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ESG Obligations Leading to Risk of Increased Litigation for African Businesses

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ESG Obligations

By Darryl Bernstein

As African businesses begin to recover and build the resilience needed to successfully navigate COVID-19 disruption, a focus on Environmental Social and Governance (ESG) strategies is proving to be essential for long-term success.

In order to stay competitive, organisations based in Africa are engaging meaningfully with ESG to build robust sustainability strategies that meet stakeholder expectations and enable compliance with global and domestic mandatory and voluntary ESG standards and codes.

ESG encompasses a broad range of issues across the spectrum of Environmental (climate change, biodiversity, waste, water and resource use, pollution), Social (human rights, labour practices, HSE, diversity); and Governance (corporate governance, ethics, compliance) matters.

As climate change impacts become clearer and nearer, there is an increasing emphasis on the Environment aspect of ESG. After the pandemic, initiatives in Africa are expected to have a heightened focus on green, low-carbon and sustainable development, via, for example, clean energy production, community care initiatives, green transport and sustainable water projects, wildlife protection programmes and low-carbon development projects.

There is a major role for ESG policies to play in mitigating some of the effects of climate change, through planning and building for hotter temperatures, higher sea levels and more extreme weather conditions, for example.

Organisations are adopting new strategies that address climate change risk and identify the sustainable opportunities that arise from addressing climate concerns. To regulate this, there are likely to be developments from African regulators in the near future that address climate risk disclosure requirements for businesses operating on the continent.

Post-pandemic, the discussions around ESG are also resulting in an added emphasis on the Social aspect – which, among other things, focuses on protecting an organisation’s workers and the wider local populations in which these businesses are based.

Organisations are looking at ways to build better social programmes that are more resilient to future pandemics and ensure good business practice. A focus on issues such as enhancing considerations around the health and safety of employees and communities, implementing diverse and inclusive workplace cultures, and building good management teams that can pull employees together in all kinds of remote, physical workplace and hybrid settings, put companies in a strong position to move forward.

The Governance aspect has also been emphasized by the pandemic, with an increased focus on due diligence around compliance with regards to anti-bribery and corruption, data privacy and cyber security legislation, for example.

Some of the larger African jurisdictions have already implemented mandatory ESG and sustainability reporting frameworks and, going forward, more African regulators are expected to replace current voluntary frameworks with mandatory ones or to adopt new mandatory frameworks. In turn, organisations operating in Africa will seek guidance and more detail from corporate regulators on how they want to see ESG reported and the practices behind the reporting process.

In South Africa, there are many laws that govern ESG factors, including business and financial sector conduct, economic and social empowerment and environmental protection. Voluntary codes such as the King IV Code on corporate governance and the Code for Responsible Investing in South Africa also serve as a guide to businesses on ESG considerations.

Other examples include Kenya, where the Capital Markets Authority introduced Stewardship and Corporate Governance Codes in 2017 and Nigeria, where the Nigerian Code of Corporate Governance was introduced in 2019. Globally, in addition to numerous country-specific laws, there are a plethora of voluntary sustainability-focused codes and standards, including the UN Guiding Principles on Business and the Human Rights and UN Guiding Principles Reporting Framework.

ESG risk management has become a mainstream component of corporate due diligence programmes, and corporate boards are being held accountable for their ESG practices by their shareholders, stakeholders and management teams. Risks for non-compliance with the multitude of global and local laws, voluntary codes and best practices governing ESG factors range from criminal prosecution and hefty fines to reputational risk and business failure as a result of not fulfilling ESG commitments.

Actual and perceived non-compliance with ESG regulations and best practices have engendered activist shareholder protests and action against the parent companies of global groups. A key challenge for businesses is navigating where the laws end, and business strategy and market expectations begin. This is especially the case when navigating the major global issues of, for example, environmental standards and human rights responsibilities. Such issues often lead to activism, litigation and class actions if a business falls short of sustainability standards or appears to be breaking publicly made promises.

