Ensuring Transparent, Sustainable Capital Market
Eromosele Abiodun writes on efforts by the Nigerian Stock Exchange to ensure that sustainability and transparency thrive in the capital market to bring about development and responsible business practices on the Nigerian bourse
Sustainability reporting is a vital step towards achieving a sustainable global economy. Reporting enhances companies’ accountability for their impacts and therefore enhances trust, facilitating the sharing of values on which to build a more cohesive society. The availability of sustainability information can be used by governments to assess the impact and contribution of businesses to the economy and to understand, which issues are being tackled by which players.
Widespread sustainability reporting practices, creating transparency, can also help capital markets function more efficiently and indicate the health of the economy. It also helps drive progress by all organisations towards a smart, sustainable and inclusive growth. Organisations can use reporting to inform their risk analysis strategies and boost their business. A growing number of companies see sustainability reporting as a means to drive greater innovation through their businesses and products to create a competitive advantage in the market. Governments, businesses and stakeholders all directly benefit from it, and the positive impact on social, environmental and human rights issues is evident.
Specifically for organisations, sustainability reporting adds value in a number of areas. For instance, it helps to build trust, improved processes and systems, progresses vision and strategy, reduce compliance costs and create competitive advantage.
Put simply, transparency about non-financial performance can help to reduce reputational risks, open up dialogue with stakeholders such as customers, communities and investors, and demonstrate leadership, openness and accountability.
Another advantage of sustainability reporting is that internal management and decision-making processes can be examined and improved, leading to cost reductions by measuring and monitoring such issues as energy consumption, materials use, and waste.
Comprehensive analysis of strengths and weaknesses, and the engagement with stakeholders that is necessary for sustainability reporting, can lead to more robust and wide-ranging organisational visions and strategies. Importantly, companies can make sustainability an integral part of their strategies.
Also, measuring sustainability performance can help companies to meet regulatory requirements effectively, avoid costly breaches, and gather necessary data in a more efficient and cost-effective way.
Through sustainability reporting, companies seen as leaders and innovators can be in a stronger bargaining position when it comes to attracting investment, initiating new activities, entering new markets, and negotiating contracts. While sustainability reporting is not part of the corporate strategies of most companies in Nigeria, it important to note that the advantages of imbibing this culture far outweigh whatever excuses companies adduces to not doing so.
To ensure that listed companies on the Nigerian Stock Exchange (NSE) and other stakeholders in the capital markets are carried along in its effort to ensure sustainability in the capital market, the NSE, has organised several seminars to drive down the message. In collaboration with stakeholders, the NSE recently organised a seminar aimed at ensuring that no one is left out of its effort to ensure transparency in the capital market.
Speaking at the Nigerian capital market sustainability reporting seminar in Lagos, the Chief Executive Officer of the NSE, Mr. Oscar Onyema urged companies to embrace sustainability reporting, saying it has many benefits.
He said at the NSE, they have a number of motivational factors for the promotion of sustainability reporting initiatives.
“Firstly, we understand that transparency builds trust which is a critical ingredient to a well-functioning market and economy. Secondly, it has been proven that strong environment social and governance (ESG) performance attracts the growing number of investors interested in the long term sustainability of their investments. Companies integrating ESG performance into their business strategy and operations show that the benefits range from improved resource efficiency, improved stakeholder relations and social license to operate, enhanced access to markets and investor confidence, as well as product and service innovation – all leading to enhanced competitiveness,” he said.
According to him, traditionally, stock exchanges have become the nexus for the interaction between investors, companies, policymakers and regulators. “Exchanges have played a crucial role in building transparent, regulated markets and promoting best practice in financial and corporate governance disclosure among listed companies. Today, exchanges are also well suited to help with the 21st century sustainable development challenge as they are uniquely placed to facilitate action as regards sustainable business, with a variety of measures at their disposal. These include listing requirements related to sustainability reporting, voluntary initiatives, guidance documents and training for both companies and investors, and sustainable investment products such as indexes that focus on ESG issues. There is a recognised need for enhanced levels of corporate transparency on ESG and as an exchange we are well positioned to encourage and even require listed companies to produce better sustainability reports that are issued consistently and with comparable information,” Onyema stated.
The NSE boss added that currently, a range of capital market stakeholders are increasingly recognising the need for more widespread and consistent ESG disclosure, and are looking to policymakers and regulators for potential solutions. “With more than a decade of voluntary initiatives and thousands of large companies producing ESG reports, there is an increased focus on efforts to ensure that improved sustainability performance spreads down from leading companies to the majority who are yet to adopt ESG disclosure practices,” he said.
Onyema disclosed that the NSE has held itself accountable to the highest standards in ESG disclosure, saying in 2013, it established a corporate social responsibility (CSR) Unit and instituted a strategy with goals through four thematic areas of community, marketplace, workplace and environment.
“Some of our initiatives include: the launch of a Corporate Governance Rating System CGRS, which is designed to evaluate companies based on the quality of their corporate integrity; corporate compliance; understanding of fiduciary responsibilities by their directors and their corporate reputation,” he said.
Last year, in association with Ernest and Young, the NSE put together the inaugural Nigerian Capital Market Sustainability Conference. Participants from more than 100 organisations, representing listed companies, capital market operators, non-governmental organisations including foundations, other private companies not listed on the exchange, and ordinary citizens were present at the conference.
Speaking at the conference, Executive Director, NSE, Haruna Jalo-Waziri, said the event was organised to communicate a fact that transparency build’s trust,“and such it is a critical ingredient to a well-functioning market and economy.”
He stressed that with the need to access long-term financing for the anticipated Nigerian economic agenda and newly launched Sustainable Development Goals (SDGs), the capital market will soon become abuzz with investors looking for viable companies that can provide not just quality financial information but also Environmental, Social and Governance (ESG) information.
“Coincidentally, target six of the Sustainable Development Goal 12, encourages companies, especially large and trans-national companies, to adopt sustainable practices and to integrate sustainability information into their reporting cycle. Therefore, Environmental, social and governance performance will play a crucial role in maintaining business relations, access to markets and capital, “he said.
On disclosure of ESG performance, he added,