landscape of sustainability and responsible business practices, the Susty Dialogue Series by Responsible Business Consulting stands as a beacon of dynamic discourse and collaboration. This multi-stakeholder forum serves as a vibrant platform dedicated to fostering idea exchange and propelling industry growth. Through the series, a dedicated community driven by a collective commitment to advancing sustainability and responsible business practices engages in discourse on a range of issues touching on sustainability.

The most recent session, held on November 22, 2023, at the Baraza Media Lab, delved into the crucial theme of “Materiality and Reporting in Kenya’s Evolving Sustainability Landscape.” This session brought together a diverse array of participants, representing academia, corporations, NGOs, SMEs, students, and more, emphasizing the universal relevance and significance of the discussions held. As we delve into the insights and perspectives shared during this impactful gathering, it becomes evident that the “Susty Dialogue Series” remains at the forefront of accelerating thought leadership in sustainable business, steering the discourse towards a more sustainable and responsible future.

The event was structured into several interactive parts: networking sessions, panel discussions, group breakouts, and a question-and-answer segment. This format was deliberately chosen to ensure a rich exchange of perspectives and to cater to the diverse learning and engagement styles of the participants. A key feature of these sessions was the “Burning Question,” a thought-provoking query that served as a thematic anchor for the dialogue series.

For this second event of the series, the burning question was: ‘What is the ONE main difficulty you are facing or grappling with when it comes to materiality and sustainability reporting?’ This question not only set the tone for the evening’s dialogue, but it also encouraged the participants to focus on solutions to their real-world materiality, and sustainability reporting issues. The panel talks provided expert insights, whereas the group breakouts allowed for deeper, more focused, solution-oriented exchanges, culminating in presentations of suggestions addressing the concerns raised by the question.

2. PANEL CONVERSATION

Panelists: Dr. Mumbi Wachira – Accounting Lecturer, Strathmore Business School; 

Wendy Boit – ESG Lead, Nairobi Securities Exchange

Moderator: Susan Njoroge (Managing Director, Responsible Business Consulting)

 

 

Qs: What is landscape sustainability reporting in Kenya?

Dr. Mumbi:  Sustainability reporting is not a new concept at all. It’s an age-old discussion that dates back to ancient times. In Kenya and globally, sustainability is shaped by various factors, like creating a comprehensive view of businesses, identifying national trends, and understanding regulatory frameworks. If we look back, figures like Theodore Roosevelt raised concerns about environmental issues, like the pollution of the Mississippi River. These historical concerns form the basis of the discussions we’re having today. Moreover, sustainability reporting has evolved to encompass complex market dynamics and stakeholder pressures, demanding transparent information on profitability and risks. In Kenya, corporate reporting practices are evolving to incorporate sustainability based on the issues that companies deem material. For example, in Kenya, companies are required by the Institute of Certified Public Accountants of Kenya (ICPAK) to report on all risks, including climate change, in accordance with the International Financial Reporting Standards (IFRS). The standards are currently in line with sustainability reporting requirements and were developed globally by the International Accounting Standards and Policies (IASP). There is still more to come in this area, but these standards currently include guidance on general disclosures and risks related to climate change.

Qs: Does this mean that sustainability reporting requirements are consistent worldwide?

Dr. Mumbi: Requirements differ according to the region and the laws that govern it. In certain countries, businesses may be subject to more stringent environmental laws, such as mandates for the use of renewable energy sources or emission limits, whereas in other nations, social factors like ethical labor practices or community involvement may be given more importance. Furthermore, companies can follow guidelines provided by a number of international standards and certifications, such as the Global Reporting Initiative (GRI), although these are frequently optional and not universally accepted. Consequently, even though there is a growing global consensus regarding the significance of sustainability, there can be significant regional differences in the specific requirements and their implementation. Overall, it is important to note that sustainability reporting is nuanced and will narrow down to what is material to the company. At the macro-level, applicable policies in respective jurisdictions may also define the process.

Qs: How does the Nairobi Securities Exchange apply the Environmental, Social and Governance (ESG) Disclosures Guidance Manual help companies in sustainability reporting?

