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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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Eaton Calls for Stoppage of Sulphur Hexafluoride Gas 

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Sulphur hexafluoride gas

By Adedapo Adesanya

Leading power management company, Eaton Nigeria, has advocated the regulation of sulphur hexafluoride (SF6) gas usage in electrical power distribution networks.

This call was made during the company’s Power & Water Nigeria Exhibition and Conference 2022, an event that connects the Nigerian utility industry.

The event which was organised by Vertex Global services saw the participation of experts and exhibitors from over 20 countries.

The gathering enabled global stakeholders to access engaging technical discussions, on-the-spot assessment of the region’s opportunities in power generation, distribution, renewables, and water & utility sectors; as well as exhibitions from leading local and international suppliers.

During his presentation on the topic, A Call to Action on the ‘dirtiest’ greenhouse gas in clean energy, Mr Charles Iyo, Regional Sales Manager Eaton West Africa said “Sulphur hexafluoride gas which is used in the production of most switchgears remains one of the world’s potent greenhouse gases that adversely affect the environment. 1kg of SF6 is equivalent to 23,500 Kg of CO2 in global warming potential, and each unit of switchgear is estimated to use 2.5 kg of SF6 gas; which makes it devastatingly dangerous to the climate.”

“Government in Africa, especially Nigeria needs to take proactive measures such as implementing new regulations to ban the use of SF6 Gas in switchgear production. Also, regulatory bodies and industry stakeholders need to collaborate and elevate industry practice and policies to implement the use of SF6 free technology thereby creating a safe and sustainable future,” he added.

Mr Iyo further highlighted SF6-free alternatives that could positively combat climate change, saying the adoption of vacuum technology is considered a safe, compact and reliable alternative to SF6 gas in the production of switchgears.

Eaton has been at the forefront of advocating the elimination of SF6 gas globally. The power management company pioneered SF₆ free medium voltage switchgear production in 1960 with Magnefix, a compact solution for distribution system operators.

The various range of SF6 free switchgears are produced with environmentally friendly technology in comparison with the methods used by many other suppliers, which use SF6 as insulation gas.

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OVH Energy Rewards Distributors for Outstanding Performance

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ovh energy

By Adedapo Adesanya

Leading supplier and distributor of refined petroleum products, OVH Energy Marketing, has rewarded its top-performing lubricant distributors for their outstanding performance at a presentation ceremony held in Lagos.

During the presentation ceremony which happened at Aspamda Market, two qualified distributors who each sold over 1 million litres of lubricants were recognized in line with the management’s commitment to award deserving distributors.

Chucorl Nigeria Limited and Ade De Young Auto Limited, who met and exceeded the set target in the distribution of OLEUM lubricants, were awarded OLEUM branded trucks at the ceremony.

Speaking at the event, the Chief Executive Officer, OVH Energy Marketing, Huub Stokman posited that the ceremony was organized to reward top-performing distributors as well as inspire others through their exemplary feats.

“Our distinctive progress as the leading downstream oil and gas company is built on the commendable dedication and support of our partners as well as the contributions of our staff. I applaud the awardees and other OLEUM distributors for their diligence and resourcefulness in making sure that the OLEUM range of lubricants remains a market leader,” he said.

“Oleum is a product made in Nigeria, by Nigerians, for Nigerians. Our dream is to formulate the best lubricant available in the Nigerian market at a very affordable price. The hard work of our partners continues to contribute immensely to the growth of the organization and for that we are thankful,” he continued.

Commenting at the presentation ceremony, Mr Lateef Adeleke, owner Ade De Young Auto Ltd., an awardee said “I appreciate the company for this initiative to reward distributors with branded trucks. Rewarding deserving distributors with the branded trucks is a thoughtful initiative from OVH Energy Marketing.”

On his part, Mr Oliver Jacob, CEO Chucorl Oil and Gas Limited said “This acknowledgement from OVH Energy Marketing is indeed an incentive to do even more. The trucks will be valuable in strengthening our supply chain and meeting our increasing consumer demand.”

In recent years, OVH Energy Marketing has embarked on diverse empowerment initiatives such as the OLEUM Academy and the Mechanic Oleum Reseller Enterprise Initiative.

OLEUM academy has impacted over 5,000 individuals nationwide through the provision of automotive mechatronics, lubrication, and entrepreneurship training.

The Mechanic Oleum Reseller Enterprise Initiative is an avenue for auto-technicians to boost their income through the sales of lubricants in their workshop.

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Capital Market Can Attract Funds to Solve Nigeria’s Infrastructure Deficiency—Yuguda

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infrastructure deficiency

By Aduragbemi Omiyale

The Director-General of the Securities and Exchange Commission (SEC), Mr Lamido Yuguda, has again emphasised that the current infrastructure deficiency in Nigeria can be solved with the help of the capital market.

While addressing the new executives of the Chartered Institute of Stockbrokers (CIS) in Abuja over the weekend, he said all that was needed was for the government to partner with the private sector to bridge the infrastructure gap by approaching the capital market for funding.

“We have a huge infrastructural deficit in the country like insufficient power, lack of good roads among others. We want our country to have good infrastructure and I know this is possible with the help of the capital market and other stakeholders.

“It requires adequate planning and financing and we can achieve it as a nation. The capital market through the private sector can fund road construction while the government focuses on other issues,” the SEC DG said, appealing to the relevant stakeholders to cooperate with the agency to achieve this goal.

He also said for the capital market to attain full potential, all stakeholders need to ensure they carry out their functions with integrity and fairness in a bid to restore investor confidence.

Mr Yuguda acknowledged CIS as a key partner in the commission’s regulation of the market, assuring that the SEC would continue to provide the needed support.

“On behalf of the Board and staff. We will give you all possible co-operation you desire to make your job easy. We are here to support this market and make it the market we all desire,” he said.

The SEC boss stated that derivatives trading has commenced for people who want to manage their risk, adding that the SEC is working to increase the literacy of Nigerians so they can take better decisions.

“The future for this country is bright and we have the young population to push it. We can have a much better standard of living than we have now and we hope you will continue to give a lot to the market.

“We are committed to any initiative that will further spur the growth of the capital market. We also have a review of the ISA bill pending at the National Assembly and that bill has a lot that will revitalize this market,” he added.

In his remarks, the President of CIS, Mr Oluwole Adeosun, commended the SEC for the relationship that exists between the Commission and the Institute and thanked the Management for always supporting the organisation.

“Thank you always because you have embraced the institute and made it clear that you desire a very harmonious relationship and we are happy about it.

“You have shown this in your actions since you came into office and we appreciate you for all your efforts, we pray that investors benefit greatly from their investments in the capital market. Thank you for all your support to the CIS Bill,” he said.

The former President of CIS, Mr Olatunde Amolegbe, also thanked the DG for the efforts the management has been making to support the CIS, adding that the institute has been able to function effectively due to the support of the SEC.

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