Environmental, social, and governance (ESG) considerations have gained significant attention in recent years as investors and stakeholders increasingly recognize the importance of sustainability and responsible corporate behaviour.
ESG practices and policies are crucial for businesses to mitigate risks, improve their reputation, and attract investment. However, the role of the government in promoting ESG Practices and policies is equally important.
Governments have four distinct roles in addressing sustainability concerns and these roles are: –
- Policy development (setting the policy framework)
- regulation, (enforcing regulations that promote sustainable development)
- facilitation (creating incentives)
- and internal sustainability management.
Largely, modern governments are still stuck in regulatory control. Policy development follows closely. Facilitation and leadership (market stimulation via internal sustainability management) is severely lacking.
Governments need to realise that private sector drivers for sustainability are now vastly different to what they were used to be in the past. These include investor, activist, reputational, community and consumer led, much more than in response to regulation. Modern governments need to leverage these drivers and facilitate green tape reduction incentives. Alongside, they should stimulate the sustainability products and services markets through their significant government procurement programs.
A 2012 GlobeScan/SustainAbility survey done by Terence Jeyaretnam found that expert and public confidence in national governments when it comes to governments’ ability to tackle global economic, environmental and social challenges are at severe lows. The findings suggested that national governments will not take action unprompted – and that business has a unique ability to play a greater role in addressing sustainable development. Nearly eight in ten (77%) sustainability experts felt a major catastrophe will need to happen for national governments to take action, and 68% identified a lack of political will as the greatest obstacle to making further progress on sustainable development.
Another survey in 2013 found that despite pessimism of national governments’ willingness and ability to make substantive progress on the sustainability agenda, experts overwhelmingly believe that progress requires companies collaborating with multiple actors, including governments.
Markets alone are not proving to be an effective mechanism for long-term sustainability. If not markets, then the question of how governments could provide an avenue looks even more tenuous. Governments and businesses are naturally not inclined to face long term concerns alone, especially when there are short term issues to deal with.
In this regard, in 2015 as a way to push national governments to take serious actions on issues of sustainable development all members of the United Nations were made to adopt Sustainable Development Goals (formerly millennium development goals),
The 17 Goals were adopted as part of the 2030 Agenda for Sustainable Development which set out a 15-year plan to achieve the Goals. Today, progress is being made in many places, but, overall, action to meet the Goals is not yet advancing at the speed or scale required.
Equally important are the continuous global climate change negotiations that are meant to forge binding commitments covering emissions and financing.
Following from the above, it is important that Governments must find a way of leveraging private sector drivers in looking to present long-term solutions for these significant challenges.
The case for Zimbabwe
The subject of Sustainability is covered in the Zimbabwean Constitution under section 73 Amendment (No.20) Act, of 2013 dealing with environmental rights. It stipulates that:-
“Everyone has the right-
(a)To an environment that is not harmful to their health or well-being;
and
(b) To have the environment protected for the benefit of present and future generations, through reasonable legislative and other measures that-
- (i) prevent pollution and ecological degradation;
- (ii) promote conservation; and
- (iii) secure ecologically sustainable development and use of natural resources while promoting justifiable economic and social development.
Zimbabwe has always shown a keenness to protect the environment. This is evidenced by our signing of most if not all modern-day international conventions aimed at safeguarding our earth’s environmental heritage
In line with the Zimbabwe constitution to support issues of sustainability section 73 is supported by section 17 of the Zimbabwe constitution which talks of the inclusion of women thus covering the issues of diversity, equity and inclusion.
The main Act covering the environment has always been the Environmental Management Act Chapter 27 but also have other subsidiary legislation covering the environment such as Natural Resources Act, Forest Act, Hazardous Substances Act, Atmospheric Pollution Act then there is the Water Act and Communal Lands Act.
Then you also have the governance issues covered under the Public Entities and Corporate Governance Act.
Among the measures to align Zimbabwe with current trends of ESG, we also have Statutory instrument 134 of 2019 requiring ZSE Listed companies to report on ESG. Through the Statutory Instrument, companies that are listed on Zimbabwe Stock Exchange are required to produce an ESG report which shows how they are addressing social, economic, and environmental related concerns in the areas which they are operating. AS ESGNZ we are happy that the ZSE has set January 2024 as the deadline for compliance.
