ESG: The Ghana Perspective

Source: Lady-Ann Essuman, Ewurama Osam Tawiah, Verissa Odame- Koranteng

INTRODUCTION

This article discusses the Ghanaian perspective on ESG, including defining ESG, its difference from corporate governance, its relationship with sustainability, and the impact of not implementing ESG factors in Ghanaian business. ESG, an acronym for Environmental, Social, and Governance, refers to a set of factors used to evaluate a company's sustainable practices. In other words, ESG criteria consider how a company performs regarding environmental responsibility, social impact, and governance practices. Investors and other stakeholders can better understand a company's long-term sustainability and potential risks and opportunities by assessing these factors. These elements work together to determine an organisation’s ability to support, sustain and improve the quality of an organisation and society.

While Ghana's laws may not mention ESG explicitly, the underlying principles and concepts advocated by ESG are incorporated within the country's legal framework. Examples include the Constitution, the Bank of Ghana’s Sustainable Banking Principles and Sector Guidance Notes, the Companies Act, 2019 (Act 992), the Environmental Protection Act, 1994 (Act 490), the Minerals and Mining Act, 2006 (Act 703), the Labor Act, 2003 (Act 651), amongst others.

Additionally, specific regulatory bodies are tasked with enforcing various aspects of ESG. These include the Environmental Protection Agency (EPA), responsible for overseeing companies whose operations impact the environment; the Labour Commission, tasked with regulating employer-employee relationships; and the Bank of Ghana, responsible for governing financial institutions and their transactions within Ghana.

THE CONCEPT OF ESG

In this section, we will break down ESG factors. The Environmental (“E”) factor pertains to preserving our surroundings. This includes air and water pollutants, deforestation, waste production and management that deplete natural resources, and carbon emissions that cause climate change. The Social (“S”) factor relates to the organisation's cultural, safety and ethical values and standards. This includes elements such as labour management, health and safety in the workplace, discrimination and human rights, philanthropy, product quality and safety, and privacy and data security. The Governance (“G”) factor relates to the internal rules and policies that regulate an organisation in addition to complying with industry best practices. This includes corporate governance, board diversity, board and executive compensation, ownership and control of an organisation, business ethics, anti-competitive practices, and tax transparency[1].

ESG factors are peculiar to every industry, so each industry must identify and address its specific ESG factors to develop its business. For example, in the Ghanaian mining industry, some peculiar ESG factors to consider would be community engagement with the chiefs and elders in the mining community for their views on what the company can do to support that community, whether to use surface or underground mining and the risks each of them would pose to the community and employment of the locals in the construction of the mine[2]. The food industry will differ in the above examples as they need to determine the safety of the food they produce for sale to the community.

Although most businesses in Ghana have incorporated Corporate Social Responsibility (“CSR”) into their business practices, this does not compensate for the impact that ESG practices would have on their business. ESG considers social, environmental, and governance factors, while CSR focuses on a business's accountability to itself, the community, and society through social and economic impact measures.

A company practising ESG contributes to community development and sustainability through local employment opportunities, infrastructure investment, and training promotion. It is important to note that in employing the ESG factors, an organisation must ensure that it embraces methods that will promote the inclusion of the community and protect the environment. These ultimately boost the productivity of any organisation.

HOW IS ESG DIFFERENT FROM CORPORATE GOVERNANCE?

While the definition of corporate governance may vary in different parts of the world, it is widely acknowledged as a necessary framework for effective business operations. Corporate governance is a crucial aspect of any company as it determines how it is governed and controlled. It encompasses a set of rules, practices, and processes that are put in place to ensure that transparency and accountability are always maintained.

In Ghana, the principal legislation governing companies is the Companies Act, 2019 (“Act 992”). Act 992 provides the organisational framework required for good governance in companies. Other legislation, such as the Corporate Insolvency and Restructuring Act, 2020 (Act 1015) and several sectoral corporate governance codes, also govern the management and administration of companies in Ghana.

As already discussed, ESG is a term used to describe the essential elements for determining and maintaining sustainable business practices. With the advent and popularisation of ESG, one frequently asked question is whether ESG is the same as corporate governance. The answer is No. This is because while ESG considers Environmental, Social and Governance factors of businesses, corporate governance focuses only on good governance practices. ESG is more advanced in scope since it covers not only the good governance aspect of companies (corporate governance) but also environmental issues such as Environmental Impact Assessments (EIA) and Environmental and Social Impact Assessments (ESIA)[3], carbon emissions, deforestation, waste management and water usage and social indicators like Corporate Social Responsibilities (CSR) practices.