Contractual liabilities around ESG must be carefully considered, as contracts that stipulate compliance with certain standards can trigger a breach of contract claim if there is seen to be any violation of the terms. It would be better for businesses to ensure in advance that they can fulfil specific ESG obligations before agreeing to them contractually. Limitations of liability should also be agreed upon to mitigate the risks.

Further, if companies have made public promises regarding their ESG obligations and they are seen to be not fulfilling such obligations, they could be vulnerable to the threat of class actions that are brought by consumers and shareholder activists. Companies should identify what ESG goals can be properly measured, and what goals should be clearly defined as being aspirational and ensure that this is accurately communicated in the public domain. Reputational damage from ESG non-compliance escalates quickly and can be difficult to recover from.

For African organisations, maintaining a long-term sustainability strategy ensures sound financial performance, full compliance with local and global laws and frameworks, and substantially increased resilience in a challenging post-pandemic environment. In the current global environment, ESG is no longer just about doing the right thing, the dial has shifted and having a legally sound and comprehensive approach to ESG considerations is a prerequisite for business success.

Darryl Bernstein is a Partner and Head of the Dispute Resolution Practice at Baker McKenzie in Johannesburg

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Lagos Fire Service Receives 17 Fire Outbreak Calls in One Day

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17 fire outbreak calls

By Modupe Gbadeyanka

The Lagos State Fire and Rescue Service has disclosed that it received it recently received no fewer than 17 fire outbreak calls from residents of the metropolis.

In a statement issued on Monday, the agency, which described this as alarming, warned members of the general public, particularly motorists, to desist from indiscriminate storage of Premium Motor Spirit (PMS), otherwise known as petrol, in inappropriate places.

Fuel queues have resurfaced in the state since last week, and at the moment, the product is sold in jerry cans along the road. This has also caused some consumers to embark on panic buying, with the products stored in resident areas.

But the head of the Lagos state fire service, Mrs Margaret Adeseye, has cautioned members of the public to be cautious, noting that the state has so far recorded 129 emergency calls on fire outbreaks in November, with 17 calls received in a day recently.

She noted that since the commencement of the recent fuel scarcity, some people had devised illegal means of storing the product in unsuitable places, such as in vehicles, under staircases at home or within the premises of their working places, stressing that all these have contributed to the increase in the number of fire outbreaks.

Mrs Adeseye reiterated that the state government places a high premium on the safety of the lives and properties of the citizenry; therefore, the nonchalant attitude of the general public to the basic principle of safety is of great concern to the present administration as the total number of emergency calls in November is already much higher than the 82 recorded in October 2022.

“The high figure of 129 fire outbreaks in less than a month is worrisome. However, we are extending our safety enlightenment campaigns to all local government areas, hospitals, schools and the grassroots, all in an effort to curb the tide of fire incidents and related emergencies,” she stated.

According to her, fuel scarcity is not an excuse for the inappropriate storage of fuel to the detriment of the lives and properties of residents, imploring members of the public to avoid using jerry cans that have been used for petrol to store kerosene and any other flammable liquids. She also advised motorists, particularly commercial vehicle operators, not to store petrol in the boots of their cars and buses.

The firefighter urged landlords and tenants to be observant and prevent inappropriate storage of fuel in and around their homes while enjoining operators of filling stations to stop the practice of dispensing fuel in polythene bags while allowing customers to cluster around petrol dispensing pumps to avoid scuffle that can lead to fire outbreaks.

Mrs Adeseye, therefore, urged residents to call the toll-free emergency numbers 767 or 112 or the Lagos Fire Service Hotline: 08033235891 to report an outbreak of fire for a prompt response.

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FG Gives Conditions for Sustainable Port Development

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10 new export terminals

By Adedapo Adesanya

The federal government has revealed its position to discourage unsolicited port development proposals that are not based on viable projects and future developments contained in the infrastructure development plan of the government under the National Transport Policy and programmes of agencies under the sector.

This is coming as the Nigerian Port Authority (NPA) embarks on the process of developing a port development master plan that would set out the policy on port infrastructure development to match the current and future economic expectations/national goals and objectives.

