What is ESG and How is Nigeria Getting Ready for the Energy Transition?

By BALA AUGIE

Companies in Nigeria are gradually embracing ESG as the country (a major oil producer) looks with some trepidation to the looming energy transition.

ESG is a framework that helps stakeholders in an organization (such as shareholders, regulators, consumers and employees) understand how it is managing risks and opportunities related to environmental, social, and governance criteria (sometimes called ESG factors).

ESG takes the holistic view that sustainability extends beyond just environmental issues. The goal of ESG is to capture all the non-financial risks and opportunities inherent to a company’s day to day activities.

Why is ESG and sustainability necessary for Nigeria?

Nigeria is part of the global economy and is equally affected by global challenges such as: climate change, transitioning from a fossil fuel based economy to a sustainable one, increasing inequality, balancing economic needs with societal needs.

Investors, regulators, as well as consumers and employees are now increasingly demanding that companies should not only be good stewards of capital but also of natural and social capital and have the necessary governance framework in place to support this.

More and more investors are incorporating ESG elements into their investment decision making process, making ESG increasingly important from the perspective of securing capital, both debt and equity.

Nigeria is also a major oil producer and a global push for decarbonisation and renewable energy makes it among one of the most vulnerable countries, hence a need for the public and private sector to embrace ESG and sustainability plans.

Breaking down the Environment, Social and Governance pillars of ESG

Environment: Curbing emissions such as greenhouse gases and air, water and ground pollution emissions fall under the environment. Resources use such as whether a company uses virgin or recycled materials in its production processes. Similarly, manufacturing companies are expected to be good stewards of water resources.

Land use concerns like deforestation and biodiversity disclosures also fall under the Environmental Pillar. Companies also report on positive sustainability impacts they might have, which may translate into long-term business advantage.

Social: Under the Social Pillar companies report on how they manage their employee development and labour practices. They report on product liabilities regarding the safety and quality of their product. They also report on their supply chain labour and health and safety standards and CSR to underprivileged groups.

Governance: The main issues reported under the Governance Pillar are shareholder’s rights, board diversity, how executives are compensated and how their compensation is aligned with the company’s sustainability performance. It also includes matters of corporate behavior such as anti-competitive practices and corruption.

Are Nigerian companies embracing ESG?

Some Nigerian companies are in the forefront of ESG reporting including the large banks, Telco’s and a few manufacturing firms.

Guaranty Trust Holding Company (GTCO) Nigeria’s largest bank by market capitalization, releases a bi-annual Sustainability Report that covers the Marketplace, Community, Environment, Workplace as well as a scorecard in the implementation of the Central Bank of Nigeria’s Sustainable Banking Principles and some of the UN SDGs.

GTCO’s Environmental & Social Risk Management (ESRM) framework is integrated into its credit approval process to ensure that lending activities do not have adverse environmental and social implications on the environment. Thus, in the reporting period, it screened all the 196 corporate credits approved by GTBank Limited for E&S risks.

BUA Cement, Nigeria’s second largest cement manufacturer says it is committed to incorporating sound environmental and social standards into its business operations. It says it carries out its operational activities in a manner that has minimal impact on the environment through strict adherence to emission standards; reduced fresh water use, water recycling and land reclamation. The Company also supports the government efforts at achieving Sustainable Development Goals (SDGs) through its social initiatives – educational scholarships, provision of potable drinking water through construction of boreholes and provision of other social amenities and infrastructure to communities where BUA Cement operates.

Nigeria’s energy transition plan

Africa contributes only 3.80 percent to global emissions but it is the most susceptible region to the adverse effect of climate change.

Experts say Africa’s green revolution requires immediate and significant funding that is larger than the resources available to African governments, that have so many competing priorities such as poverty, economy, education, healthcare, security, and more – all of which have a direct impact on the livelihood of Africans, especially the youth.

The world is experiencing the daily impact of global warming due to emission which is not only deleterious but causes persistent environmental degradation of Africa’s Sahel region.

Analysts say more private sector participation in Nigeria’ transition to green energy is crucial as it would help the country achieve its objectives in the implementation of its Energy Transition Plan.

Nigeria’s Energy Transition Plan is a “comprehensive, data-driven and evidence-based plan”, designed to deal with the twin crises of climate change and energy poverty.”

It is anchored on key objectives, including lifting 100 million people out of poverty in a decade, driving economic growth, bringing modern energy services to the full population and managing the expected long-term job loss in the oil sector due to global decarbonization.

Programmes under the plan include: Nigeria’s Solar Power Naija (under its Economic Sustainability Plan), the Nigerian Electrification Programme with the World Bank Group and the African Development Bank, and also the Rural Electrification Fund providing almost $1 billion in financing and subsidies to drive 10 million connections.

Nigerian President Bola Tinubu recently has approved a $750m World Bank funding for the construction of 1,200 mini-grids in rural communities across Nigeria.

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