Wendy:  This manual is a comprehensive document closely aligned with the Global Reporting Initiative (GRI) standards. GRI provides a common language and methodology for organizations to report their impacts. The NSE’s disclosure guidelines and manuals primary aim is to encourage listed companies to report publicly, at least annually, on their ESG performance through an integrated report or a separate sustainability report. The manual is very detailed and methodical. Firstly, it establishes a concrete connection with GRI standards, ensuring a unified approach to sustainability reporting. It then lays out a clear compliance pathway for companies, detailing a chronological reporting framework. This means companies have a step-by-step guide on how to report their sustainability efforts. A significant part of the manual is that it assigns specific responsibilities, such as the role of a sustainability manager, ensuring that there’s clear accountability within the organization. This clarity is crucial for the effective implementation of sustainability practices.

Qs: What about the companies not listed on the Nairobi Securities Exchange (NSE). Can they use the resource? Is there any provision for that in the manual?

Wendy:  Yes, the guideline emphasizes the need for supporting companies in this transition, like SMEs, even the larger ones, who are mostly big corporations in Kenya. Some small companies not listed on the NSE are already using the GRI standard based on our guidelines and manual for their reports and have designated sustainability managers. However, the manual recognizes the need for broader support to help more companies adopt and adhere to these standards. However, we need a standardized approach to reporting as different entities, such as the Central Bank, NSE, and UN Compact, among others, expect reports from companies, not forgetting the investors and shareholders. In the long term, this standardized approach could significantly enhance the quality and consistency of sustainability reporting across various sectors in Kenya. It’s not just about compliance; it’s about fostering a culture of responsibility and transparency, which is essential for sustainable development.

Qs: You mentioned sustainability reporting is becoming popular in Kenya; tell us how companies are handling materiality.

Dr Mumbi:  The primary indicator of sustainability is an organization’s understanding of its materiality. This means recognizing how the organization relates to its key stakeholders. For example, a company focused on economic materiality will prioritize investor concerns in its sustainability indicators. Another crucial aspect is classifying sustainability issues. A good example is the ban on plastic bags in Kenya by National Environment Management Authority (NEMA), highlighting the significance of policy in sustainability. Furthermore, the nature of the reporting is also an indicator. For instance, a bank’s reports, which might be gender-focused, could be indicative of their sustainability focus. It’s also essential to understand stakeholders’ expectations of the organization. Being clear about what matters and our stakeholder interests informs us about what’s material for a specific context. For instance, in accounting, it’s about what information influences investor decisions. In sustainability, reporting and what is material for a company are more nuanced. For example, the approach of supermarkets towards plastic usage is shaped by various factors, like the policy on the plastic ban, so they would report on how they are complying. Sustainability indicators are diverse and context-specific. The Global Reporting Initiative (GRI) suggests that materiality is about societal impact, while the International Financial Reporting Standards (IFRS) focus on what investors deem material. It all boils down to understanding the impact of our business and what matters to our stakeholders.

Qs: Is sustainability reporting for certain sectors only

Dr. Mumbi: That’s an important question. In my view, we are all stakeholders in this global ecosystem, which means that the responsibility of sustainability reporting isn’t confined to specific sectors. It spans across all industries. Let’s take the entertainment industry, for example. Even events like music concerts, like those of Taylor Swift, can provide sustainability reports.(Also check out Cold Play’s sustainability). These reports assess the impact of their performances on society, the environment, and the economy. This approach reflects a growing awareness and responsibility towards achieving the Sustainable Development Goals (SDGs). Unfortunately, we still have a long way to go in meeting these goals, but it’s a journey that involves every sector and individual.

Qs: Could you share your insights on the role of technology in sustainability reporting?

Dr. Mumbi: It’s important to recognize that sustainability encompasses all spaces, and one crucial aspect of this is materiality. By this, I mean the concept of double materiality, which involves understanding both the impact of the environment on sustainability and vice versa. These two facets are deeply interdependent. Technology is pivotal. It’s not just an enabler but a transformative force in sustainability reporting. With the advanced data gathering and analysis capabilities we have today, technology provides specific insights that are crucial for adding value to sustainability reports. This is particularly relevant in places like Kenya, where innovations are emerging across all sectors, enhancing the amplification and accuracy of data related to sustainability. The integration of technology in sustainability efforts is not just an addition; it’s a multiplier. It makes our efforts more efficient, accurate, and far-reaching. This is key in an era where sustainability is not just a choice but a necessity.