The Minister of Transportation, Mr Mu’azu Jaji, in his presentation titled How To Streamline The Qualification Process To  Encourage The Construction Of New Ports By States For A Sustainable Nigerian Blue Economy at the recent Niger Delta Blue Economy Investment Forum confirmed that the government had received unsolicited proposals some of which were initiated by state governments including the Lekki Port which was prior to the Infrastructure Concession Regulatory Commission Act, 2005.

He said, “Unsolicited proposals from state governments must undergo the required due diligence and procedures for constructing new ports. There is no shortcut to the process. Federal agencies also need to reduce the red-tape bureaucracies to make the process easy and seamless, observing the tenets of the ease-of-doing-Business, in order to attract Foreign Direct Investments.”

He noted that over the years, it had been observed that the bane of port development in Nigeria had been the absence of a Port Master Plan, which explained the number of unviable ports as well as urban encroachment to the port environment.

“A good example is the Lagos Ports with the attendant congestion along the port corridors. This development comes with its concomitant negative consequences on port efficiency and at a cost. This must be guarded against in future developments,” he said.

“Port development must be preceded by rigorous studies to determine both technical and economic viability. This is the only way by which we can move on the path of a sustainable Blue Economy,” he added.

The port development masterplan by the NPA was conceived to identify the gaps in infrastructure capacity; make projections on needed growth to address the capacity deficiency; and plan future development to ensure that port development is spaced out in time and over locations to ensure in time development, technology is up to date, avoid overcapacity that could result in unviable ports as in (Delta cluster of ports in the 1970s), ensure competition, and achieve economic growth, among other policy objectives.

The Minister acknowledged the legal framework governing the operation of ports in the country as in the Exclusive Legislative List contained in Part 1 of the Second Schedule of the 1999 Constitution such that all Nigerian Ports are Federal Ports with no provision for private ownership of ports in Nigeria, however, with the enactment of the  ICRC Act, 2005, a window has been opened for the participation of the private sector in port development through Public-Private Partnerships arrangement.

While no private ownership of the port is currently contemplated by the country’s laws, current port development processes involve submitting a proposal for development (solicited or unsolicited), developing an outline business case and the final business case containing technical and financial details and obtaining all necessary approvals to proceed, granting of a concession for port development and operations by the Federal Government; and executing a concession agreement containing details of the concessions – performance parameters, financial provisions, technical standards, concession period (which takes into account the recoupment period, construction period and actual port operations period, reversionary rights and other relevant provisions).

Mr Jaji believed that the emergence of the PPP processes had further streamlined the qualification process for private participants in the blue economy.

“This was an enabler that made it possible for the state governments to be major promoters in the emergence of Deep Sea Ports in Nigeria. Every port has both the waterfront and the backup land area, which is within the legislation of the federal government, while the latter is within that of the state since the Certificate of Occupancy is being given by the state government,” he stated.

The Minister also acknowledged that the Blue Economy concept had developed as a sound paradigm for the comprehensive and sustainable management of marine and coastal areas and their natural resources.

He said, “Considering that Blue Economy includes activities such as fishing which involves the use of vessels/crafts that call at waterfront terminals or jetties, there is also a framework for licensing facilities in this category. This could be through the grant of jetty licenses or the designation of existing terminals as fishing terminals.

“One such process which is ongoing is for the designation of KLT I in Lagos as a fishing terminal with the hope that others will follow across the country. It needs to be stated that fishing terminals are ports used for vessel calls, just like any other facility. The involvement of NPA in this situation is the provision of the facility while the fishing activity is regulated under a different sector.

“Coherent and optimized co-existence of all sectors of activity is needed while preserving the quality of ecosystems, goods, and services in the long term.

“The Port plays a pivotal role in the development of the Blue Economy as the interface between maritime and terrestrial space.”

While acknowledging that Ports are the epicentre of many aspects of the Blue Economy, including:, tourism and leisure, fishing, aquaculture, offshore renewable energy, marine conservation, coastal protection, shipbuilding, oil, and gas, he said any call for streamlining the qualifications process for the development of new ports in a Blue Economy would be factually inaccurate with the assumption that there was hitherto no uniform standards for the qualification of new port developers.

