Get ready for ESG reporting: Starting in 2023, EGX-listed firms and NBFS companies will be required to file mandatory annual ESG reports. According to a recent decree (pdf) issued by the Financial Regulatory Authority (FRA), corporates will have to publicly disclose their performance on key environmental, social and governance (ESG) metrics each year when they submit their annual financial statements.

Here’s what’s required: EGX-listed companies and NBFS players (listed or not) with issued capital of at least EGP 100 mn will need to evaluate their ESG performance based on 21 KPIs using a designated form, a copy of which was seen by Enterprise. The document features 50 questions on everything from the operational environmental footprint of firms to metrics on diversity, anti-discrimination, and health and safety. Companies will need to check yes/no boxes and add clarification on each question’s response. The document will need to be included as an annex in their board of directors’ reports.

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The document is not required until companies make their annual submissions but the FRA has distributed it ahead of time to help firms understand how disclosures will be written, what information will be needed, and what ESG metrics they need to work on, Sina Hbous, the executive director of the Regional Center for Sustainable Finance and the advisor to the FRA’s Sustainability Center’s chairman, told Enterprise.

Larger firms will have to go the extra mile: Firms with issued capital of EGP 500 mn will have to submit the report as well as report on certain performance indicators from the Task Force on Climate Financial Disclosure (TFCD). Sina tells us that not all the TFCD provisions were chosen, but rather those that are “suitable to the local market and that companies can mandate or comply with, with little tweaking to their governance structure.” The provisions include whether they have guidelines to track climate risk and whether firms integrate and address the risk in their short and long-term strategy. The TFCD portion also asks whether they measure their carbon footprint and report it publicly. However, more advanced provisions such as scenario analysis were left out, Sina added.

In the meantime: Before making the first submission with their FY2022 financials, companies will be required to provide quarterly updates on the steps they’re taking to comply with the decree. They can also voluntarily submit the document ahead of time to get one-on-one feedback from the FRA before making the official submission at the end of the financial year, Habous said. These reports will not be made public.

Climate and environment-related KPIs constitute more than half of the report: A number of questions ask whether firms have policies around environmental protection, waste recycling, water and energy consumption, and greenhouse gas emissions. A more direct line of questioning follows, with the report inquiring into whether and how their activity in these areas is monitored regularly. Firms who claim to measure their emissions will need to disclose how many metric tons of carbon dioxide they emitted during the year.

A second set of climate-related prompts focus more on governance: The board is assessed on a number of metrics that assess the level of ESG consideration in strategy, investments, product development, and corporate risk management framework. The reporting in this area aims to decipher whether management undertakes new ventures and sets its outlook with climate change risks in mind. No numerical figures are required in this section.

Gender equality and diversity are assessed carefully: A number of social KPIs asks companies whether they disclose information such as the number of employees based on a full time basis, the percentage of employees by gender and position level, and average incomes of male employees versus female employees. Another asks whether firms reveal the composition of their boards, a requirement that comes in the wake of new diversity targets aiming to increase female representation on the boards of listed companies.

Firms also need to keep in mind the anti-discrimination KPI, which asks whether the company has strict policies against [redacted] harasment or discrimination based on religion, gender, or ethnicity.

Employee health, safety, and rights: Firms will be required to report whether they adopt a health and safety policy for workers, disclosing how many adverse incidents occurred during the year and the number of training hours provided on health and safety and ESG matters. Internal regulations concerning worker’s rights and child labor should also be disclosed and firms need to elaborate as to whether or not they are in line with global standards such as those posed by the International Labor Organization. Follow up questions to this section prompt firms to disclose whether their health and safety, worker’s rights, and child labor policies extend to the vendors and distributors that the firm works with.

SDGs are also an assessment point: Whether or not the company aligns its operations with the United Nations’ Sustainable Development Goals (SDGs) is also up for discussion, with an additional prompt to specify if the corporate efforts on this front are communicated in reports. ESG disclosures and sustainability reports should be in line with international standards, such as those set by the Global Reporting Initiative, the CDP, Sustainability Accounting Standards Board, the IIRC, or United Nations Global Compact, the report indicates.

Important, but not deeply delved into metrics: Data privacy is also on the FRA’s radar, with the document asking whether firms adopt regulations concerning information protection other than the data privacy and consumer protection laws set by Egypt. As for impacting investing, firms are asked a single question of whether they have a policy or framework in place. Other factors firms will need to report on include corporate social responsibility commitments, ethics and code of conduct, bribes and anti-corruption policies, and staff turnover.

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