Incorporate ESG principles in investment decisions – Analyst

Matthew Boadu Adjei,

The Chief Executive Officer of Oasis Capital, Matthew Boadu Adjei, says incorporating environment, social and governance (ESG) principles in investment decisions should be considered as integral.

Global concerns in the past two decades have been on climate change and the need to protect and sustain the environment. Across different sectors and various levels of global leadership, concerns have also been raised with some solutions proffered to address this issue, as well as social challenges and poor corporate governance practices.

Key among the approaches in dealing with issues of climate change is the promotion of sustainable financing. Sustainable financing requires businesses to modify their traditional models and modus operandi to incorporate ESG principles – environment, social, and governance.

Speaking at the Stanbic Investment Management Services (SIMS) webinar series, Mr. Boadu Agyei said: “It is a very important requirement in our investing process. So before we invest, as part of our due diligence that we do, ESG due diligence is one of the key things. We will not consider an investment even though the financials may be showing very good potentials if we feel the risk related to ESG is very high”.

Over the years, investors have focused on returns and security of investments; however, there is an overarching need to add another cardinal consideration in the investment decision process – how will this investment or this investee company’s business activities impact society and the environment, and what corporate governance structures are being practiced?

Regulating sustainable financing

The CEO further called for a single regulatory framework to guide sustainable financing and businesses activities across different sectors.

“There are some regulatory rules already if you take environment; we have our Environmental Protection Agency (EPA) permit, which is designed to ensure that all activities of the business are done in consonance with the laws.

“The only thing is that there is no single regulation based on the ESG principle governing the activities of businesses. But you find out that most of the governance aspects are captured in respect of the Companies’ Act or Securities and Exchange Commission (SEC) regulations,” he said.

A regulatory drive will support a bigger impact, and even help in a better comparison of the performance of companies. However, in the absence of a single regulatory framework, there should be regulatory disclosure by entities on how they recognise ESG and how they are complying with ESG principles.

“There are laws already governing it, but we need to begin communicating more for people to take it as a framework and it is a mandatory requirement. So, it becomes obligatory that to make an investment the institution must incorporate that as part of the due diligence process; as we have done to our investment practice.

“So, our partners, development finance institutions, the pension funds and other institutions which invest in us require that there are certain sectors we do not – and now we have an exclusion list. There are some investments we will not make by reason of the type of funds we are managing.”

In 2019, the Bank of Ghana launched the Sustainable Banking Principles and Sector Guidance Notes for the banking industry, while the SEC also signed an agreement in May 2021 with the International Finance Corporation (IFC) for the development of a green bonds market in Ghana.

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