Absa sets the pace on new sustainability reporting standards for NSE firms
As the world gets warmer, the social and economic impact of business activities is becoming a key source of concern to investors and regulators around the globe.
Authorities and a growing number of investors are studying company disclosures on labour practices, data security, and emissions with the same level of rigour and attention as they do on net profit and earnings per share.
For Nairobi Securities Exchange (NSE)-listed companies, sustainability reporting is still a new concept. This call to make disclosures without the risk of greenwashing your hawk-eyed stakeholders is presenting challenges to many accounting and reporting officers.
Increasingly, the need to meet higher standards is pushing companies to adopt more accurate and transparent accounting methods, complete with full disclosures on sustainability.
In Kenya, even as a majority of NSE-listed companies are yet to comply with a 2021 guideline on making sustainability disclosures, Absa Bank is engaging the forward gear with a move to adopt the IFRS S1 and S2 sustainability reporting standards this year.
The IFRS S1 and S2 sustainability reporting standards have been developed following studies by several global organizations. Some of the participating bodies include the Climate Disclosure Standards Board, the Sustainability Accounting Standards Board, and the Task Force on Climate-related Financial Disclosures. Already, businesses from the UK to Australia to Brazil, are fast adopting these standards.
How IFRS S1 and S2 reporting standard works
According to a June 2024 update by advisory multinational Ernest and Young (EY), “IFRS S1 is designed to be applied in conjunction with IFRS S2, which is a topic-based standard that specifies disclosures relating to climate.”
Experts note that IFRS S1 and S2 allow companies to step up transparency, comparability, and most importantly, consistency in their sustainability reporting.
As a result, investors and stakeholders alike are in a better position to study and measure a company’s sustainability practices with ease.
EY notes that IFRS S1 allows a company to share with stakeholders such as investors and creditors their sustainability-related risks, and emerging opportunities in their line of business.
“IFRS S1 is designed to be applied in conjunction with IFRS S2, which is a topic-based standard that specifies disclosures relating to climate,” explains EY.
The audit firm adds that “to be implemented for annual reporting periods beginning on or after 1 January 2024, IFRS S2 requires companies to disclose information about their climate-related risks and opportunities that is useful to investors. Like IFRS S1, the requirements of IFRS S2 are structured around four core elements: governance, strategy, risk management, and metrics and targets.”
By adopting the IFRS S1 standard, the Pan-African lender is poised to enhance the integration of sustainability into its financial disclosures. This move will go a long way in providing stakeholders a better view of how its business activities, for instance, financial inclusion programs and carbon emission cuts are in tandem with its long-term investment and growth plan.
“From driving net zero to expanding financial inclusion and investing in infrastructure, we are committed to action and measurable results, positioning Absa for future success,” explained Absa Bank Kenya Managing Director and CEO Abdi Mohamed during the release of the bank’s Sustainability Report 2023.
Read also: How Absa is accelerating Kenya’s green building shift
Empowering women entrepreneurs
Last year, the bank’s See Her Empowered (SHE) Star Programme empowered over 35,000 women entrepreneurs, further driving financial inclusion.
Absa has set ambitious targets in alignment with UN Sustainable Goals 8 and 10, with several plans to drive equitable financial services access for underbanked communities, particularly individuals and SMEs, and with a special focus on youth and women.
UN Sustainable Goal 8 champions the promotion of sustained, inclusive, and sustainable economic growth along with full and productive employment and decent work for all. At the same time, Goal 10 promotes social, economic, and political inclusion regardless of age, gender, disability, race, ethnicity, origin, or religion within and among countries.
In a first to enhance financial inclusion among Muslim investors in Kenya, Absa launched Sharia-compliant structured investment notes. According to the lender, these “notes provide elite clients with offshore exposure and the opportunity to leverage potential upside profits while guaranteeing capital protection.”
Additionally, Absa Bank Kenya, which has already aligned its climate reporting procedures with the Task Force on Climate-related Financial Disclosures (TCFD), will benefit from IFRS S2 by firming up its climate risk assessments. IFRS S2 is a standard that specifically addresses matters of climate-related disclosures, and helps a business to draw on an established framework from the TCFD.
Absa submitted its inaugural TCFD report to the Central Bank of Kenya (CBK) by June 30, 2023. It has further committed to make this part of its annual reporting practice going forward.
Scope 1 and Scope 2 emissions
Additionally, to reduce its carbon footprint, the bank started measuring and disclosing Scope 1 and Scope 2 emissions in our 2022 TCFD report, the 2023 disclosures show.
By adopting IFRS S2, Absa Bank will be enhancing its ability to share with stakeholders key steps taken towards its net-zero target by 2050 and ongoing climate-smart investments. Overall, this will ensure that the bank has a more precise account of how it is tracking environmental impacts and the progress of its mitigation strategies.
For instance, the bank said that to lower its carbon footprint, it has already retrofitted 85 sites with energy-saving technology. This move has resulted in a 30 percent cut in energy usage since this retrofitting initiative started in 2020.
“In 2023 alone, we achieved an energy-saving rate of 8.3 percent as a direct result of these retrofits… We are also replacing our existing generators with modern, energy-efficient models. This transition to more efficient generators aligns with our goal of reducing our carbon footprint. Additionally, we are extending the use of the latest energy-efficient technologies to our air conditioning systems, further contributing to our energy-saving efforts, the report explains.
