As climate change threats become more pronounced every year, pressure for Environmental, Social and Governance (ESG) disclosures mounts. Investors, lenders, and rating agencies alike are expecting greater visibility of a broad range of non-financial metrics to better understand and evaluate multiple social and environmental risks of businesses.
The Egyptian Financial Regulatory Authority (FRA) has responded with a host of new regulations targeting various ESG areas which are at the centre of Egypt’s Sustainable Development Strategy: Egypt Vision 2030, that we summarise below.
We hope that these reimagined reporting measures pertaining to carbon emissions, gender balance, sustainability of sourcing, labour conditions, etc, will push companies to redefine their strategies to integrate ESG, and drive positive transformation on the long run.
FRA board decision no. 204/2020 of 27 December 2020 on the enhancement of gender equality for the beneficiaries of non-banking services
Companies providing non-banking services are now prohibited from discriminating between their customers on the basis of gender (ie between male and female customers). They are required to establish and implement strategies including equality enhancement measures for customers using their services, such as: applying fair, non-discriminatory, and equitable treatment for male and female customers alike throughout all dealings with financial service-providers; exerting more effort for services to be inclusive of low-income and lower-education, elderly, and disabled male and female customers; establishing adequate tools for explaining risks and providing information allowing male and female customers to make enlightened investment decisions, and raising their financial awareness; and creating new non-banking financial services to cater for the needs of female customers particularly. A special unit must be created to respond to any complaints that must be accessible virtually, to expedite the resolution of any issues within a maximum of 1 month with binding actions.
FRA board decisions nos. 109/2021 and 110/2021 of 05 July 2021 amending the shares listing and de-listing rules and the ownership rules of non-banking financial services companies respectively, and FRA circular no. 17/2021 of 25 July 2021
By no later than 31 December 2022, the board of directors of all listed companies and of non-banking financial services companies must be constituted of 25% of female members or comprise 2 female members at least.
FRA board decisions nos. 107/2021 and 108/2021 of 05 July 2021 on the disclosure rules for ESG practices related to sustainability and the financial impact of climate change for companies (1) providing non-banking financial services and (2) listed on the Egyptian Exchange respectively
By no later than the date of submission of the financial statements for the financial year ending in 2022 (ie by 31 March 2023 for most companies):
- Non-banking financial services companies whose issued capital or net equity equals or exceeds EGP 100 million must fulfil all disclosure requirements related to ESG pertaining to sustainability in the management report annexed to the annual financial statements; and
- Non-banking financial services companies and listed companies whose issued capital or net equity equals or exceeds EGP 500 million must additionally fulfil all disclosure requirements related to the financial impact of climate change in the management report annexed to the annual financial statements.
Also, as of 01 January 2022, such companies must provide FRA with quarterly reports on the actions taken or which will be taken towards making the required disclosures.
The ESG reporting requirements measure the following:
- Operations and environmental controls, by providing details as to whether the company has adopted an official ESG policy, and whether this relates to the local subsidiary or parent company, whether the company carries out an assessment of the ESG risks arising from its economic activities, adopts a defined policy for the recycling of waste or use of water of energy, or has specific targets for the reduction of greenhouse gases.
- Carbon emissions, including details as to whether the company calculates its yearly carbon emissions.
- Electricity sourcing, including details of the company’s energy consumption, sources and saving.
- Water consumption, including details of the company’s yearly water consumption, and recycled or treated water.
- Waste management, including details of the company’s waste produced yearly and its recycling status by type and volume.
- Gender diversity and pay structure, including disclosures related to the number of employees by type and gender, percentage of entry-level, mid-level and management positions filled by women, average salaries by gender, annual turnover, and the number of contract-based employees versus consultants.
- Non-discrimination, including details as to whether the company adopts policies prohibiting discrimination on the basis of the employees’ race, religion or gender.
- International health and safety standards, including details as to whether the company adopts an E&S policy, or makes disclosures related to accidents in the workplace, as well as the number of training hours related to E&S matters for employees.
- Child and forced labour, including details as to whether the company prohibits child labour or forced labour, whether it applies the International Labour Organisation (ILO) rules or other international standards related to employees’ rights, and whether this applies to the company’s service providers.
- Board diversity, and whether the company discloses the percentage of male to female board members and committee heads.
- Bribery and anti-corruption, and whether the company has any rules against bribery and corruption and the status of enforceability of such rules.
- Code of ethics and conduct, including whether the company adopts a particular set of rules in this respect.
- Date protection, and whether the company adopts any specific data protection measures in addition to those required by applicable local laws.
- Disclosure of sustainability practices, and whether the company adopts the reporting standards of any of the following main reporting institutions: the Global Reporting Initiative (GRI), CDP, Sustainability Accounting Standards Board (SASB), International Integrated Reporting Council (IIRC), and United Nations Global Compact (UNGC), or whether it seeks to achieve any particular Sustainable Development Goals (SDGs), has announced any corporate governance goals, or participates in public or private initiatives for social development.
- Third-party verifications, and whether the ESG disclosures made by the company are verified by an independent third-party.