Qs: How often does NSE update the guideline and ESG manual?

Ms. Wendy: The Environmental, Social, and Governance (ESG) Guidance Manual, particularly the 2021 version, is a critical tool in reporting sustainability, especially in the Kenyan context. However, updating this manual is a complex process. It demands a collaborative effort involving multiple stakeholders. We’re facing challenges due to the need for widespread agreement and the requirement to constantly address emerging issues like gender awareness and risk control. In the context of the NSE, sustainability discussions are pivotal. We focus on the application of sustainability guidelines that are measurable within our Kenyan framework. It covers aspects of exchange and borrowing in the stock markets, and the frameworks for these are primarily guided by either the Global Reporting Initiative (GRI) or the Carbon Disclosure Project (CDP). The GRI, in particular, offers a standardized, systematic, multi-stakeholder reporting framework. It’s designed to be inclusive, aiming to encompass all types of organizations and companies. To gauge the effectiveness of sustainability disclosures, it’s crucial to have a robust reporting framework. An example is the KPMG reporting framework that helps organizations assess whether their sustainability efforts are on the right track, ensuring transparency and accountability in their practices.

Qs: Can you enlighten us on the current trends in sustainability reporting when it comes to regulation or voluntary process?

Dr. Mumbi:  Sustainability reporting is gaining immense traction globally, not just in Kenya. It’s a crucial part of our international business fabric. However, a significant challenge we’re facing is the variation in cross-border taxes. This inconsistency impacts how reports are prepared, as different policies influence the rates. There are noteworthy developments. For instance, the European Union and California have recently mandated sustainability reporting. This move indicates a shift towards more regulatory oversight in this area. Scholars from the Gordon Institute of Business, in partnership with Strathmore University, conducted a study on the Carbon Border Adjustment Mechanism (CBAM). This study aimed to elevate global awareness about carbon emissions in relation to global warming. A critical aspect of this collaboration was the European Union’s commitment to providing technological capacity, which stands as a cornerstone of this initiative. Regulation is essential but shouldn’t be overly rigid. It’s important to remember that the integration of sustainability agendas largely depends on individual organizational departments. However, I foresee a future where compliance regulation becomes mandatory, necessitating every organization to produce a sustainability report periodically, be it quarterly, semiannually, or annually.

Qs: Reporting on sustainability looks good, even with the regulation, but what are some of the challenges?

Dr Mumbi: While regulations can enhance the credibility of sustainability reports, we also face challenges. For instance, some reports are manipulated or “cooked,” which distorts the true picture of sustainability efforts. This is where regulations can play a crucial role in ensuring authenticity and curbing misinformation. Additionally, the market’s support and understanding of compliance issues are vital to the regulatory framework. I’d like to add that, currently, these regulations are not mandatory, but they are essential for maintaining transparency. It’s also important to make use of third-party assurance as an additional layer of safeguard. Financial constraints are a major hurdle for some companies, as reporting comes with costs, and the capacity to effectively measure and report the impact on the environment, stakeholders, and society is critical. This necessitates financial consultation and strategic planning to achieve meaningful sustainability reporting.

Qs: You’re recommending that both listed and small companies should refer to the GRI or ESG reporting manuals, correct? Could you elaborate a bit more on these guidelines?

Ms Wendy: Despite the fact that these manuals haven’t been updated since 2021, they remain highly relevant. The ESG manual, for instance, outlines a seven-step process that companies can follow. Initially, companies can start with this and then progress to the more comprehensive GRI reporting framework. A roundtable discussion with stakeholders, including regulators, will ensure that there’s mutual agreement and inclusion in a unified framework for reporting. Additionally, the choice between an integrated report or a separate sustainability report depends on the company’s specific context. But it’s important to remember that effective management requires measurable and transparent reporting. This is where the concept of quality disclosures comes in, which is gradually gaining more attention across industries. Of course, we all know that adoption might be gradual or instant, depending on the company. The vital thing is for institutions to embrace the evolving regulatory landscape, especially regarding sustainability reporting. It’s all about being proactive and responsive to these changes.

Qs: Do consumers or clients form part of the reporting framework in business operations? I’m curious to hear your insights?

