Sundaymail EditorVision 2030
Allen Choruma
Company directors, as responsible corporate citizens, should not just focus on balance sheets and profits, but maintain a balance between the need to make profits on one hand and meeting legitimate expectations of society on the other hand, to ensure sustainable development for the benefit of current and future generations.
Vision 2030 requires captains of industry and commerce to be astute and patriotic and take an active role, not only in economic and social development, but also in environmental conservation of Zimbabwe as the country strives to create middle-income status by 2030.
The recent human, economic, social and environmental damage caused by Cyclone Idai across the eastern parts of Zimbabwe and the drought we are currently experiencing is clear testimony of the effects of climate change and what can befall us if we do not take heed of environmental conservation.
While the link between sustainable development and corporate governance may not look obvious, it exists.
Companies are legal personas, meaning they have a juristic personality and cannot act as physical living persons. This is why companies are represented by directors who act on their behalf.
Company directors, therefore, have a legal obligation and corporate responsibility to ensure that companies they represent, which physically operate within communities and natural environments, should and must embrace sustainable development issues.
Directors cannot talk of good corporate governance if they do not act responsibly by balancing business objectives, on one hand, with social, economic and environmental objectives, on the other hand, which form the core of sustainable development.
Concept of sustainable development
Sustainable development, according to the World Commission on Environment and Development (WCED), simply refers to development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
More broadly, sustainable development encompasses three interdependent and reinforcing pillars, which are: economic development, social development and environmental protection.
Misconception
The general misconception is that sustainable development focuses solely on environmental protection issues and is the business of Government, local authorities and non-governmental organisations.
Sustainable development goes beyond the environment and also hinges on economic and social development. Companies, as engines for economic growth and social development, act as agents in creating employment and alleviating poverty.
Global corporate governance standards now require company directors to look into sustainable reporting issues, something that was new a decade ago.
In other words, sustainability should now be engraved in the DNA of company directors.
Corporate governance codes in most African countries now incorporate integrated sustainable reporting standards.
For example, the Zimbabwe National Code on Corporate Governance (2015) contains provisions on Integrated Sustainable Reporting (ISR).
The South African King IV Report on Corporate Governance, a globally acclaimed code, has a very elaborate section that provides guidelines on ISR.
Independent evaluation
In line with best practices, in certain jurisdictions, companies are now required to engage advisers to carry out independent evaluations to ensure that they comply with integrated sustainable reporting standards.
Guidelines on reporting on sustainable development issues, such as those enumerated in the King IV report cited above, now require companies to have a formal sustainability reporting and assurance process at least once annually.
Metamorphosis
Corporate governance globally has undergone a metamorphosis in recent years as focus has shifted from simply how companies are directed and controlled to broader sustainable development issues.
In this article, we will deliberately look at sustainable development more from the angle of environmental conservation as this is an area where most corporates in Zimbabwe are lagging behind in terms of investment.
Environmental conservation has been looked at as an issue usually associated with governments and regulatory authorities such as Environmental Management Authority (Ema) who have a statutory role on environmental management and ensuring adherence to domestic and international protocols on the environment.
Pressure from governments, green movements, consumers, and corporate governance protocols, inter alia, has compelled companies to re-evaluate their business processes, labour policies, manufacturing and emission standards, use of chemicals and fertilisers, waste management, quality standards of products and so on, to ensure that they do not harm people and the environment.
In the European Union (EU), for example, a company that does not meet sustainable development standards is perceived negatively by investors and consumers.
The risks of reputational damage, losing a business licence or boycott of products by consumers could happen to a company if it is not compliant to sustainable development standards.
Environmental risk management
Best corporate governance practices require company directors to pay attention to environmental risk management factors and come up with policies to mitigate such risks.
In Africa, financial institutions, especially banks, have been on the forefront when it comes to adoption of environmental risk management.
In managing environmental financial risks — risks caused by climate change —there is an emerging trend wherein certain financial institutions now require more disclosures from companies on their green credentials; for example, green investments and greenhouse gas emissions, as part of the “green credit rating system”.
The greening of the financial system is a concept that has recently emerged and it is becoming necessary for companies to have good green credentials to enable them to access capital from financial institutions on favourable terms.
Nigeria, through its Green Bond Market Development Programme in 2017, became the first country in Africa to issue a sovereign green bond, certified under the climate bonds standard, raising US$29 million at its inauguration year.
In April 2019, Access Bank of Nigeria became the first corporate bank in Africa to launch the green bonds certified under the climate bonds standard, under auspices of the globally renowned UK-based organisation called Climate Bonds Initiative.
In fact, Access Bank issued a 15-year, 15,5 percent fixed interest rate green bond, which raised US$41 million (15 billion naira).
Also, Nedbank has become the first bank in South Africa to issue a Renewable Energy Bond.
The instrument opened for auction on April 24 2019.
Nedbank will apply investment proceeds to support solar and wind renewable projects, which have potential to deliver long-term sustainable energy solutions to South Africa.
Product certification standards
In Africa, company directors, especially those in large-scale export horticulture and agro-industries, are increasingly becoming aware of certification standards required for agricultural products if they are to penetrate lucrative European markets.
For example, Fairtrade International — which is represented by the Nairobi, Kenya-based Fairtrade Africa — is the world’s largest and most recognised independent ethical certification system, focusing mainly on trading of agricultural products.
Fairtrade contributes significantly to sustainable development by ensuring that all Fairtrade certified products are sustainably produced by its network of producers scattered around the world.
The five dimensions of Fairtrade certification system hinge on: economic criteria (fair prices), social criteria (fair working conditions), organisational criteria (governance), environmental criteria (sustainable environmental management) and awareness-raising criteria (educational).
One of the requirements of Fairtrade certification process (FLOCERT) is that the entire supply chain of products (producer, processor, exporter, importer, manufacturer, distributor, trader et cetera) up to where the product is in the hands of the consumer has to be certified.
Only then can a product be bought or sold as a Fairtrade product.
Corporate Social Responsibility (CSR)
CSR goes beyond making donations to charity.
From a sustainable development point of view, being a “responsible corporate citizen” means that a company has to strike a balance between its economic, social and environmental responsibilities in order to enhance the standing of the company at the marketplace and in society.
CSR is about demonstrating the value that a company brings to society and gaining the trust of stakeholders that operations are conducted in a responsible and sustainable way.
Sustainability issues should thus be integrated into a company’s strategy, processes, systems and procedures.
In Africa, we are beginning to see an emerging trend whereby regulatory bodies are starting to put in place regulations that compel companies to take into account sustainable development factors.
As highlighted above, trending corporate governance practices now require company directors to maintain a balance between the need to make profits on one hand, and meeting legitimate expectations of society on the other hand, to ensure sustainable development for the benefit of current and future generations.
Allen Choruma can be contacted on e-mail: [email protected]
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