Ensuring Transparent, Sustainable Capital Market

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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.

Promoting Sustainability
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.

Sustained Drive

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.

Disclosure of ESG Performance

Disclosure of ESG performance, he added, will enable stakeholders to engage with and understand a company’s true value, highlighting tangible and intangible assets.
“It provides a basis for more accurate assessment of value creation, resilience and health of a company into the medium and long term. Strong ESG performance thus 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 added, “I am proud to announce that we are signatories to the Sustainable Stock Exchange Initiatives, Global Reporting Initiative and United Nations Global Compact. Following from all of these efforts the NSE has received recognitions such as the “Best Initiative in support of SMEs and the Millennium Development Goals” by Africa Investor and “Best Corporate Social Responsibility Company” by African Business Awards. In this sustainability crusade, there’s a role for government agencies as well, and by that we mean, we expect to see more of sustainability policies and guidance.”

Jalo-Waziri stated that there are equally important roles for civil society, private companies, philanthropic organizations and individuals, and most importantly, for collaborations amongst these groups.
According to him, “Collective action is critical and so is individual action. For, at the end of the day, it is individuals who have the power to change their behaviour and the behaviour of their organisations. When we decided to hold this conference and especially over the last few days, we have been overwhelmed by the enthusiastic support from our partners, stakeholders and individuals.

“I hereby encourage everyone here to reach out to your networks and spread the news about this conference. We look at this conference as more than a one-day event. We are committed to working together with all of you to catalyse new initiatives and raise awareness on the need for responsible business practices.”
He added: “Through our effort at this conference, we would like to hear your ideas on innovative approaches for sustainable developments, particularly for the adoption of Sustainable Disclosure Guidelines, and with an emphasis on the Nigerian Capital market.”

Recommendations

At the end of deliberations participants agreed that good corporate governance is key to sustainability.
They therefore, called on the NSE to promote best corporate governance practices amongst stakeholders, enforce strict compliance with regulations.
They added that board of directors for organisations should be encouraged to set the right tone at the top and promote the right corporate culture within their organisations.

The NSE was also asked to ensure environmental, health, safety and social audits. The Exchange was asked to put in place specify key sustainability disclosure KPIs for companies listed on the NSE and promote sustainability drive through advocacy, and institute a system for monitoring and evaluation.

The NSE was also asked to focus on a process beyond compliance and incentivise companies practicing sustainably.
The participants added: “The NSE should incorporate sustainability into its core operations and brand-lead by example Sustainability Reporting in Financial Services Industry. The NSE should provide evidence based data on sustainability and corporate performance by working with academia and research institutions. The Exchange should promote gender diversity based on skills and competence. Drive integrity of reported information by organisations and the role of assurance and adopt a report and explain approach.”

Sustainability Report
At the same time last year, the NSE had released its first Sustainability Report titled, “Connecting Nigeria to the World through a Sustainable Capital Market.”
The report, the NSE said, “demonstrated its commitment to increased disclosure, expanded stakeholder engagement and thought leadership on sustainability as a key aspect of its business strategy.”
The NSE said the report, which aligns with its CSR framework, covers the four key impact areas it has devoted attention and resources.

The key areas the NSE said include: Market Place, Community, Workplace and the Environment.
“The NSE continues its journey to build a sustainable organisation through responsible and inclusive financial and investment services. Our major achievements include: Launching the Alternative Securities Market (ASeM), a specialist board for the listing of SMEs, signing on to the Sustainable Stock Exchanges (SSE) Initiative and Launching the CGRS. Others are; forming a partnership with Global Reporting Initiative (GRI) to develop Sustainability Disclosure Guidelines in the Nigerian Capital Market and signing the UNGC Call to Action:

Anti -Corruption and the Global Development Agenda
“The NSE is committed to supporting local communities through planned, shared-value social and economic investments that are aimed at creating much-needed opportunity and positive change. Key progress recorded include; reaching more than 600 students from over 20 primary and secondary schools through the Global Money Week initiative and the successfully launching the annual Corporate Challenge competition that drew more than 350 participants from over 40 companies together around the theme of cancer prevention and treatment,” the NSE said.