Rather, he said the emergence of a Blue Economy would only introduce another layer or layers of qualification for new ports and facilities.

“The aspect of the Blue Economy recently introduced only added another layer or layers of qualification that had not been in existence since issues relating to the environment and its impacts on port development is a relatively recent phenomenon,” he said.

“The requirement for Environmental and Social Impact and Assessment studies in capital projects, including port infrastructure, is a relatively new concept in these climes.

“It is simply required as a major qualification that the developers of new ports MUST show how such developments will impact all aspects of the ocean, including diversity, environmental protection, commerce, the lives of members of the host communities, and the improvement of the economic prosperity of the country through the oceans,” he noted.

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CPPM Asks Buhari to Discipline HoS for Failure to Appoint Accountant General

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Committee for the Protection of Peoples Mandate CPPM

By Adedapo Adesanya

A civil society organisation, the Committee for the Protection of Peoples Mandate (CPPM), has knocked the Head of Service of the Federation (HoS), Mrs Folasade Esan, for allegedly undermining a presidential directive to commence the process of appointing a substantive Accountant General of the Federation.

The group, in a statement made available to Business Post on Sunday, described the move as “irresponsible, provocative, reckless, condemnable, unacceptable and a threat to national security.”

The statement signed by Mr Nelson Ekujumi, its Executive Chairman, said, “We are aware that sequel to the presidential directive with regards to the appointment of a substantive Accountant General of the Federation, following the indefinite suspension of the former Accountant General of the Federation, Ahmed Idris, for fraud of which he is in court to answer charges as preferred by the Economic and Financial Crimes Commission (EFCC), the HoS in a memo dated June 21, 2022, announced the commencement of the process for the appointment of a substantive AGF.”

The organisation acknowledged that applications were called for from qualified accountants from the mainstream civil service in the pool of Accountant General of the Federation with set criteria for eligibility and subject to security checks but “surprisingly, before the conclusion of the process in line with presidential directive and the HoS memo, Mrs Folasade Esan stalled the process for reasons which amounts to a violation of her oath of office and an affront to constituted authority.”

“Shockingly, with a motive, which has an interest far and above national interest written all over it, the HoS in a memo to the President dated October 13, 2022, while acknowledging Mr President’s directive conveyed via the Office of the Secretary to the Government of the Federation letter dated June 16, 2022, stated that…

“At the close of submission of applications and security clearance by appropriate agencies, a very negligible number of directors met the criteria. The number will not provide a large pool to engender a competitive process at the end of which a substantive Accountant General of the Federation could be appointed”. She then went ahead to propose to Mr President the extension of the process to the first quarter of 2023 just to satisfy her personal interest and motive.

“This position of the Head of Service of the Federation is rather strange, a perversion of civil service rules and an affront to the authority of Mr President by trying to be clever-by-half. We want ask that under what provisions of the civil service rules did Mrs Folasade Esan derive the powers to single-handedly determine the number of applicants who have met set criteria and security clearance for appointment as negligible? Also, we need to ask that what number of applicants can be described as negligible according to the civil service rules of Mrs Folasade Esan?” it quipped.

The civil society organisation went further to describe the action of Mrs Esan as a contravention of the oath of her office, which amounts to an abuse of official position and public trust for personal gain far and above national interest and security, which is irresponsible and condemnable.

“Thus, we at CPPM wish to draw the attention of Mr President, who is a strong advocate for due process and the rule of law, to the actions of Mrs Folasade in trying to pervert civil service rules and undermine constituted authority and national security,” it continued.

CPPM then demanded the immediate presidential rejection of Mrs Esan’s request for “abortion of the process for the appointment of a substantive Accountant General of the Federation and extension to allow for her personal interest over national interest.”

It also called for disciplinary proceedings against her for the perversion of civil service rules, abuse of public trust, and an affront to a constituted authority which is unacceptable and condemnable.

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