ESG disclosures have become a de facto requirement in Zimbabwe

This article was originally published in Modern Mining Magazine’s December Issue.

Disclosing information that covers a business’s operations and risks in environmental stewardship, social responsibility and corporate governance (ESG) plays an important part in how it is seen by investors, customers and clients. ESG disclosures are becoming mandatory in many places, both in Zimbabwe and overseas, and RSK’s Africa ESG Director Mark Gibson explains how mining houses can leverage their alignment with ESG standards for an advantage in business and investment.

ESG reporting has been gaining ground worldwide for some time. It effectively measures performance across three key areas: environmental sustainability, social responsibility and corporate governance. This reporting is typically done using predefined key performance indicators and metrics. It isn’t driven by finance or accounting concerns – the goal is to disclose the information that investors and regulators need to make decisions about the company’s ESG performance to compare it with other businesses. In other words, ESG disclosures are made alongside financial ones.

ESG reporting calls for companies to measure and disclose three key areas: environmental, social and governance. On the environmental side, metrics such as the amounts of materials used in manufacturing, total energy consumption, waste generated and greenhouse gases produced are expected. For social, some requirements include recruitment and turnover, health and safety incidents, gender diversity of employees and average hours of training per employee. Governance reporting includes the composition of the board and the split by gender and roles – executive, non-executive and independent, as well as the company’s compliance with laws and regulations and any non-compliance incidents, litigation or fines incurred by the organisation.

Those seeking investment internationally may well have come across ESG reporting already. Foreign investors increasingly want to see ESG pre-qualifications as investor confidence is now tied to ESG credentials. Indeed, this type of reporting is already required for many subsidiary companies. Subsidiaries of EU-based parent companies are required to follow the EU Sustainable Finance Disclosure Regulation (SFDR) and those whose parent companies operate in International Financial Reporting Standards (IFRS) compliant jurisdictions must follow the Corporate Sustainability Reporting Directive (CSRD) and upcoming IFRS global sustainability and climate disclosure.

Recently, the Reserve Bank of Zimbabwe has been encouraging adoption of the Sustainability Standards and Certification Initiative (SSCI). The central bank issued climate risk guidelines for the banking sector and, as of January 2024, the Zimbabwe Stock Exchange has adopted the Global Reporting Initiative (GRI) Standards and developed core sustainability metrics as a minimum starting point, making environmental, social and governance disclosures mandatory for all companies listed on the Zimbabwe and Victoria Falls Stock Exchanges. Currently, there are only a few Zimbabwean mining companies that are listed on those two stock exchanges; however, this does not mean that privately owned mining groups can ignore ESG reporting.

In capital markets where prospective borrowers might go to find investment, such as London, Toronto or Sydney, where much investment for the mining sector comes from, ESG reporting is increasingly of interest to prospective investors. While reporting is not yet compulsory for private capital, there are guidelines in place, and it is increasingly the case that investors are preferring to invest in companies that do disclose ESG information.

Institutional lenders, however, are duty bound by rules and regulations where they are present, so where there are requirements in relation to reporting, they must act accordingly. Where a lender must report against, for instance, the Task Force on Climate-related Financial Disclosures, or where there is a Stakeholder Action Group, pressures are placed upon the institution to let the world know what they are investing in and who they are lending to. For these sources of funding, ESG reporting from their investments will be crucial both to maintain compliance with their obligations, but also in making their choice of who to lend to or invest in. Companies with good ESG ratings are likely to be preferred.

And it is no longer just about investments. The Corporate Sustainability Due Diligence Directive, a piece of EU legislation, will require importers in the European Union to declare information about their supply chain and take steps to ensure that modern slavery or child labour are absent. So even for those businesses for whom investment is not a concern, they may find that ESG reporting becomes a necessity in order to do business with overseas clients.

All of this is significant. It shows a clear direction of movement towards concern over sustainability in the international arena. At home too, emphasis on ESG is becoming more prevalent. In the 2023 National Budget Statement, Professor Mthuli Ncube called for miners in Zimbabwe to make ESG a priority, echoing prior statements from President Mnangagwa; hardly a surprise, given the importance of Zimbabwe’s mineral sector to the economy.

ESG is no longer an option. It has become a requirement nationally and needs to be considered by companies doing business or seeking investment internationally. Among other things, it means establishing and implementing an ESG strategy; identifying the key people who will be involved in the process; gathering, compiling and analysing data; identifying where gaps or challenges exist and what steps are being taken to address those; and making a stand-alone report or incorporating the information into an annual report. Mining houses that make a start with ESG in the short term will avoid having to play catch-up as requirements tighten and pressure increases. Being ahead on this will mean they have access to a larger set of potential investors, lenders and clients in the near future than if they had waited.