Others the exchange, added include, collaborating with other key financial institution to revitalise the Financial District in the Lagos State Central Business District and the launching of the inaugural Employee Giveback Month in December 2014 as a first phase to the Employee Volunteering Scheme.

Workplace and the Environment
As a responsible employer, the NSE said it strives towards building a strong and consistent relationship with all our employees, built on mutual respect and dignity.
According to the exchange, “We provide a safe work environment while ensuring professional development opportunities. The following was recorded: Had an average of 96 per cent training participation over the last three years, achieved 38 per cent women in management positions, introduced an employee award scheme, the CEO Awards, to recognise outstanding performance and commenced Graduate Trainee programme to develop future leaders for the Nigerian capital market

“The NSE is committed to conducting its business in a way that protects the environment. Through an environmental management approach, the exchange has been able to: Achieve a 70 per cent drop in power consumption by installing energy efficient LED lighting and computing infrastructure across the Head Office, launch the NSE Recycles campaign and conducted organisational waste audit and commenced an in-house recycling project whereby cans, glass & plastics are collected within our head office and recycled.

Onyema had while commenting on the report, said: “Sustainability is a critical component of our business strategy and publication of this inaugural report marks a significant step towards greater transparency and robust engagement with our stakeholders and the communities that we operate in.

“It is about responsible and inclusive investment services, increasing opportunity, preserving resources, improving lives, creating jobs and meeting the needs of the various stakeholders that we serve. We will continue to leverage our CSR platforms to share how, through efficient utilisation of resources, support of our committed employees and partners; we are transforming lives and communities.”

Supporting Economic Growth

He added: “At the NSE, we are committed to supporting economic growth by ensuring an efficient and sustainable capital market. This also includes our obligation to deliver a sustainable organisation through responsible financial and investment services, engaged and talented people, community contributions and environmental stewardship.
The exchange’s transformation journey has led to the diversification of its business in accordance with best practice based on global trends in responsible finance and changes in the macro environment. This process led to the establishment of a Corporate Social Responsibility unit in 2013 and the institution of our Strategy. We adopt best practice with respect to corporate governance, recognising its importance to achieving our vision. We ensure that all our dealings with stakeholders are conducted to the highest ethical standards.

Onyema said the national council is responsible for providing oversight for the NSE’s business and financial affairs, strategy, structures and policies; monitoring the exercise of any delegated authority; and dealing with challenges and issues relating to corporate governance, corporate social responsibility and corporate ethics.

“As the NSE is a self-regulatory organisation, the Council is also responsible for ensuring that it meets all the conditions of its license as prescribed by the Securities and Exchange Commission (the apex regulator of the Nigerian capital market,, and contained in the in the Investment and Securities Act, 2007. In 2015, we plan to increase our stakeholder engagement, encourage employees to get more involved in our operating community and commence the process of phased introduction of Sustainability Disclosure in the Nigeria Capital Market. We welcome your comments and are open to suggestions that will enhance our future endeavours,” he said.

CSR Governance and Strategy

“We operate in Africa’s largest economy and this unique position places significant responsibilities on us to support growth across multiple industries. It is imperative that we provide an efficient and sustainable capital market. In order to do so, we must create long-term value for our stakeholders by embracing opportunities, whilst at the same time managing the risks that derive from economic, environmental and social change.

“In recent years we have sought to align our CSR strategy with global best practice, and in particular with the evolving expectations of sustainable and responsible finance. We have focused our strategy and the CSR governance structure that supports it on two central ambitions: To make responsible and sustainable business practices a core competence of our organisation, integrated into our daily business decisions and operations. We will also provide opportunities for our stakeholders to make positive contributions towards a sustainable future, through new and innovative investment products,” he said.