Environmental Social Governance (ESG) encompasses interconnected aspects that integrate an organization’s environmental policies, social practices, and governance structures. This includes considerations such as resource consumption, waste management, carbon emissions, and climate change. Additionally, it reflects the organization’s relationships with its employees and external stakeholders, as well as its internal controls used for governance, decision-making, legal compliance, stakeholder communication, and profit generation.
Strategy for Sacco Boards in Combating Climate Change
Climate change is a natural phenomenon; however, human activities—particularly the burning of fossil fuels and deforestation—have significantly accelerated this process. As part of the industry, Saccos have a crucial role in mitigating climate change. This can be achieved through a set of ESG strategies that Sacco boards can implement.
These strategies include assessing operations, defining the Sacco’s mission related to ESG principles, and developing a comprehensive plan to achieve this mission. However, it’s not just about creating the plan, but about implementing and continuously reviewing it. The board’s role is not just about oversight, but about exercising it diligently, providing insights and advice, establishing operational structures, defining the organizational culture, and demonstrating commitment to the Sacco’s core values. This commitment is further demonstrated by the board’s responsibility to attract, develop, and retain competent individuals, balance long-term and short-term considerations, approve the organization’s risk appetite and tolerance, and ensure readiness for potential crises. Careful consideration of decisions related to opportunities and risks is also a key responsibility of the board, making their commitment and diligence even more crucial.
Role of the Board
During the Sacco Leaders Workshop in November 2024, Christine Mburu, an ESG Consultant with the World Bank – IFC, advised Saccos to establish ESG committees to oversee and facilitate regular in-depth discussions on ESG issues. She emphasized that full board oversight is not just customary, but a crucial aspect of governance. This oversight is particularly effective in smaller companies, where the limited number of independent directors may serve on all board committees and may not have sufficient time for ESG matters, making the board’s commitment and responsibility even more significant.
The ESG Committee provides a platform for regular and thorough discussions on ESG issues. However, Ms. Mburu noted that separating ESG discussions from broader business, financial, and strategic discussions can be risky. Instead, she recommended integrating ESG oversight within existing management committees. This approach is particularly beneficial when developing the ESG strategy, which is a relatively new focus, allowing for significant undertakings while facilitating the development of expertise at the committee level.
Having multiple existing board committees—such as audit, compensation, and governance—dedicated to overseeing specific ESG matters is advantageous. Each committee can take responsibility for aspects of ESG that align with their current expertise, thereby promoting specialization and minimizing the burden on the full board, aside from periodic updates.
Advancing ESG
Key performance indicators (KPIs) for accelerating ESG initiatives in organizations include board diversity, the expertise of individual board members, and relevant subject-matter knowledge. Other important KPIs are the percentage of management training in ethics, anti-corruption, and other key ESG areas, incidents of ESG-related compliance violations, penalties and remediation efforts, as well as ESG-related litigation incidents and their resolutions. Additionally, attention to cybersecurity incidents, risk management, and the financial costs associated with ESG risks are crucial metrics for evaluation.
