Old Mutual Investment Group has urged trustees to Integrate Environmental, Social, and Governance (ESG) considerations in their investment decision-making processes in an effort to foster responsible investing and promote long-term value creation.
The call aligns with the plea of African leaders to the international community, urging collective global efforts in resource mobilization for the dual purposes of development and climate action. The appeal was made during the recent Inaugural African Climate Summit, where African leaders encouraged development partners to redirect their technical and financial resources to support the sustainable exploitation of Africa’s natural resources.
The move, if implemented, seeks to safeguard the environment and the communities where investors work. This is besides ensuring that management and corporate governance of companies meet high standards.
Speaking during the recently held Old Mutual Investment Group (OMIG) 2023 Conference, OMIG Managing Director Anthony Mwithigia said Incorporating ESG considerations into investment decisions is no longer an option but a necessity and that it resonates with a shared vision of sustainable and responsible investing.
“Trustees have a fiduciary duty to safeguard the interests of beneficiaries, and this includes factoring in non-financial risks and opportunities that can significantly impact long-term investment outcomes.” Said Anthony.
According to sustainability experts Proto’s Capital, sidelining ESG considerations in investment decision-making processes, poses considerable risks to investment portfolios.
“Recent studies have shown a correlation between strong ESG performance and long-term financial performance. Companies with robust sustainability practices are better positioned to adapt to changing regulatory landscapes, consumer preferences, and market trends. Conversely, those neglecting ESG aspects may face reputational damage, regulatory fines, and decreased investor confidence” said Protos Capital Managing Partner Loise Wangui in her keynote address to trustees at the conference.
The experts underscore the critical importance of integrating ESG factors to mitigate risks, enhance financial performance, and contribute to a more sustainable and equitable future.
“ESG factors encompass a wide range of issues such as climate change, human rights, labour standards, diversity and inclusion, and corporate governance. Ignoring these factors could lead to potentially harmful consequences, both financially and ethically. By considering ESG aspects, trustees can identify hidden risks, uncover opportunities for innovation, and contribute positively to the broader community” said Loise.
To achieve optimal returns, OMIG and Protos Capital urged trustees to maximize returns by understanding ESG relevance in decisions, staying updated on best practices, integrating ESG into due diligence, engaging with portfolio companies for better ESG performance, and monitoring ESG alignment with long-term goals.
Currently, governments and regulators globally recognize ESG’s importance, introducing reporting requirements, disclosure standards, and guidelines for responsible investing. Trustees not aligning with these rules risk legal and reputational repercussions.
For instance, in Kenya, the Capital Markets Authority introduced Kenya Sustainability Reporting Standards (KSRS) in 2020. These guide ESG disclosure by Nairobi Securities Exchange (NSE) listed firms. CMA’s 2020 ESG Dashboard adds insights into NSE-listed companies’ performance in climate, environment, social, and governance.
Further support for ESG reporting comes from The Kenya Association of Stockbrokers and Investment Banks (KASIB)