How far has ESG reporting come? It’s been a little over two years since the Financial Regulatory Authority (FRA) announced that ESG reporting would become a legal requirement for listed companies. While some progress has been made on that front, the ESG sphere at home remains in its infancy and continues to be challenging to firms as they work to readapt their business models and organizational culture.

First things first: what is ESG reporting and why does it matter? ESG reports are disclosures of a company’s environmental, social, and corporate governance efforts — its approach to issues such as climate change, workforce diversity, and board independence. Because companies that fare better on the ESG front are seen as less risky and better prepared for long-term challenges, ESG reports can factor greatly into an investor or lender’s decision to commit funds to a company. In a 2022 survey of global institutional investors conducted by EY, 99% of respondents said they consider ESG disclosures in their investment decision-making. Of those, 74% carry out structured reviews — up from just 32% in 2018.

Companies in Egypt are taking questions from investors on ESG: A source in one prominent EGX-listed company tells us that the company has been getting questions from investors on its recent sustainability report. “Everyone is asking . . . so we’re improving our reporting mechanism to better capture our impact,” they say. The importance of ESG metrics has increased over the past two years and are “now just as important” as their financials, they add.

ICYMI- The reporting requirements in brief: EGX-listed companies and non-bank financial institutions with at least EGP 100 mn of capital need to submit annual ESG filings to the Financial Regulatory Authority (FRA). These reports require firms to answer 50 questions focused on everything from their environmental impact and diversity to health and safety. Larger companies with EGP 500 mn of capital also have to report on certain performance indicators from the Task Force on Climate Financial Disclosure. Companies were required to file their first report along with their FY 2022 financial statements, and over the previous year submitted quarterly updates on the steps they’re taking to comply with the rules. Banks are also required to submit annual sustainability reports under central bank rules.

These aren’t technically ESG reports: The questionnaire draws loosely from a number of international frameworks such as the Global Reporting Initiative, the Sustainability Accounting Standards Board, and the Integrated Reporting Framework but it’s not rigorous enough to abide by these reporting standards. And even though ESG disclosures are reviewed by the FRA and EGX, they are not formally audited by a third party like financial statements.

The extra mile: Firms are not required to issue full ESG reports that disclose information beyond what is asked in the FRA questionnaires. However, a slew of market leaders have been releasing detailed reports on their own accord for years (samples here: SODIC, El Sewedy Electric, Juhayna, and Edita).

NEXT WEEK: Challenges and playing catch-up.

Your top green economy stories for the week:

  • 5-GW wind farm in the works: Scatec signed a land allocation agreementwith the Electricity Ministry for a planned 5-GW wind farm in Sohag governorate.
  • CIB gets USD 100 mn loan from IFC for green projects: The International Finance Corporation is lending USD 100 mn to CIB to help it finance green lending activities.
  • New NDCs: Egypt has updated its Nationally Determined Contribution (NDC), ramping up its renewables target to 42% of the country’s energy mix by 2030 instead of 2035 and upgrading its emissions reduction goal from 70 mn tons to 80 mn tons by 2030.
  • More EV charging stations: Elsewedy Electric subsidiary Elsewedy Plug and Ikarus Electric have reportedly received one-year licenses to build EV charging stations.
  • El Niño is here: Global temperatures will likely surgein the coming weeks and months after the El Niño climate pattern developed in the tropical Pacific for the first time in seven years.
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