Dr. Mumbi: From my perspective and experience, the answer is nuanced. While not all companies may include clients or consumers directly in their reporting framework, there are certainly those that do. For instance, organizations that prioritize client-centric approaches often consider their clients as a key element in their materiality assessments. This means they acknowledge the significant role clients play in shaping their business strategies and sustainability reports. In essence, the inclusion of clients or consumers in the reporting framework largely depends on the company’s values, industry norms, and business model.

3. REFLECTIONS FROM THE PANEL DISCUSSION

In Kenya, despite the presence of numerous regulatory bodies, individuals face significant challenges in taking legal action against misleading practices, highlighting the need for more robust and accessible legal frameworks. Ms. Susan Njoroge emphasizes the importance of collective action, suggesting that consumer protection against misinformation requires a unified effort from various organizations. The High Court of Kenya’s establishment of an independent environment court focusing on sustainability is a promising development, particularly in addressing misleading environmental claims or ‘greenwashing’. Greenwashing remains a pressing issue, with deceptive claims about environmental benefits often conveyed through product packaging and marketing. To counter these challenges, there is a growing recognition of the need to increase consumer awareness, empower them to make more informed choices, and mitigate the influence of misleading information. Furthermore, the support consumers collective legal efforts are deemed crucial, as individual consumers typically lack the capability to sue large organizations. Such collective support could provide the necessary strength for individuals to legally challenge misleading practices effectively. In the end, sustainability must win. We should not have two sets of products: those that are sustainable and those that are not. All products must be made sustainable.

4. BREAKOUTS PLENARY FEEDBACK SESSIONS

A. HOW CAN CONTRIBUTIONS TO THE CARBON FOOTPRINT AND THEIR REDUCTION BE ACCURATELY QUANTIFIED?

Initially, it involves conducting a comprehensive analysis to understand one’s current carbon footprint. This includes a gap analysis to identify where emissions are highest, a resilience assessment to evaluate how these emissions impact the environment and the entity itself, and a materiality assessment to determine the significance of various emissions sources. Understanding the impact is crucial for setting realistic and impactful targets. This offers a baseline that will be useful in monitoring progress against impacts to see if the strategies for mitigation and reduction are working.

The next step is to design frameworks and metrics that can guide action. This involves setting clear, science-based targets (like Net Zero goals), creating a roadmap for achieving these targets, and building capabilities to support these initiatives. Designing effective strategies ensures that efforts are focused and measurable. It is also important to know the industry benchmarks so as not to miss targets or strain too much.

To activate these strategies, robust governance structures are needed, along with thorough risk assessments and reporting mechanisms. These structures help in managing the process, ensuring compliance, and maintaining transparency in reporting progress.

 The use of tools like the GHG Protocol and frameworks like the Science-Based Targets Initiative (SBTi) aids in accurately quantifying greenhouse gas emissions. This quantification is essential for tracking progress and making informed decisions.

The strategies for reducing the carbon footprint can be categorized into three main approaches: offsetting, reducing, and avoiding:

Each step in this process is critical for accurately quantifying and effectively reducing one’s carbon footprint. The integration of these steps into a cohesive strategy ensures that efforts are not only measurable but also align with broader environmental goals.

B. WHAT IS THE CONCEPT OF DOUBLE MATERIALITY?

The concept of double materiality emphasizes the interdependence and reciprocity that exists between businesses and their surrounding environment. It recognizes that, while external factors such as societal trends and climate change influence businesses, businesses also have a significant impact on these areas. For businesses that want to be sustainable and socially responsible, a comprehensive understanding and strategy which incorporates both of these materiality aspects is essential. This dual approach not only aids in gaining an understanding of risks and opportunities (positives and negatives), but also in ensuring the integration of business strategies with broader societal goals such as combating climate change and promoting social well-being. However, its application is more intricate compared to single or impact materiality, demanding extensive data collection and analysis.

 This aspect focuses on how external factors, such as societal changes and climate-related risks, affect a business. For instance, a company might face increased operational costs due to new environmental regulations or market shifts caused by changing consumer preferences towards more sustainable products. This perspective requires businesses to be vigilant and responsive to the evolving external environment, assessing risks and opportunities that could materially impact their financial performance.