The governance aspect of ESG ensures the implementation of factors such as board diversity, that is, having gender balance, diverse expertise, and cultural balance on a board of a company; implementation of senior management policies, corporate cybersecurity; corporate behaviour: such as sound business ethics, tax transparency, the management of community relationships and stakeholder engagement and risk management: including climate risk and societal risk[4]. ESG also measures corporate governance qualitatively and quantitatively by correlating corporate governance with key performance indicators. The long-term goal of ESG is to ensure that businesses are sustained and remain relevant in society. Therefore, it is safe to conclude that corporate governance is a factor of ESG.

ESG AND SUSTAINABILITY

ESG and sustainability are closely intertwined. ESG serves as a framework that evaluates a company's sustainability performance.

Sustainability, in a broad sense, refers to the ability to support and continue a process over time[5]. It is the management of a company's environmental, social and financial concerns to ensure responsible, ethical and ongoing success.[6] One of its aims is to help resolve or mitigate environmental, social and economic challenges by strategically managing corporate resources. Furthermore, the goal is to increase a company's positive influence on society, promoting favourable relationships with customers, employees, investors, and other stakeholders.

The three key pillars of sustainability are: environmental, social and economic.

Preserving natural resources, minimising pollution, and addressing climate change are the goals of environmental sustainability. Businesses focus on this pillar to keep ecosystems healthy and ensure long-term viability. It is worth noting that ESG aligns with this pillar by assessing a company's environmental impact, resource management, and efforts to combat climate change.

Social sustainability promotes social well-being, human rights, and inclusive communities. It ensures access to basic needs like clean water, food, healthcare, education, and shelter while respecting human rights and promoting fair labour practices. In line with this, ESG considers a company's social impact, including labour practices, diversity and inclusion, community engagement, and customer satisfaction.

Economic sustainability involves creating financial value while ensuring equitable resource distribution and responsible business practices. This involves fostering economic growth, promoting responsible business practices, ensuring equitable distribution of resources and wealth, and supporting sustainable consumption and production patterns. ESG factors, such as governance, transparency, and ethical behaviour (good corporate governance), contribute to economic sustainability by promoting long-term value creation and equitable economic systems.

It is evident that the relationship between ESG and sustainability lies in the fact that ESG serves as a means to achieve sustainability objectives. It is a way that businesses can demonstrate their commitment to sustainable business practices. ESG can be seen as the practical, detail-oriented perspective on sustainability. By integrating ESG factors, companies can assess their environmental, social, and governance impact and work towards long-term sustainability. ESG integration goes beyond mere compliance or meeting regulatory requirements; it provides a comprehensive framework for identifying risks, driving positive change, and aligning business practices with sustainability principles.

ESG serves as a tool to promote sustainability by considering the implementation of environmental, social, and governance factors in business operations. Ultimately, a business needs ESG to be truly sustainable.

IMPACT OF NOT IMPLEMENTING ESG FACTORS IN HANAIAN BUSINESSES

Implementing ESG factors is crucial for business success in Ghana, where culture heavily influences business practices. Two approaches exist: internal and external implementation. Below are practical examples for perspective.

An external implementation of ESG is a business’s conduct with its environment and stakeholders, such as its customers and the community. In the mining industry, for example, the land from which metals are extracted may be owned by a traditional area hence must be granted by the chief of that area before the mining license will be granted by the government of Ghana. In such a situation, it is impossible to succeed without involving the community and ensuring that the business impacts it positively by giving back to the community.

An internal implementation of ESG is a business’s conduct with its most valuable asset, human resources. Small and Medium Enterprises (“SMEs'') in Ghana, for example, are mainly run as one-person businesses (run by only a managing director without a board); however, to ensure sustainability, the narrative must be changed. SMEs must institute accountability measures for the managing director to the Board and use policies to govern the business's employees and financial reporting for effective decision-making. Performance management and training systems are practical tools for employee management as they become aware of their value in the company and produce results that ensure the SME's productivity and sustainability.

In the banking industry, for example, to retain a customer, the bank, through its employees, must constantly engage the customer by employing interpersonal relations to build trust and confidence in the customer to maintain their business, such as speaking in any of the local languages of the location of a branch that customers are more conversant with. They must engage in community activities to give back to the community by engaging in promotional activities like raffles or draws to keep the community engaged. The above are all efforts to build trust and confidence to retain business.

To conclude, it is fatal to do business in Ghana without implementing ESG factors because a business will not be sustainable.

[1] 2023 Baker Tilly’s Fraud Summit, Environmental, Social and Governance (ESG), page 7

[2] ESG across the Mining Value Chain Course Content, page 12

[3] ESG across the Mining Value Chain Course Content, page 5

[4] Lexis Nexis Regulatory Compliance, United Kingdom, Environmental Social Governance Checklist page 6 & 7

[5] Black’s Law Dictionary 8th Edition

[6]Techtarget.com – business sustainability by Ben Lutkevich