The International Finance Corporation (IFC) has taken a bold stance by announcing that it will no longer provide funding to private sector companies that fail to comply with or report on environmental, social, and governance (ESG) issues. This decisive move, aimed at promoting responsible corporate practices, may potentially exclude several firms from accessing IFC funding.

ESG standards revolve around how companies conduct their business activities, considering their impact on the natural environment, the surrounding communities, and their employees, all while pursuing profitability.

As the global community grapples with the consequences of climate change, ESG considerations have taken center stage in the corporate world. Regulatory bodies, including the Central Bank of Kenya (CBK), now mandate regulated entities to disclose their ESG practices. The Bank of Uganda has also incorporated ESG adherence into its five-year strategic plan for the sector.

Mary Peschka, IFC’s regional director for East Africa, emphasized that the financial institution will cease engagement and withdraw from projects led by entities that do not demonstrate a commitment to closing ESG gaps. She stated, “We will walk away from projects that have clients or sponsors that won’t commit to our ESG standards.”

IFC’s due diligence process involves a thorough assessment of ESG considerations when entering into business with a client. The corporate governance team then devises plans to address any identified gaps related to ESG issues. This means that private sector businesses in the region not adhering to or reporting on ESG issues may find themselves unable to access concessional lending facilities provided by the IFC.

Presently, only banks are mandated by the Central Bank of Kenya to report on ESG issues, with a limited number of companies listed on the Nairobi Securities Exchange disclosing such information. However, the significance of ESG is growing for private businesses, impacting their profitability as consumers become increasingly conscious of environmental and social concerns.

Mary Peschka emphasized the business benefits of prioritizing ESG commitments, stating, “If you start compromising on your commitments to ESG, it’s a slippery slope. ESG is good business. It’s not just because it’s the morally right thing to do. There’s lots of research that shows it translates to the positive bottom-line.”

The IFC has previously implemented similar programs in Rwanda, South Africa, and Tunisia. The extension of this initiative to Kenya, Uganda, and Tanzania signifies a broader regional effort to ensure that companies align with ESG standards in order to secure funding and contribute to sustainable development.

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