ESG for Nigerian Corporates

The existence and operations of businesses globally have evolved in recent times due to social unrest manifested in different forms ranging from terrorism, mass killings, bomb blasts etc., natural disasters occasioned by climate change and man-made disasters such as flooding, earthquake, deforestation etc., changes in economic policies, increase in inflation rates and so on. More recently, the COVID-19 pandemic has aggravated certain factors in the business climate for corporates and this has led to the development of more drastic and innovative approaches to ensure these businesses continue to thrive in the face of global economic and social headwinds.

The foregoing has prompted the inclusion of ESG in the discourse for many corporates. ESG is the acronym for Environmental, Social, and Governance. ESG represents the three broad categories or areas of interest for a novel category of investors called “socially responsible investors”. These are investors who consider it important to incorporate their values and concerns into their selection of investments instead of solely considering the potential profitability and/or risk presented by an investment opportunity.

Within the three elements of ESG highlighted above are specific concerns which may or may not arise, depending on the type of investment being considered. For instance, under the “Environmental” category, concerns such as air or water pollution, waste generation & recycling, climate change, carbon emission, gas flaring, deforestation, energy efficiency etc. would be examined. While under the “Social” category, issues of community relations, employee engagement & labour standards, data protection & privacy, customer satisfaction, Gender and diversity inclusion, mental health and human rights would be considered. The “Governance” element, covers matters relating to Board composition, executive compensation, Whistleblowing schemes, Gender and diversity inclusion, political contributions, lobbying, hiring and onboarding practices, Bribery & Corruption etc. Cumulatively, these concerns are currently being incorporated into the investment process by socially responsible investors to gain fuller understanding of the
companies they wish to invest in as the occasion demands, or by companies aiming to adopt a more ESG-friendly operational stance.

The Board of Directors is the highest governing body comprising individuals typically elected by the shareholders to represent their interests, set strategy, and oversee management. The Nigerian legal framework imposes general ESG obligations on Directors of corporates incorporated in Nigeria. Depending on the sector the business operates in, obligations may vary. The principal legislation which articulates the corporate entities and sets out the duties and responsibilities of Directors in this regard, is the Companies and Allied Matters Act 2020 (“CAMA”). The CAMA places fiduciary obligations on company Directors, and mandates them to, always act in the best interest of the company, further its business, promote the purposes for which it was formed and in doing so, should have regard to the impact of the company’s operations on the environment in the community where it carries on business operations.