Governments must meet investor expectations for climate change and sustainability | New times
The month of November 2021 focused us on a subject that is not only immediate but critical for the survival of future generations.
If the challenges of climate change are not recognized and accepted, the consequences will certainly be a multiple of what Covid-19 has inflicted on the world over the past two years.
The climate or environment is like the blood of our immune system which requires constant nourishment.
It is therefore not surprising that the environmental budgets of strategic countries will soon be more or less equal to those for security, health and infrastructure to enable them to reach net zero targets by 2050.
Rwanda has been the region’s leading environmentalist for decades and is among the countries to have signed on to be net zero by 2050.
Rwanda has supported this by launching the Strategy for Green Growth and Climate Resilience.
The strategy led to the creation of the Rwanda Green Fund (FONERWA), an instrumental body which gained ground by mobilizing investments to the tune of 217 million dollars.
In addition, FONERWA is working with the Rwandan Development Bank (BRD) to put in place a mechanism to boost the country’s capacity to respond to growing opportunities for climate finance in the private sector.
The immediate priority sectors are the replacement of biomass, green cities, sustainable transport and waste management for which several partners are fully prepared to provide the required capital to companies that venture into these sectors.
Another initiative underway is to âgreen rateâ small and medium-sized enterprises (SMEs).
This initiative will allow SMEs to identify areas where they can make quick wins and reduce their emissions (from transport and energy consumption), increasing not only their green credentials, but also their bottom line.
Automating this process will also allow banks to assess the greenness of their current portfolio and make future lending decisions based on accurate information on the green credentials of SMEs seeking investment.
In addition to these government-initiated measures, businesses, especially financial institutions, are challenged to take the âdriver’s seatâ in their role of intermediary by requiring their clients to invest in sustainable businesses and, in the process. otherwise, even charge loans at a premium. .
According to the recent World Bank treasury survey, nearly one in six central banks have included ESG in their investment policies.
Central banks can do better to move countries’ ESG agenda forward. The expectations of regulators are growing, as investors and other business stakeholders need to see how climate change and sustainability issues can affect the economy as a whole, and its potential threat to prices and financial stability.
As some global business leaders seize the opportunity to help drive the new economic agenda, it seems to stop in the marketing materials. The promises are less promising than they appear. Investors are still not convinced by the companies’ issuance plans.
A global survey of PwC ESG investors indicates that 82% of large companies have yet to integrate ESG directly into their business strategy.
There is a lack of awareness of climate change and it now has to start with senior leaders led by CEOs. No clear reporting standard has been set and this affects the measurement of how well companies are meeting their countries and global carbon emission plans.
The impact of climate change in the FY21 reporting cycle
At COP 26, the directors of the Foundation for International Financial Reporting Standards (IFRS) announced the creation of the International Sustainability Standards Board (ISSB).
The ISSB standards will provide the basis for consistent and comprehensive reporting standards – environmental, social and governance (ESG) that will enable companies to report on ESG factors affecting their operations.
ESG reporting standards will bring consistency and harmony in reporting allowing investors to have a better understanding of a company’s long-term performance and prospects for value creation.
To meet these expectations, professional accountants have a critical role to play in aligning and integrating climate-related information and disclosures with the company’s climate-related commitments, goals and strategic decisions; quantify, where applicable, the financial impacts of climate issues; ensure that climate-related reports comply with reporting requirements without material omissions or inaccuracies, based on a company-specific materiality determination; and supporting global initiatives to improve climate and sustainability reporting through standards set by the new International Sustainability Standards Board (ISSB) that will address material impacts on a company’s enterprise value.
Moses Nyabanda, PwC Rwanda’s lead country partner, said that, as evidenced by 75 percent of respondents in PwC’s latest Global ESG Investor Survey, reports and disclosures should now show a link between risks and ESG opportunities and the financial performance of each company.
According to him, this would require that Boards of Directors and General Management strategically plan ESG issues to enable them not to fall short of investors’ expectations.
The author is a risk manager at Bank of Kigali Plc.
The opinions expressed in this article are those of the writer.