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Market Digest Nigeria

Finance

SEC adopts sustainable finance

SEC adopts sustainable finance for capital market operators.

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Nigeria’s apex capital market regulator, Securities and Exchange Commission (SEC) has adopted the Nigerian Sustainable Finance Principles (NSFP) developed by the Financial Services Regulation Coordinating Committee (FSRCC) for the capital market.

In a statement at the weekend, SEC stated that the objectives of its guidelines on NSFP are to stimulate a resilient, competitive and sustainable market that promotes  development and improves the quality of life for all while boosting corporate governance practices to ensure that the participants in the market operate in a transparent and sustainable manner

According to the Commission, the guidelines will also nurture an environment that facilitates job creation and diversity, women empowerment, human rights protection, access to affordable capital market products by the economically less privileged and contribute to efforts aimed at reducing global warming and other environmental footprints resulting from our activities and those of our stakeholders.

The Commission said the guidelines and approach are principles based and, therefore, do not prescribe specific implementation requirements but, however, noted that these principles should be applied by each regulated entity in a manner that fits individual mandates, core values, and enterprise risk management framework.

SEC noted that reporting enhances companies’accountability for the effects of their social impacts which in turn fosters social responsibility in organisations and therefore enhances trust, facilitating shared values on which to build a more cohesive society, adding: “Consequently, regulated entities must report regularly on the extent to which they apply these principles. Consequently, the adoption of financial sustainability principles and its reporting are vital steps towards achieving a sustainable global economy.”

“The capital market plays a major role in the industrialisation and economic development of Nigeria. However, the pursuance of these key objectives involves activities that give rise to a range of challenges, including air and water pollution, climate change, water and natural resource scarcity, environmental degradation, growing population density and poverty. These externalities and other social impacts affect not only businesses but also the communities where they operate. Sustainable finance principles are guidelines developed to help address the impact of these externalities, ensure long term economic growth while safeguarding the environment and society.

“The primary objective is to achieve a balance in the pursuit of economic prosperity while ensuring environmental protection and social development.To this end, the principles help create an economic, environmental and social organisation that ensures and improves economic efficiency, prosperity, and sustained economic competitiveness while contributing to protecting and restoring ecological systems, enhancing cultural diversity and social well-being. In the financial services industry, there is an increasing realisation that sustainable practices have a potential to save costs, grow revenues, reduce reputational and legal risks, as well as drive the development of human capital and improve access to finance,” SEC stated.

In implementing these principles, regulated entities are expected to: Establish the standards for their organisation and be committed to it: They are to set the pace for the integration of the Principles into their organisational culture, such that the Board and Management are committed to sustainable finance and ensuring successful implementation. The entity’s commitment to the Principles should be demonstrated through policies and decisions and also ensure their supervised organisations do the same.

They are also to establish sustainable operations approach by having a set of procedures that detail how Environmental, Social and Governance (ESG) and related issues are managed and aligned with  internal decision-making processes.

Lastly, they are to ensure proper reporting: Regulated entities should ensure that appropriate reports are prepared detailing their progress and performance regarding their commitment to ESG guidelines.

Regulated Entities include Capital Market Operators (CMOs), Trade Groups, Self-Regulated Organizations (SROs) and Capital Trade Points.

The SEC stated that the guidelines on sustainable financial principles set out broad principles and recommendations for better practice in sustainable finance.

“Since investments in assets, especially long term assets directly impact a nation’s development, it is crucial to get the allocation of financial capital right. The capital market operators’ role as intermediaries means they are critical channels through which pricing, regulation and their interaction with society, can direct financial capital to more or less sustainable economic activity.

“These principles, which should be adopted by regulated entities, are essentially a preferred benchmark on which their ESG practices must target. The opportunities that this path is opening, for both growth and value, make these principles relevant to all mainstream financial institutions. Finally, it is hoped that these principles will raise awareness and trigger the implementation of sustainable finance ideals among regulated entities and help facilitate the financing of the transition path to a sustainable economy” SEC added.

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