Driving sustainability standards in Africa’s capital markets

Africa is taking a bold step towards driving sustainability standards in capital markets with the launch of the first two IFRS Sustainability Disclosure Standards. Ndidi Nnoli-Edozien, a Board Member at the International Sustainability Standards Board, emphasized the significance of these standards in boosting investments and fostering the growth of capital markets across the continent. Speaking in an exclusive interview with CNBC Africa's Akin Obakeye, Nnoli-Edozien highlighted the importance of harmonizing standards to streamline financial reporting processes and reduce associated costs. The introduction of these groundbreaking standards has garnered support from regulatory bodies and market participants in a global initiative. The launch event, which took place in Lagos, Nigeria, also saw participation from other African countries, including Zimbabwe, Ghana, and South Africa, showcasing a unified effort to embrace sustainable practices in the financial sector. Additionally, forthcoming launch events in key financial hubs like Johannesburg, London, Singapore, Frankfurt, and Santiago underscore the widespread adoption and recognition of the need for standardized sustainability disclosures. Nigeria's proactive stance in being the first country to adopt these standards reflects its position as a pivotal market on the African continent. The inherent risks and opportunities associated with sustainability and climate factors in Nigeria underscore the tangible benefits of implementing a uniform global baseline for reporting. With approximately 300 existing standards cited by companies, the introduction of globally recognized standards offers a streamlined approach that is interoperable with regional requirements and industry best practices. The driving force behind the establishment of the International Sustainability Standards Board (ISSB) stems from the increasing demand for decision-useful information related to climate and sustainability by the global investor community. By incorporating sustainability and climate-related disclosures into financial reporting frameworks, companies can better address the evolving needs of investors and stakeholders. The ISSB standards cater to companies of all sizes, ensuring inclusivity and accessibility across various sectors. Key points regarding the standards include the alignment with established international norms such as the international accounting standards and integrated reporting framework. Emphasizing the concept of materiality in financial disclosures, the standards focus on aspects that are financially significant to a business, thereby aiding in value creation, erosion, and preservation. The inclusion of industry-specific metrics and guidance further simplifies the reporting process for companies, providing a clear roadmap for compliance and transparency. One of the notable features of the second standard (S2) is the mandatory reporting of Scope 3 emissions, encompassing the entire value chain of a company. By broadening the scope of emissions reporting, companies are compelled to assess their environmental impact comprehensively. Transitional reliefs and structured reporting mechanisms ensure a gradual transition to full compliance, enabling businesses to leverage sustainability reporting as a strategic tool for risk management and value creation. Moreover, the standards pave the way for companies to embrace renewable energy initiatives and transition towards a greener economy. With a focus on innovation and sustainability, companies venturing into e-mobility, renewable power sources, and energy-efficient solutions are poised to benefit from the evolving landscape of green investments. The standards provide a framework for companies to evaluate their environmental footprint and capitalize on the opportunities presented by sustainability-driven initiatives. In conclusion, the implementation of standardized sustainability disclosures heralds a new chapter in Africa's capital markets, signaling a shift towards transparency, accountability, and resilience. By adhering to globally recognized standards, African companies stand to attract investments, drive innovation, and contribute to the continent's sustainable development agenda. With a shared commitment to sustainability, Africa is poised to lead the way in fostering a greener and more prosperous future for generations to come.