We also have the RBZ Guideline No.01-2023 which is the Climate Risk Management Guideline
The Reserve Bank of Zimbabwe Climate Risk Guidelines 2023 is a guide on how financial institutions can respond to climate risks after the apex bank identified the need to strengthen the resilience of the banking system to climate-related risks and support the national strategy on transitioning to a low carbon economy. The Climate Risk Management Guideline provides guidance to regulated institutions on adoption of climate risk management principles that are in line with international best practice. The Guideline also seeks to enhance the banking sector’s resilience through promoting the development and implementation of sound climate risk management practices and methodologies, taking cognisance of physical and transition risks associated with climate risk among others.
We also understand that PRAZ is also in the process of coming up with some procurement guidelines to manage the public procurement eco-system.
We believe the big push factor should be coming from the government in the form of legislature that entities which are supplying goods and services to government should have credible ESG credentials that would then give a good push to ESG adoption and reporting in the whole country because as it is, only ZSE companies and financial institutions are currently the only ones compelled to report on ESG by the legislation but I am sure more legislations on ESG will be coming soon.
Case Study- The Indian Case
What role is the Indian government playing in promoting ESG (Environmental, Social, and Governance) practices and policies. This case study highlights the need for a sustainable approach to development and the importance of ESG considerations in corporate decision-making.
India is one of the world’s fastest-growing economies and is expected to play a significant role in shaping the global economy’s future.
However, India faces various challenges in achieving sustainable development, including environmental degradation, social inequality, and poor governance.
Environmental Considerations
India is facing various environmental challenges, including air pollution, water scarcity, deforestation, and climate change. On the back of this development the Indian government has launched several initiatives to promote environmental sustainability.
National Action Plan on Climate Change (NAPCC)
The National Action Plan on Climate Change (NAPCC) is a comprehensive framework for addressing climate change in India. The plan includes eight missions, such as the National Solar Mission, National Mission for Enhanced Energy Efficiency, and National Mission on Sustainable Habitat, aimed at promoting renewable energy, energy efficiency, and sustainable urban development.
The Indian government has set ambitious targets for renewable energy, including achieving 450 GW of renewable energy capacity by 2030. Additionally, the government has launched the National Clean Air Programme (NCAP) to address air pollution in India. The NCAP aims to reduce particulate matter (PM) pollution by 20-30% in 102 cities by 2024.
Corporate Considerations
The Indian government has also taken various initiatives to promote responsible corporate behaviour through ESG considerations.
Corporate Social Responsibility (CSR)
The Companies Act, of 2013, introduced mandatory CSR spending for companies meeting specific revenue thresholds. Companies these revenue thresholds are required to spend at least 2% of their average net profits of the preceding three financial years on CSR activities.
The CSR mandate has encouraged companies to invest in social and environmental initiatives, such as education, healthcare, sanitation, and environmental sustainability.
SEBI Regulations
The Securities and Exchange Board of India (SEBI) has also introduced various regulations to promote ESG considerations in corporate decision-making. The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, require listed companies to disclose their ESG initiatives in their annual reports.
Additionally, SEBI has introduced guidelines for mutual funds to consider ESG factors while investing.
Apart from the CSR mandate and SEBI regulations, the Indian government has also introduced the ESG (Environmental, Social, and Governance) fund to promote investment in sustainable initiatives. The ESG fund, launched by the National Stock Exchange (NSE) in collaboration with the Small Industries Development Bank of India (SIDBI), provides a platform for companies to raise funds for their ESG projects.
Additionally, the Indian government has set up the National CSR Data Portal to track and monitor CSR spending by companies. The portal provides real-time data on CSR spending by companies and allows stakeholders to monitor the impact of CSR initiatives on communities and the environment. This promotes transparency and accountability in CSR spending and helps to ensure that companies are fulfilling their CSR obligations.
Through these initiatives, the Indian government is promoting responsible corporate behaviour and encouraging businesses to invest in sustainable initiatives. By integrating ESG considerations into corporate decision-making, companies can mitigate risks, improve their reputation, and contribute to sustainable development.
Although the Zimbabwean government is taking various initiatives to promote ESG practices and policies to achieve sustainable development, there is need for collaborative efforts between the government, businesses, and civil society to achieve sustainable development in Zimbabwe.
The government needs to create a conducive policy environment that promotes ESG considerations and incentivises businesses to adopt sustainable practices.
Businesses, on the other hand, need to integrate ESG considerations into their decision-making processes and invest in social and environmental initiatives. Civil society can play a crucial role in holding businesses and the government accountable for their ESG commitments and advocating for sustainable development. -Source By ESGNZ Research Team
