Prof. Kariuki Muigua SC, OGW, Ph.D, FCS, FCIArb, Ch.Arb, Managing Partner Kariuki Muigua & Co. Advocates & Member, Permanent Court of Arbitration (PCA)
Environmental, Social and Governance
- ESG refers to a model through which corporations and investors integrate environmental, social and governance concerns into business models.
- ESG entails monitoring and reporting environmental concerns such as carbon emissions, water consumption, waste generation; social concerns such as employee, product and customer related data and governance concerns such as political lobbying, anti-corruption initiatives and board diversity.
- ESG concerns are paramount since social, environmental and governance concerns have become a societal focal point in light of the sustainable development agenda.
- The Sustainable Development Goals seek to achieve global development within the ESG framework by addressing social concerns such as poverty, hunger, health and education, gender equality, access to clean water and employment by promoting investments in areas such energy, industry, innovation and infrastructure while mitigating the effects of climate change.
- Good governance is integral in achieving the sustainable development agenda.
ESG Legal and Institutional Framework in Kenya
- National laws such as the Constitution of Kenya capture ESG concerns by enshrining national values and principles of governance such as social justice, good governance and sustainable development.
- ESG is also captured by the Nairobi Securities Exchange through its ESG Disclosures Guidance Manual, 2021.
- The manual seeks to achieve ESG for companies listed by the NSE towards promoting socially responsible investments.
- The Central Bank of Kenya has also adopted Guidance on Climate Related Risk Management to govern the banking sector in mitigating the effects of climate change.
ESG Framework Across Africa
- ESG concerns seek to achieve sustainable, responsible and ethical investment. It seeks to achieve socially responsible investments by incorporating ESG concerns in investment decisions over and above profitability.
- ESG concerns have shaped economic behavior with an increasing number of corporations and investors considering ESG concerns in their investment decisions. ESG concerns are important in Africa in promoting sustainable investment and development.
- The growing threat of climate change and climate crisis has forced many investors to embrace sustainability as a key factor in investment decision making.
- Africa is endowed with vast natural resources a situation that has attracted investments from both within African countries and foreign countries in the form of Foreign Direct Investment.
- The Continent continues to face environmental challenges such as drought and famine that can be attributed to the climate change concern. Further, social concerns such as unemployment, gender inequalities, poverty and access to education and housing are well documented. The continent also faces governance concerns as evidenced by cases of poor governance and corruption in some countries.
- ESG concerns are thus important in Africa to enable the continent reap from its vast resources.
- Corporation and investors should thus take into account ESG concerns in order to promote sustainable development in Africa.
- ESG concerns have the ability to enhance the competitive strategy and financial performance of corporation.
Hague Rules on Business and Human Rights Arbitration
- The Hague Rules on Business and Human Rights Arbitration provide a set of rules for the arbitration of business and human rights disputes.
- The rules were enacted out of the realization of the impact of business activities on human rights.
- The rules are based on the Arbitration Rules of the United Nations Commission on International Trade Law (the “UNCITRAL Rules”), with modifications needed to address certain issues likely to arise in the context of business and human rights disputes.
- Arbitration under the rules can provide for the possibility of a remedy for those affected by the human rights impacts of business activities and designing businesses with a mechanism for addressing adverse human rights impacts with which they are involved.
- Under article of the rules, the characterization of the dispute as relating to business and human rights is not necessary for jurisdiction where all the parties to the arbitration have agreed to settle a dispute under the Rules.
- The rules stipulate certain matters relating to the conduct of arbitration proceedings such as appointment of the tribunal, objections to jurisdiction, filing of pleadings, interim measures, taking of evidence and hearing.
- Under article of 45 of the rules an award of the tribunal order monetary compensation and non-monetary relief, including restitution, rehabilitation, satisfaction, specific performance and the provision of guarantees of non-repetition. An award may also contain recommendations for other measures that may assist in resolving the underlying dispute and preventing future disputes or the repetition of harm, which shall be binding only if agreed by the parties.
- The rules also contain a code of conduct to guide arbitrators in management of disputes. The Code sets out certain matters such as the duty of disclosure, independence and impartiality of arbitrators and confidentiality.
- The Hague Rules are important in promoting responsible business conduct by providing a framework for management of disputes that may arise as a result of bad business practices.
- The rules are also important in the sustainable development agenda especially in Africa as they can enhance sustainable investment and development.
*These talking points on ESG Dispute Resolution extracted from a presentation to ICC YAF Africa Conference: “Saving Mother Africa: Resolving Environmental Social and Governance (ESG) Disputes.”
