Environmental Social Governance (ESG) integration is required to promote a just energy transition in Africa (By Vincent Obisie-Orlu) – African Business

By Vincent Obisie-Orlu

In a recent editorial, Washington Examiner, African Energy Chamber Executive Chairman NJ Ayuk labelled Environmental Social Governance (ESG) as “Colonialism 2.0”( https://bit.ly/3wx6YlY). Mr Ayuk claims that ESG criteria are being used to force Africa to use its fossil fuels to develop its economies. He claims that ESG puts the environment ahead of food security, energy security, poverty reduction and food production in Africa. But is this really true? 

ESG (https://bit.ly/3wwgSnCPerformance is the incorporation of non-financial elements into strategic investment decisions and business decisions of companies and governments. This framework of taking environmental responsibility seriously helps stakeholders understand how companies and governments manage and mitigate their risks and capitalize on the opportunities. 

ESG proponents must address valid criticisms such as ineffective baseline data, inconsistent measurement, and lack of (https://bit.ly/3DgBcND) of a systematic approach to ESG across different rating agencies and by different governments; greenwashing (https://bit.ly/3wsA7yn) and social-washing (https://bit.ly/3Y18DffESG fund managers focusing too much on emissions and not enough on social considerations such as labour and human right issues. ESG has also been called a dangerous distraction.https://on.ft.com/401ldwM) that takes attention away from making the necessary changes needed to address the climate crisis. 

Despite these criticisms it is not fair to mix ESG practice and colonialism. Instead, integration of ESG criteria in corporate and development policies presents opportunities for African economies. 

Companies can reduce their risk over the long-term by incorporating considerations that enhance social and political stability, and support progress towards achieving Sustainable Development Goals (SDGs). Similar incorporation into government policies offers similar opportunities for African governments. This includes better management and mitigation of social and political risks, sustained progress towards attaining national SDGs, increased capital access, and greater control over the risk of corruption. 

ESG measurement systems in Africa must be able to adapt to local contexts as well as the developmental challenges specific to each context. 

 Climate, energy, hypocrisy, and the danger of mixed messaging  

During COP27, delegates representing the European Union (EU), threatened to walk out (https://politi.co/3XEqEQz) of negations in protest of a weak deal, stating that climate goals could very well die there because developing countries were refusing to cooperate. 

France reopened its coal powerplants a week after COP27 and talk about 1.5 degrees being on the brink of death.https://bit.ly/3j8qqCj) in response to the energy crisis they are facing. Germany, perhaps the world’s most significant promoter of decarbonisation, now looks to exit coal only by 2038 (https://bloom.bg/3DgypnH). Recently, the United Kingdom (one of the key members in the Just Energy Transition Partnership) approved coal mining, for the first time since 30 years.https://reut.rs/3HxouNh) in response to its domestic energy supply challenges. This is important because the JET-Ps calls for countries to gradually reduce or abandon coal (https://bit.ly/3wsd5YL) as part of their energy mix. 

This inconsistency is harmful to the ambitions of a just transition to energy. It lends credence to the view that Western countries are trying to hold down the development of Africa and other developing countries through the “climate agenda”. We should have learned from the global pandemic that inconsistency regarding directions and implementation is a recipe for conspiracy and distrustful of authority. If developed and European countries continue to be inconsistent, they could destroy progress on climate agreements and partnerships. 

Policymakers understand that promoting and ensuring energy security is critical for their political futures and their countries’ economic fortunes. European policymakers as well as global finance institutions must acknowledge the importance and necessity of energy security when engaging in Africa. If this is not done, it creates the impression that the rich world is happy to impose green energy on poorer nations while they continue to use fossil fuels. This is mutually destructive.  

ESG is a tool to promote a just energy transition for Africa 

Hypocrisy aside. However, the integration ESG criteria into development policies opens up vast opportunities to support Africa’s achievement of the SDGs. Integration can have significant benefits in promoting and securing a just energy transition. The inclusion of sound ESG criteria which prioritise the social wellbeing, security, and stability of African economies, in addition to the promotion of good governance, are crucial for the energy transition’s success. 

ESG is a way to address one of Africa’s key problems, the global energy transition. This is especially true as countries shift away from coal. This is clearly evident in South Africa, which worries about job losses (https://bit.ly/3HFERYd) from the just transition are a sticking point. South Africa faces significant challenges in terms of labour unrest. It is important to consider the implications for long-term stability as well as the increased joblessness. 

An African vision for ESG must promote a just transition to energy. It must focus on job loss and job growth. It must also place emphasis on the development and growth of new industries in areas that are affected by the coal transition. This will require all parties to these agreements, especially governments, to prioritize their people. 

The mechanism of debt for Nature Swaps is another way ESG integration can be used to support African countries. The Paris Agreement obligates the world to a net zero pathway. There are also several agreements that protect biodiversity and wildlife.https://bit.ly/3kwkzab). Swaps of debt for nature (https://bit.ly/3DbsqkcThese two sets of agreements () are combined to give African countries the opportunity to use their natural ecosystems and their carbon sink value in exchange for their debt forgiveness.https://bit.ly/3kK5QZD) and support for the preservation of these ecosystems. To achieve net-zero, nature-based solutions for decarbonisation are crucial. Debt for Nature Swaps (DfN) have significant ESG potential because they are an environment policy that addresses national governance challenges around debt sustainability. They also reduce the social problems that austerity usually produces and can potentially create employment. 

Conclusion  

ESG attainment is a dynamic process that requires greater input from Africa and the developing countries to ensure that policies are not misguided and are responsive to the priorities and needs of the relevant populations. The increasing global pressure for improved ESG performance can therefore support and promote sustainable development and effectively address accusations such as Mr Ayuk’s.

Dismissing ESG as a ‘colonial imposition’ disqualifies the opportunities it offers for sustainable development. The idea that unabated fossil fuels are the only channel to address African countries’ energy and developmental challenge is too convenient for vested interests and is insufficient to produce broad-based development.

*This article was originally published on the Good Governance Africa website. https://bit.ly/3wADlzT

Distributed by APO Group in Good Governance Africa.

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