Nigerian businesses have treated sustainability as a dispensable philanthropic option
WHY BUSINESSES IN NIGERIA NEED TO TAKE SUSTAINABLE FINANCE SERIOUSLY
KENNETH AMAESHI Professor of Business and Sustainable Development, University of Edinburgh
Nigerian businesses have treated sustainability as a dispensable philanthropic option
Why sustainability is good for business
There’ s significant evidence that sustainability is good for business. A recent study by Harvard and London business schools found that corporations that voluntarily adopt sustainability policies have better organisational processes. They thus perform better when compared to a matched sample of companies that adopted almost none of these policies.
It has also been found that if financial institutions“ integrate sustainability criteria in their risk assessment and decision making procedures, they will strengthen their financial soundness”
Such institutions also“ improve systemic financial stability and contribute to a more ecologically sustainable, just and peaceful world.”
In sum, sustainability is a quest for effectiveness and efficiency. It’ s first and foremost rooted in a commitment to reduce negative impacts and increase positive effects. Positive impacts include low carbon emission, fair employment practices, responsible product promotion and good corporate citizenship practices.
Corporate sustainability is therefore a form of self-regulation driven by the values and philosophy of a business.
But for a long time, Nigerian businesses have treated sustainability as a dispensable philanthropic option. The focus of most businesses has been on survival. As such, the pursuit of sustainability is seen as not necessarily good for business.
No longer an option for Nigeria
Nigerian businesses need to go beyond the piece meal approach of corporate social responsibility. There’ s at least one green shoot that suggests this process might be underway.
The Nigerian government is committed to implementing a national sustainability roadmap for the financial sector. Backed by the United Nations Environment Programme Finance Initiative, it requires each member of Nigeria’ s Financial Services Regulation Coordinating Committee to develop a sustainable development model. This model is for themselves- as organisations- and the industries they regulate.
The committee brings together all the regulatory agencies. These include banking, insurance, securities, pensions, commodities, taxation and fiscal policy sectors. These will be expected to address the integration of environmental and social risks in investment and lending decisions.
According to the UN programme, Nigeria is arguably the first country to adopt this approach to sustainable finance.
Nigeria, like most African countries, didn’ t achieve many of the Millennium goals. This is due to poor governance and the inability of many governments to stimulate sustainable development. The sustainable goals present a new lease of life, which the government of President Buhari has committed to.
What should businesses in Nigeria do?
The full spectrum of the Nigerian financial regulatory community is on board. This means that all sources of finance in Nigeria – borrowings and investments – will soon be required to respect and reflect sustainability principles.
At the moment, the Central Bank of Nigeria expects most large projects to meet these requirements. Agriculture, power, and oil and gas are especially in focus. These projects will be required to demonstrate that they do not cause social and environmental harms, in addition to being profitable.
Banks have been mandated to develop robust social and environmental management systems to guide their lending and investment decisions. In practice, the banks are expected to adopt social and environmental management systems similar to those found in the UK and the Global Alliance for Banking on Values.
Very soon, the sustainable finance approach could be extended to all projects, no matter how small. Finance is the lifeblood of any business. There’ s a global appetite to incorporate environmental, social and governance risks in lending and investment decisions.
As long as Nigerian businesses want to thrive locally and globally, they cannot escape the current demands of sustainability. The earlier they understand and embrace it, the better for them.
2017 | Business Times Africa 55