Discussing effective climate strategy was one of the key goals of the East Africa Waste is Wealth conference- convened by Takataka Ni Mali. The conference’s third day featured extensive discussions on carbon emissions, carbon credits, sustainability, and ESG reporting. The Chief Officer, Strategy, Risk and Compliance at the Nairobi Securities Exchange, Mr. Irungu Waggema gave a detailed presentation on the current market trends in terms of sustainability and Environmental Social and Governance (ESG) reporting. Nairobi Securities Exchange (NSE) is a stock exchange in Kenya that provides an automated platform for the listing and trading of a variety of securities including debt, equity and derivative securities for both local and international investors. It operates under the jurisdiction of Capital Markets Authority of Kenya and is a member of the World Federation of Exchange. https://africanfinancials.com/company/ke-nse/
Investor Trends
Investors are starting to look at sustainability as a requirement before making any investments. Sustainable investing has been a trend since the first green bond was issued by the European Investment Bank in 2007. https://www.businesswire.com/news/home/20170306005742/en/VanEck-Launches-the-First-U.S.-Listed-Green-Bond-ETF According to BlackRock, the largest securities manager in the world, sustainable investing is a range of strategies that combine traditional investment approaches with Environmental Social and Governance ESG insights to seek to deliver both financial and purpose-driven outcomes. https://www.blackrock.com/ch/individual/en/themes/sustainable-investing?utm_source=www.google.com%2F
According to Mr. Irungu of NSE, there is a rising demographic of investors, who part of their criteria for investing is sustainability. ESG reporting gives them a better overall picture of the company and the risks associated with their investment. In the long run, they are able to manage the risks of their investments and to ensure financial return. Other entities like the Morgan Stanley Institute for Sustainable Investing also conquer that investors are shifting to and embracing sustainable investing. One of the Morgan Stanley Institute survey data shows investors that are very interested in sustainability to have been up from 19% in 2015 to 49% in 2019. https://www.morganstanley.com/content/dam/msdotcom/infographics/sustainable-investing/Sustainable_Signals_Individual_Investor_White_Paper_Final.pdf “In the future, climate and ESG considerations will likely be at the heart of mainstream investing. Investors will tailor their investments and fulfil their fiduciary duties through better quality and more widely available data on sustainability and performance, and more informed judgements of strategic resilience.” – Mark Carney, Governor Bank of England https://www.bis.org/review/r190322a.pdf
Rating Agencies
During his presentation, Mr. Irungu, also stated that there has been an increase in the number of ESG rating agencies in the market. These entities rate companies on their ESG practices based on the information made public by the company and develop classifications. The sources include media sources and annual reports. These agencies have come about as a result of the growing need of investors to objectively assess the ESG performance of companies they are interested in. The data provided by these agencies is used as a proxy of ESG performance of organizations.
Customer Trends
The trend in customer preference and consumption patterns was also part of Mr. Irungu’s presentation. The main take-away was that Millennials and Gen-Z are the generations taking sustainability very seriously. They prefer to buy from companies that embrace sustainability and are even willing to pay more for products from such companies. In order to increase sales and in turn profits, more and more companies are communicating and reporting on their ESG performance.
Supply Chain Trends
In the words of Mr. Irungu Waggema of NSE, supply chain activities have been seen to have more impact on the environment than companies’ direct operations. Therefore, companies are beginning to do their due diligence when selecting their supply chain list, that is, making sure everyone they are engaging with is ESG compliant. Suppliers have also begun showcasing their ESG performance, because they rely on the businesses of their customers and therefore want the chain of supply to be attractive to investors and consumers.
Market Regulators Trends
The various market regulators in Kenya include, Central Bank of Kenya (CBK), UNEP Finance Initiative, Kenya Vision 2030, Nairobi Securities Exchange (NSE) and Principle for Sustainable Insurance (PSI). Mr. Irungu mentioned that these entities have adopted the role of pushing listed companies to report on their ESG practices to promote transparency, align with the national and international agendas and help drive investment.
It is very evident that market trends are changing. Before we know it, sustainability will be embedded at the core of every economic activity.
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