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Tuesday, 12 October 2021

ESG reporting is coming to Egypt in 2023 (Part II)

POLL- ESG reporting is becoming mandatory in Egypt in 2023. Are EGX-listed companies ready for it? EGX-listed firms and NBFS companies will be required to file mandatory annual ESG reports starting from 2022. In Part 1, we talked about what the ESG reporting requirements are and what they’ll entail. In part two, we ask EGX-listed companies about implementing the reporting requirements, how they translate into actual policies within companies, and (for those who have already started) whether they are seeing an improvement in investor sentiment as a result.

Sustainability reports aren’t new for listed companies: Elsewedy Electric undertook sustainability reporting in 2017 and now issues carbon footprint reports to monitor their plan to become carbon neutral or reach zero carbon by 2030, Senior IR Manager Tarek Yehia told us. Meanwhile, for Cleopatra Hospital, ESG reporting was implemented from the very start, said Hassan Fikry, the corporate strategy and IR director. The hospital group’s main shareholder and core investors had mandated that they receive sustainability reports even before they listed on the EGX in 2016. Edita has been issuing sustainability reports since 2018 as ESGs and active reporting increasingly became a criteria for foreign investors, Menatallah Shams El Din, Edita’s Investor Relations and Business Development Senior Director, told Enterprise. Edita is currently working on a sustainability report for 2021.

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Which is precisely why the FRA made ESG reporting a requirement: Companies here are missing out on international partnerships and foreign investors, because they do not implement sustainability disclosures, 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. In a survey by EY, 91% of institutional investors said ESGs and other nonfinancial performance indicators have played a pivotal role in their investment decision-making in 2020.

Did the foreign investors come running? For Edita, the sustainability reports were well received by foreign investors, Shams El Din tells us. Since it’s still early days in ESG reporting, foreign investors appreciate the transparency and are more concerned with looking at strategy as opposed to where firms are now. Edita works on rolling out new and updated policies and initiatives to ensure ESG standards are met in tandem with the firm’s operational expansion, she explains. Cleopatra had a similar experience, with more and more investors asking about ESG in the past year. Investors frequently say “our ESG person will give you a call,” Fikry told us. It’s become very important and makes companies attractive to international investors when they have a good ESG story, he said.

Has putting out sustainability reports been a difficult process? Since Cleopatra was familiar with this kind of reporting internally, it only took a few months to publish a sustainability report publicly. However, in the case of Elsewedy Electric, it first took around two years to put together a sustainability report. It took time for the training and data collection to take place and for all of the factories to understand the new reporting technique before Elsewedy Electric began to tailor a digitalized system to support the data collection, Yehia said. Edita’s internal operations department has been measuring carbon emissions for years, Shams El Din said.

When it comes to implementing ESG policies, some parameters are more difficult than others, particularly environmental-related policies, IR managers tell us. For Elsewedy Electric, environmental initiatives are the hardest as they need a long-term plan while being in line with climate, water, and energy requirements and policies used globally, Yehia said. In the short-term there are added costs to adjust, purchase and upgrade facilities in factories, but in the long-term the move translates into higher quality products and growth, Yehia says. Edita has also been undertaking initiatives to decrease greenhouse gas emissions and water usage, Shams El Din said.

Meanwhile, gender and governance factors are reportedly the easiest: These parameters require adopting new policies as opposed to big investments and changes in operations, Yehia explained.

We need to bear in mind that the requirements don’t necessarily mean that companies will all now have an ESG strategy in place. “The FRA can not force firms to undertake an ESG strategy, but just push them to report on what they’re currently doing,” Hbous stressed. It’s not under the FRA’s jurisdiction to mandate that ESG practices are adopted, and the authority does not realistically expect all companies to be compliant with ESG strategies even after the grace period. However, having the reporting requirement in place keeps firms aware of the long-term threat climate change has on their operations and motivates them to undertake sustainability initiatives to stay competitive against their peers in the market.

What else can firms do internally for the transition to regular ESG reporting to go smoothly? The most important step is to start institutionalizing sustainability within the organization by having a dedicated person or department — depending on the size of the company, Hbous said. Then they should develop their own strategy or vision and outline the steps to start implementing it. “It doesn’t have to be costly at all, it’s all about efficiently managing resources,” she added.

Want more? Check out part I of our reporting on the new ESG requirements, where we break down what exactly will be required of companies once the requirements come into effect.

Your top climate stories for the week:

  • Nobel prize goes to climate change scientists: The Nobel Prize for Physics was split among Syukuro Manabe and Klaus Hasselmann for their model that reliably predicts global warming.
  • Developed countries are failing to fulfill their climate duties: Developed economies, which pledged USD 100 bn annually in climate change funding, are falling USD 10 bn short.
  • Two dozen countries join the Global Methane Pledge: The pact will employ new policies to slash methane emissions by 30% by 2030.
  • Feeding cows garlic could stall climate change: Swiss biotechnology start-up Mootral has developed garlic-infused pellets which work by disrupting methane-producing enzymes in the guts of cows, one of the planet’s biggest methane emitters.

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