- Igamu Bonyongo
On 8 August 2024, the Botswana Stock Exchange (BSE) launched its Sustainability Disclosure Guidance, marking a significant development in the regulatory landscape for listed companies. It should be noted that these guidelines are not mandatory for listed organisations.
This guidance serves as a roadmap for these organisations to effectively report on their Environmental, Social, and Governance (ESG) initiatives—past, present, and future. While initially aimed at listed entities, this initiative has the potential to inspire non-listed companies as well.
As businesses—whether listed or not—consider the importance of sustainability reporting, it is essential to understand why prioritising this practice is crucial.
Just as financial reporting is not merely an end goal but a means of communicating a company’s financial performance, sustainability reporting should be viewed as a way to convey how a company manages its ESG issues. This reporting serves as an output aimed at meeting stakeholder demands for transparency and accountability. Furthermore, the reporting process can enhance a company’s understanding of its own ESG risks and opportunities, fostering a cycle of continuous improvement. While best practices focus on the disclosure aspect of ESG, they also intersect with other relevant elements that contribute to high-quality reporting.
Research increasingly shows that companies effectively managing material ESG risks and opportunities exhibit greater resilience during times of volatility and tend to financially outperform their peers in the long term. With the growing focus on ESG issues, such as climate change, and an increasing number of investors integrating ESG considerations into their decision-making, the importance of managing and reporting on ESG matters tied to a company’s value creation will only intensify.
Before embarking on ESG reporting, a company must first identify the relevant ESG issues and how these align with its overall strategy. Some organisations conduct formal assessments through external stakeholder discussions or internal reviews of ESG topics already on their agendas or within their business plans and risk management frameworks. A pivotal question companies should address is:
“How do the specific ESG issues we focus on contribute to our short-term financial performance and/or long-term value creation?”
There is a growing consensus that a company’s ability to generate shareholder returns over the long term is partly dependent on its relationships with key stakeholder groups, including customers, employees, suppliers, and the communities in which it operates. This perspective underscores a broader approach to value generation—delivering customer value while considering environmental impacts, fostering an inclusive and motivated workforce, ensuring fair treatment of suppliers, and engaging positively with local communities.
Once stakeholders are identified, companies can determine their key ESG issues and establish governance and operational practices to prepare for the reporting process.
Sustainability reporting offers companies a unique opportunity to tell their story effectively. To articulate this story, organisations should consider addressing the following:
- The core ESG issues your company is focusing on.
- The rationale behind selecting these specific issues.
- The measurements and KPIs employed to gauge progress on these key issues, contextualised where possible.
- Any targets set in relation to these issues, along with the processes established to track and measure progress, including governance structures for oversight of ESG matters.
Companies that provide clear and focused disclosures are likely to resonate more with stakeholders than those presenting lengthy lists of unrelated ESG metrics. By adopting a targeted approach, organisations can demonstrate a robust understanding of ESG issues and a commitment to effective management. A concise, well-considered narrative can be as compelling—if not more so—than extensive reports covering a wide range of topics. This insight is especially reassuring for smaller companies or those new to ESG practices and reporting.
A Board of Directors plays a crucial role in ensuring that high-quality reporting is based on the disclosure of accurate, balanced, and comparable information, providing genuine oversight of ESG matters. Upskilling the Board’s understanding of ESG reporting and its importance to growing an organisation is key.
Sustainability reporting starts now and should not be an action item for future Board consideration.
Contribution by Igamu Bonyongo (The Governance Corner). The views expressed in this expert opinion article are not necessarily those of The Executive Botswana.
