Corporate entities in Namibia are progressively adopting policies that address environmental, social and governance ("ESG") factors affecting their corporate operations. These may involve their ESG objectives or ESG sustainability and integrated reporting obligations. Historically, ESG risks, or non-financial risks, were not always considered alongside financial risks, and the impact they may have on a company's ongoing financial success has oftentimes been overlooked. Notwithstanding the growing awareness of these factors, some corporate leaders remain sceptical, deterred by the additional expense associated with ESG reporting and concerns that these developments represent a passing fad. Whatever your view of the recent hype around ESG, it is worth recognising that, unknown perhaps to most, ESG principles have long been entrenched in the Corporate Governance Code for Namibia ("NamCode") and serves as a recognition of the long-term benefits for corporates in addressing these factors.
ESG Principles and the NamCode
The NamCode is founded on international best practices and the King Code of Governance in South Africa, 2009 ("King III"). NamCode's intention is not to force companies to comply with recommended practices, but rather for companies to "apply or explain". Directors may choose to apply the recommended practices contained in the NamCode. Should directors opt not to apply the international best practice guidelines provided for in the NamCode, they are to explain their reasoning and motivations for not doing so to their shareholders, to whom they remain accountable in respect of matters relating to general corporate governance.
The NamCode is a benchmark against which directors must measure themselves at the behest of their shareholders and other stakeholders.
Although the NamCode makes no specific reference to the concept of ESG itself, it includes various guidance exemplifying the principles underpinning ESG. For example, Principle C1-1 provides that "the board should provide effective leadership based on an ethical foundation", which includes "[building] sustainable businesses by having regard to the company's economic, social and environmental impact on the community in which it operates". Principle C1-2 also requires that "the board should ensure that the company is and is seen to be a responsible corporate citizen." According to the NamCode, responsible corporate citizenship implies an ethical relationship of responsibility between the company and the society in which it operates. As responsible corporate citizens of the societies in which they do business, companies have, apart from rights, also legal and moral obligations in respect of their economic, social and natural environments. As a responsible corporate citizen, the company should protect, enhance and invest in the wellbeing of the economy, society and the natural environment.
These principles align with sustainability and consideration of ESG, requiring directors to consider the impact, from an environmental, social and economic perspective of their company's operations on the community in which they operate, placing this duty on leadership and specifically the directors of the company and requiring the board to ensure that the company both is and is perceived to be, a responsible corporate citizen.
ESG and the NSX Directive
The Namibian Stock Exchange ("NSX") echoed the importance of considering ESG factors for investors in the issuing of its NamCode Directive in 2022. The Directive requires companies listed on the NSX to appoint a social, ethics and sustainability committee ("SES Committee"). A SES Committee is a board committee under Principles C2 – 23 of the NamCode The responsibilities of the SES Committee include:
- Oversight and reporting on organisational ethics;
- Responsible corporate citizenship;
- Sustainable development;
- Stakeholder relationships;
- Integrating ESG factors into business strategy and organizational culture operational practices by means of policies and practices in a way that supports the long-term profitability and viability of a company;
- Oversight and management of ESG-related risks and opportunities.
Implications of not implementing ESG principles
What does this mean for a corporate director in Namibia?
Under the Companies Act, 2004, directors have fiduciary duties when acting in their capacity as directors, which includes acting honestly, in good faith and in the best interest of the company. Directors are also required to exercise a reasonable degree of care, skill and diligence in their decision-making processes and actions. Arguably, a prudent director must ensure that the company which it serves has considered the ESG risks and opportunities applicable to its operations and has adopted an ESG policy on the basis of such consideration. Not to have done so arguably exposes the company to financial loss through unmitigated risks or missed opportunities.
While the NamCode principles and the NamCode SES Directive are not obligatory for non-listed companies, listed companies are advised to maintain the listing requirements set out by the NSX by addressing the extent of the company's compliance with the NamCode in its annual report and financial statements. In the event of non-compliance with any of the NamCode principles, this would include a statement addressing the reasons for non-compliance.
The consequences for directors of both listed and non-listed companies who do not comply with their fiduciary duties and responsibilities are further set out in the Companies Act, 2004. These may include removal from their position, being held personally liable by shareholders for company losses and liabilities, criminal charges or imprisonment.
Accordingly, while ESG principles are currently still voluntary in Namibia, given developments globally and elsewhere in Africa, we can expect to see a hardening of the responsibility of directors to take ESG factors into account, as part of their fiduciary duties. Namibian directors are advised to ensure that they have considered the impact of environmental, social and governance factors on their companies and that they have integrated this into their strategy and policy, as well as operationalising this through their organisations. By doing so, Namibian directors will ensure the sustainability of their operations in a changing landscape of regulation and social norms, while maintaining the company's social license to operate and being a responsible corporate citizen.
Reviewed by Jessica Blumenthal, an Executive at ENSafrica.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