 This perspective considers the impact of a business’s actions on the external environment and society. This includes the company’s carbon footprint, its contribution to environmental degradation, or how its products and services influence societal wellbeing. Here, the emphasis is on the responsibility of businesses to manage their operations sustainably, ensuring that their activities do not harm the environment or society. This approach is integral to corporate social responsibility and sustainability strategies.

C. WHAT KEY FACTORS SHOULD BE TAKEN INTO CONSIDERATION WHEN DETERMINING THE MOST SUITABLE SUSTAINABILITY REPORTING FRAMEWORK?

It’s important to consider the existing regulatory bodies and their alignment with the framework. This involves understanding the specific regulations and standards set by these bodies that are relevant to the organization’s industry and geography. The chosen framework should not only comply with these regulations but also facilitate ease in reporting and adherence to the legal requirements. This alignment is crucial to maintaining legitimacy and avoiding legal ramifications.

 The organizational goals and objectives play a significant role in selecting a framework. The framework should support the organization’s strategic direction and help in clearly communicating its achievements and challenges in relation to its goals. It’s essential that the reporting framework be capable of accurately reflecting the organization’s performance and progress, thereby supporting decision-making processes and stakeholder communication.

 The financial implications of the framework are another critical factor. This includes the cost of implementing and maintaining the framework, as well as the potential financial benefits it may bring, such as improving investment appeal or reducing costs associated with inefficiencies and risks. An effective framework should offer a return on investment by adding value to the organization, either through improved operations, enhanced reputation, or other means.

 The materiality of the framework is a key consideration. This refers to the extent to which the framework can capture and communicate information that is of significant importance to the organization and its stakeholders. The framework should enable the organization to report on aspects that are critical to its operations and impact, such as environmental, social, and governance (ESG) factors. A framework that is high in materiality will provide meaningful and relevant information, enhancing the credibility and usefulness of the reports produced.

D. HOW CAN SUSTAINABILITY PRACTITIONERS ACHIEVE OBJECTIVE AND TRANSPARENT REPORTING?

The sustainability manager must embody these values. This means being open about the methods, data sources, and assumptions used in reporting. Transparency also involves acknowledging limitations or uncertainties in the data.

 It’s essential to understand the goals of reporting. Is the aim to assess environmental impact, track progress towards sustainability goals, or inform stakeholders about corporate social responsibility? Clarity in objectives helps in designing reports that are relevant, focused, and useful.

Personal integrity is crucial. Each individual involved in the reporting process should adhere to high ethical standards. Honesty in data collection, analysis, and dissemination ensures the report’s credibility.

 This involves training and empowering sustainability managers and their departments. Providing them with the necessary tools, knowledge, and skills ensures they can effectively gather, analyze, and report data. This also means keeping up-to-date with best practices and emerging trends in sustainability reporting.

 This concept involves looking at both how sustainability issues affect an organization and how the organization impacts sustainability matters. By considering double materiality, reports can provide a comprehensive view of the company’s performance and its broader impact on society and the environment.

By integrating these principles, a sustainability manager can develop reporting practices that are not only objective and transparent but also meaningful and impactful. This approach fosters trust among stakeholders and supports the broader goal of sustainable development.

E. WHAT CHALLENGES HINDER THE ADOPTION OF GLOBAL SUSTAINABILITY FRAMEWORKS IN KENYA? 

Kenya has not extensively developed local and contextualized sustainability reporting standards that align with global standards. This is primarily because global standards might not be fully adaptable or suitable for the unique socio-economic and cultural context of Kenya. International frameworks are often designed with a one-size-fits-all approach, which may not consider the specific needs, challenges, and opportunities present in Kenya.

 Most international sustainability frameworks are tailored to support large organizations and corporations. This leaves out Micro, Small, and Medium Enterprises (MSMEs), which are a significant part of Kenya’s economy not covered in the thinking and framing of the standards. These smaller entities may find it difficult to meet the requirements of these frameworks or to leverage them for their benefit, leading to a lack of enthusiasm or perceived relevance in adopting these standards.

The sustainability and reporting lingua, including technological differences and gaps, poses a significant barrier. Many international frameworks may use technical jargon or require reporting and compliance through digital means that may not be accessible or easily understandable to all Kenyan organizations. This language and technology gap can hinder the effective adoption and implementation of these frameworks.

