As sustainability concerns, corporate ethics and risk management gain prominence, businesses are increasingly required to integrate ESG principles into their operations and reporting mechanisms. Regulators, investors and consumers are demanding greater transparency and accountability, making ESG compliance a critical factor in maintaining corporate legitimacy, financial resilience and long-term growth. With the rise of mandatory ESG disclosures, companies must adapt to evolving legal and regulatory requirements, ensuring alignment with global sustainability standards while mitigating risks associated with non-compliance.

South African perspective

Historically, the ESG regulatory framework in South Africa has been shaped by a combination of international standards of best practice and voluntary guidelines. There are currently no mandatory requirements for companies to make any ESG-related disclosures. However, following the implementation of the sustainability disclosure standards by the International Sustainability Standards Board (ISSB) in April 2024, specifically IFRS S1 (General Requirements for Disclosure of Sustainability-related Financial Information) and S2 (Climate-related Disclosures), there may be some key regulatory developments in the ESG compliance framework in South Africa worth noting.

As recently as May 2024, several regulatory bodies such as the Prudential Authority (PA), the Financial Sector Conduct Authority (FSCA), the Department of Trade, Industry and Competition (DTIC), and the Companies and Intellectual Property Commission (CIPC) undertook public consultation processes and established task teams with the view to enhancing the sustainability reporting landscape in South Africa.

Disclosure obligations for listed companies

Around June 2022, the Johannesburg Stock Exchange (JSE) launched enhanced sustainability and climate change disclosure guidelines for listed companies. These disclosure guidelines, while robust, are not mandatory or burdensome and will remain as such even with the move towards stricter compliance measures to align with global best practices.

The JSE will continue to monitor the regulatory developments with the PA, FSCA, DTIC and CIPC to ensure that it keeps pace with agreed sustainability reporting standards.

Disclosure obligations for private companies

On 31 January 2025, the CIPC published a notice (Notice 6 of 2025) about its public consultations process and deliberations with the DTIC, with the view to implementing mandatory sustainability reporting obligations.

The DTIC and CIPC have established a steering committee to oversee a regulatory impact assessment on adopting the sustainability disclosure standards by the ISSB in South Africa. The CIPC has also engaged the services of Alexforbes to conduct a market survey, which together with the research of the steering committee, will inform the policy and legislative position on sustainability-related disclosures in terms of the Companies Act 71 of 2008, as amended from time to time.

Companies that are subject to the mandatory audit requirements under Regulation 28 of the Companies Regulations, 2011, are encouraged to participate in the market survey available on the “XBRL Programme” under the CIPC’s website.

Kenyan perspective

Kenya has made significant progress in integrating ESG principles into corporate governance, regulatory frameworks and business practices. ESG considerations are increasingly shaping boardroom discussions, investment strategies and corporate decision-making, moving beyond mere compliance to long-term sustainability. These efforts have been motivated by the collective understanding that corporations have a larger responsibility in reducing the negative social and environmental effects of their businesses. Kenya’s commitment to ESG has been evident in the country’s general legal framework, including its Constitution as well as environmental, climate and corporate laws. In addition, specific ESG frameworks have been developed, and these are discussed below.

Disclosure obligations for listed companies

Kenya has developed the Capital Markets Authority Code of Corporate Governance Practices for Issuers of Securities to the Public (Code). The Code sets out the principles and specific recommendations on structures and processes that companies should adopt in making good corporate governance an integral part of their business dealings and culture. The Code outlines examples of material topics that boards of listed companies should prioritise. According to the Code, material information includes any information that could affect the price of a company’s securities or influence investment decisions. Listed firms are encouraged to refer to the Code when determining which ESG topics to disclose in their reporting.

The Nairobi Securities Exchange (NSE) has developed an ESG Disclosure Manual (Manual) to guide listed companies in Kenya on ESG reporting. The Manual underscores the importance of materiality in ESG disclosures, ensuring that companies focus on the most significant sustainability issues. In financial reporting, materiality refers to the threshold at which information influences stakeholders’ decisions regarding an organisation’s financial statements. Similarly, in ESG reporting, materiality helps identify which sustainability-related topics are most relevant to a company, ensuring that reports highlight the most impactful areas. Given that ESG issues vary in importance across organisations, conducting a materiality analysis is crucial. To enhance comparability and regulatory compliance, the Manual mandates specific ESG disclosures for NSE-listed firms, aligning them with the Code, relevant international agreements, ESG standards, and domestic regulations.

Disclosure obligations for banking institutions

The Central Bank of Kenya’s Guidance on Climate-Related Risk Management (GCRRM) mandates that the board of directors and senior management of financial institutions must develop and implement strategies, policies, procedures and guidelines for climate-related financial risk management, while setting minimum standards. The board of directors and senior management are also required to assess and quantify their exposure to climate-related risks across various business lines and oversee the creation of a climate risk strategy. This includes defining and formally allocating roles and responsibilities within the organisational structure to ensure effective implementation of the climate-related risk management framework, in line with the institution’s risk profile.

Last week, the Central Bank of Kenya (CBK) developed and launched the Climate Risk Disclosure Framework (CRDF) and Kenya Green Finance Taxonomy (KGFT) as part of its efforts to green the banking sector. The CRDF intends to assist commercial banks in collating and disclosing climate-related information in a relevant, useful, consistent and comparable manner. For investors, the CRDF provides the information needed to assess the financial implications of climate change on potential investments and identify companies well-positioned for the transition to a low-carbon economy. The CRDF also sets out a Climate Related Risk Reporting Template that can be used to take stock of existing capabilities and ambition levels vis-a-vis climate risk assessment in decision-making by financial institutions.

The KGFT provides a structured and consistent framework that helps institutions assess and classify their economic activities based on their contribution to national climate goals. By offering guidance on how to determine whether specific activities support or undermine climate objectives, the taxonomy promotes more informed decision-making and encourages a gradual shift toward low-carbon and climate-resilient development. Anchored in the country’s Nationally Determined Contributions under the United Nations Framework Convention on Climate Change and other national climate policies, the KGFT serves as both a technical and strategic tool to operationalize climate ambition in the financial and business sectors.

In conclusion, the evolving ESG landscape in both South Africa and Kenya highlights the growing importance of sustainability, governance and social responsibility in corporate compliance. Both countries are adapting to international standards, ensuring that ESG principles are deeply embedded in corporate governance, risk management and decision-making processes. As the regulatory environment continues to evolve, companies in both regions must remain proactive in integrating ESG considerations, not just to comply with emerging laws, but to build long-term value and enhance their corporate reputation.