With the Trump Presidency in full swing and his administration having made clear its anti-environmental, social and governance (ESG) agenda, does the change complicate growing ESG alignment inside emerging markets? Will it hurt our ongoing adoption of the IFRS Sustainability Disclosure Standards (S1 & S2)? Will the move undermine our envisioned ESG outcomes? Many questions abound.
Yes, the move was expected - Trump had pulled out of the Paris Climate Agreement in 2017 and telegraphed to the world, he’ll do it again. However, the reaction was not quite anticipated.
Seeing some of the biggest companies in the world retreat from a UN-backed bank climate group - never mind the same institutions touted their membership as their firm belief in the ESG cause - was unforeseen.
Disappointing, of course. Why walk back from such a worthy commitment? It still baffles me. The US, for all its wealth and power, is already suffering under the effects of climate change. It is already intensifying hurricanes, causing destructive floods, and fueling wildfires, as evidenced by the recent devastation in Los Angeles.
But it's none of my business - I should be more interested in the ripple effects.
You see, ESG is under attack and the negative noise can be somewhat derailing. As the world transitions, the US forfeiting its climate leadership could impact markets far and wide. Besides slowing momentum, it could also curb ESG focussed investments.
We don’t need that. At this point, Kenya has made major strides and is ready to seize the opportunities of a clean energy future.
The country already has a corporate governance code (Capital Markets Authority Corporate Governance Practices for Issuers of Securities) aligned with the global ESG reporting obligations and governance standards.
To give a glimpse: did you know boards can now establish or designate a specific committee to oversee implementation of good ESG practices? Slowing down or even turning away from this progress jeopardises not just the planet but our pursuit for a “triple bottom line” future.
I understand some of the reasons informing the new US stance. I have griped here in the past (and I still do) about certain aspects of “ESG” practices (think: demonising of the oil industry, greenwashing, cartel-like carbon markets, the non-standardisation of data on ESG metrics and so on). That notwithstanding, I still believe in the movement. It makes business sense too.
Committing to ESG not only enhances investor confidence but signals long-term value creation and reliability.
In today’s unpredictable political landscapes, companies should avoid distractions at all costs. They should remain focussed on the long term. For the ESG cause, the belief in the business and societal benefits of sustainability - protection of air and water, action on climate to keep the planet livable and so on - should be considered a priority.
For investors, holding companies accountable not only for their financial performance but also for their impact on the environment and society is profitable as it's proven to be value accretive. It’s unfortunate some consider this approach as “woke” investing. There’s only one earth and one humanity. It’s our duty to watch over the former as we care for the latter.
The writer is the Managing Director, Canaan Capital Limited