There is a lack of integration of these sustainability reporting frameworks into the educational system in Kenya in the colleges. Introducing these standards and practices at the academic level can foster a culture of compliance and adaptation before professionals are introduced to the vagaries of industry and practice. However, the absence of such integration means that the upcoming workforce is not familiar or trained in these international standards, leading to a gap in adoption – slow or poor.

 Lack of robust partnerships and collaborations to boost the adoption of a unified working framework is a significant hindrance. Partnerships, both local and international, are crucial for the successful adoption and implementation of any framework. These partnerships can provide the necessary support, resources, and expertise needed for effective adoption. However, in Kenya, there seems to be a shortage of such collaborative efforts, which impedes the widespread adoption of international frameworks. A case in examples, multinationals with good track-record for adoption can partner and mentor SMEs along their value chains.

KEY TAKEAWAYSRBC SUSTY DIALOGUE SERIES’ EVENT II

  1. Carbon Markets and Resource Consumption-A significant point was the emphasis on understanding carbon markets in the context of resource consumption. This discussion highlighted the unavoidable emissions resulting from our current consumption patterns, stressing the need for more sustainable approaches.
  2. Double Materiality ConceptThe concept of double materiality was another key topic. This approach encourages businesses to consider the interdependence between profit motives and societal impacts, acknowledging that while businesses may engage in activities harmful to the environment, these same environmental factors can also impact business sustainability. This perspective offers a more holistic view of materiality, blending financial with non-financial factors on one side and inward-facing  and external-facing impacts  on the other side.
  3. Honesty in Sustainability ReportingThere was a strong focus on cultivating a culture of honesty in sustainability reporting. The role of third-party assurance in enhancing the credibility of these reports is a robust pathway sustains trust and transparency in reporting sustainability practices.
  4. ESG Factors in Business OutcomesThe event highlighted the impact of Environmental, Social, and Governance (ESG) factors on the bottom line of businesses. It was noted that while ESG considerations might have short-term costs, they also offer long-term benefits through practices like recycling. ESG integration is seen not just as a moral imperative but as a strategic approach that benefits overall business outcomes.
  5. Reporting Frameworks Convergence-The discussion around reporting frameworks pointed towards a growing convergence of standard sustainability frameworks within industries. It was suggested that businesses should pay close attention to the frameworks used within their industry to ensure unified and focused reporting.
  6. International Frameworks and Local Solutions-The importance of tailoring international frameworks to local contexts was also addressed, particularly the need for African solutions to African challenges, underscoring the necessity for region-specific approaches to sustainability.
  7. Managing Carbon FootprintsManaging carbon footprints was identified as a complex task requiring extensive data to inform various interventions. The dialogue underscored the role and importance local technology-driven solutions that can help in data capture and analysis to provide the relevant insights for decision making. This underscores the importance of technological innovation in addressing sustainability challenges especially in framing the questions on materiality.
  8. Objective and Transparent Reporting with GRI – Global Reporting Initiative (GRI) was cited as a popular choice for sustainability reporting, noted for its emphasis on transparency and objectivity. However, it is important and a matter of necessity for businesses to invest time and resources for  training at senior and board levels to ensure adherence to these standards to give them capacity to make rational decisions on materiality on all strategic matters on sustainability considerations for the organizations they lead.

 

The participants’ feedback echoed the success of the forum, with an overwhelming enthusiasm that underscored the value derived from the discussions on sustainability reporting and materiality. The resonating impact of this dialogue series went beyond information dissemination; the forum ignited a collective passion for sustainability and a commitment to integrate responsible practices into the core of business strategies. Participants expressed not only satisfaction but a genuine eagerness to partake in future forums. Their enthusiasm for the periodic scheduling of such events serves as a testament to the imperative need for continuous dialogue and shared learning in navigating the evolving landscape of sustainability.

The RBC Susty Dialogue Series event has not only illuminated the path forward in sustainability reporting but has also sowed the seeds for a community dedicated to driving positive change. The overwhelming support and enthusiasm from participants reinforce the importance of organizing such forums regularly. As we bid farewell to this year, we eagerly anticipate the continuation of this journey – a journey towards a more sustainable and responsible future, one dialogue at a time.

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