ESG is an acronym for Environmental, Social, and Governance. It refers to a set of standards that are used to evaluate the sustainability of a business and its ethical practices in three key areas, namely:-
Environmental (E): This aspect focuses on how a company's operations impact the environment. It includes issues such as carbon emissions, energy efficiency, waste management, and conservation efforts.
Social (S): The social component of ESG evaluates a company's relationships with its employees, customers, communities, and other stakeholders. Factors include labor practices, diversity and inclusion, human rights, and community engagement.
Governance (G): Governance refers to the structure and practices that guide a company's decision-making processes and overall management. Good governance includes transparent and ethical leadership, effective board oversight, and adherence to legal and regulatory standards.
ESG has become an increasingly important consideration for investors, regulators, and other stakeholders, as they seek to promote sustainable business practices and mitigate risks associated with environmental and social issues.
The world is currently experiencing a growing climate crisis, which has led to increasing demands by national governments and pressures on businesses to implement sustainable initiatives. To match international standards and practice, the Dar es Salaam Stock Exchange (DSE) has taken commendable steps towards promoting sustainability through the ESG agenda. The DSE now requires listed companies to report on how they are addressing sustainability through their own strategic corporate plans and actions.
To ensure the implementation of ESG practices, on 3 December 2021, the Capital Markets and Securities Authority endorsed the DSE Rules for the year 2022 (the “DSE Rules”). The DSE Rules are designed to anticipate ESG supply chain due diligence operations in Tanzania and are applicable to companies that have gone public and are listed on the DSE , the sole stock exchange in Tanzania. The DSE Rules are intended to address and accommodate the ESG aspects within the supply chain in Tanzania.
Attachment 4 of the DSE Rules contains the “Guidelines to Sustainability Reporting”. This attachment includes a statement that highlights the growing awareness among investors about the influence of ESG factors on a company’s long-term value creation. The DSE actively encourages its trading members and listed companies to consider divulging pertinent ESG-related information.
The DSE Rules delineate the purpose, reporting frequency, and the specific ESG aspects that must be included in these reports. Furthermore, these rules make reference to the Global Reporting Initiative as a source for ESG reporting standards and templates.
As part of continuing listing obligation, the DSE Rules requires all listed companies to take sustainability reporting as an integral part of governance, operating and reporting culture. Sustainability reporting is particularly relevant for listed companies who:
(i) operate in industries that are susceptible to environmental and social risks;
(ii) operate in industries that produce significant environmental pollutants;
(iii) are heavy users of natural resources; or
(iv) are part of a supply chain where end customers demand that suppliers and contractors behave responsibly.
Further, the DSE Rules outline the changing responsibilities of directors, emphasizing that the Board of Directors bears the responsibility for steering a company's strategic course. This encompasses the comprehensive integration of environmental, social, and governance factors into the company's strategic framework. However, it is prudent to note that currently, there are no specific personal ESG responsibilities or fiduciary duties related to ESG compliance and reporting requirements for directors.
By Joel Kimale- Advocate
Note: This is not a legal opinion, and the contents hereof are not meant to be relied upon by any recipient unless our written consent is sought and explicitly obtained in writing.
