Another COP (Dubai COP)
Another COP has come and passed. World leaders from all factions of society gathered again, this time in Dubai to talk mostly about the ‘E’ of ‘ESG’. So many promises were made and announced. Some imminent, others within a long-term horizon. The most important announcement or declaration from the Dubai COP was the agreement reached to transition out of fossil fuel, (although a date was not given. This text was signed by all countries present, and it means they all agree to phase out the exploration, production, marketing and use of fossil fuel within this time frame. It important to note here that The COP was able to reach agreement due to getting the Oil and gas stakeholders (Producing countries, companies etc) on board rather than excluding them, as the environmental campaign groups advocated. The wording of transition is more palatable to the oil & gas community than abolitions or ban. The very fact that it was held in a fossil fuel producing country was criticised in some quarters, however it was ironic that it was the Dubai COP that pushed for agreement to phase out the use of fossil fuel, an act which on its face will seem counter to their interest.
Impact of this deal on Sub-Sahara countries
The question remains though on how all these promises and the whole ESG agenda are relevant to African businesses, governments, and other companies, particularly in Sub Sahara francophone Africa, and what impact if any they could have on the economies and national development plans of these countries, many of which rely on fossil fuels for future economic development. We have both mature and new oil producing countries in the sub-region and talk of phasing out fossil fuels may appear as a set back to many of these countries’ national development plans.
But will all these signatories phase out fossil fuels to achieve next zero by 2025 as suggested in Dubai? There are 3 possible ways this can happen. The first is that fossil fuel is phased out with exploration, production, marketing and use stopped within the time frame as indicated. This will be the literal interpretation of the agreement and the preferred option by environmental campaign groups. The second is a possible technological breakthrough that somehow manages to transform the crude fossil fuel products to non-carbon emitting products for marketing and use. This may seem like an illusion and farfetched, but the world has shown itself time and time again that it can quickly innovate successfully and rapidly when faced with an existential threat and with the likelihood of significant financial gain. We saw how vaccines were developed and deployed within one year during the covid 19 pandemic. The main condition necessary for this is that there will be broad agreement within the political and scientific community of the threats of global warming, which is not the case now. The third option will be the current concept of carbon offset. Here, fossil fuel producers will engage in other activities that are carbon negative and together with their fossil fuel producing activities will be able to demonstrate that they are Carbon neutral. My gut feeling is that the agreement will be implemented through option 3, where companies will invest in carbon negative activities, many of which would still be profitable businesses, or self-financial sustainable businesses and hope that option 2 – innovation catches up with them some point along the way. In any event, I believe the way to go will be a combination of Option 3 and 2. This is the most plausible approach which will not create a shock to the economic systems of the fossil fuel producing countries and companies.
Voluntary vs mandatory adoption
But how will all of these be implemented? In general companies and governments either do things voluntarily or are compelled to do them. They will often do things voluntarily because they could see an interest either in the short, medium, or long term. In the case of companies’ financial gain and governments, electoral success. They also do things when required by law or regulation; business subject to national or regional laws or regulation and governments that are signatories to international treaties (either bilateral or multilateral). History has shown that tackling great challenges of our time successfully and sustainably is mostly done in a voluntary manner with some targeted or guarded regulation. This is why I believe that in the end it will be option 2 and hopefully option 3 happens sometime in the not-so-distant future. We have already seen many Oil and gas majors in Sub-Sahara Africa setting up businesses that are expected to be carbon negative. We see particularly engagement in argic businesses, which involve significant re-forestation and other products that are expected to cut carbon emission. They are often quick to point out to what extend these activities will offset their carbon footprint from fossil fuel activities. At the same time many of them are investing significantly in scientific innovation, for which positive outcomes can normally be expected only in the distant future.
In the last article I wrote on the subject I pointed out the benefits that embracing the ESG agenda could bring to of any entity (governments, companies, organisations) and particularly the competitive advantages that comes with being an early adopter of such practices. This means an entity would get maximum benefits from a voluntary adoption approach of ESG practices. But how will an entity demonstrate its adoption of the ESG agenda voluntarily? The real benefits of voluntary compliance or adoption can only be gotten through adequate reporting and reporting that the stakeholders can trust. Adequate reporting means the entity can communicate to the wider audience or public (especially their stakeholder community) what they are doing and the results of their activities on carbon emission. Similarly, reporting that stakeholders can trust would only come through some form of third-party assurance provided to the information that the entity reports or communicates to the public. A third-party assurance will also have to be provided by an entity that the public believes it’s independent and can trust.
Reporting today in Sub-Sahara francophone Africa
Contrary to many other parts of the world, companies’ annual reports which contain information on their activities (financial and non-financial) are not readily available publicly. In more mature reporting environments, many entities use these reports as a means of communicating their stories and for public relations. Specifically, on ESG activities, many voluntarily issue special reports focused only on ESG activities which are published at the same time as their annual financial report.
The only reporting required by OHADA is note 35 of the OHADA financial statements which require information to be disclosed on certain ESG related activities. However, this is only applicable to companies with more than 250 employees. In addition, many companies do not take it seriously in terms of the quality of information or message to communicate. This is understandably for two reasons. First, the reports are not actually public and therefore will not reach the wide stakeholders anyway, and secondly because they probably still do not get the importance or benefits of adopting the ESG agenda and what benefits it can bring to their organisation in the medium to long-term. But as argued already, the real benefits are gotten from early voluntary compliance or adoption.
Whilst financial information is still confidential – companies can choose to do an ESG specific document with information for publication to demonstrate their ESG credentials and activities and reporting the wider benefits – that way they will get full value out of it.
In conclusion, I believe all organisation, including Oil & gas companies should embrace ESG in their strategy, and by so doing, can influence the ESG agenda. This is equally true for organisation (public and private) in Sub-Saharan Africa. Failure to participate actively will mean others will set the agenda, and their views point are likely not to be considered, with ultimate negative consequences for their industry and organisations.
Contact us
