SEC Adopts on Sustainable Finance Principles For Capital Market Operators
The Securities and Exchange Commission, at the weekend, said it has adopted the Nigerian Sustainable Finance Principles (NSFP) developed by the Financial Services Regulation Coordinating Committee (FSRCC) for the capital market.
In a statement released weekend in Abuja, the Commission said the guidelines would stimulate a resilient, competitive and sustainable capital market that promotes economic development and improves the quality of life for all.
It is also expected to improve corporate governance practices while ensuring that capital market participants operate in a transparent and sustainable manner, while nurturing an environment that facilitates job creation and diversity, women empowerment, and human rights protection.
The principle also aimed at allowing “access to affordable capital market products by the economically less privileged and contribute to efforts aimed at reducing global warming and other environmental footprints resulting from our activities and those of our stakeholders.”
The guidelines and approach, the commission assured are principles based and, therefore, do not prescribe specific implementation requirements, noting however that these principles should be applied by each regulated entity in a manner that fits individual mandates, core values, and enterprise risk management framework.
The SEC noted that reporting enhances companies’ accountability for the effects of their social impacts which in turn fosters social responsibility in organizations and therefore enhances trust, while facilitating shared values on which to build a more cohesive society.
“Consequently, regulated entities must report regularly on the extent to which they apply these principles. Consequently, the adoption of financial sustainability principles and its reporting are vital steps towards achieving a sustainable global economy,” it stressed.
According to the SEC, “The Nigerian Capital Market plays a major role in the industrialization and economic development of Nigeria. However, the pursuance of these key objectives involves activities that give rise to a range of challenges including air and water pollution, climate change, water and natural resource scarcity, environmental degradation, growing population density and poverty. These externalities and other social impacts affect not only businesses but also the communities where they operate. Sustainable finance principles are guidelines developed to help address the impact of these externalities, ensure long term economic growth while safeguarding the environment and society.
“The primary objective is to achieve a balance in the pursuit of economic prosperity while ensuring environmental protection and social development. To this end, the principles help create an economic, environmental and social organization that ensures and improves economic efficiency, prosperity, and sustained economic competitiveness while contributing to protecting and restoring ecological systems, enhancing cultural diversity and social well-being. In the financial services industry, there is an increasing realization that sustainable practices have a potential to save costs, grow revenues, reduce reputational and legal risks, as well as drive the development of human capital and improve access to finance.
In implementing these principles, the SEC expects regulated entities to, among others, establish standards for their organization while staying committed to it, in addition to setting the pace for the integration of the Principles into their organizational culture. In that way, it is expected that the board and management are committed to sustainable finance and ensuring successful implementation.
As such, the commission expects that the entity’s commitment should the Principles should be demonstrated through policies and decisions and also ensure their supervised organizations do the same.
They are also to establish sustainable operations approach by having a set of procedures that detail how Environmental, Social and Governance (ESG) and related issues are managed and aligned with existing internal decision-making processes.
Also, regulated entities, including capital market operators (CMOs), trade groups, self-regulated organizations (SROs) and capital trade points, are required to prepare appropriate reports detailing their progress and performance regarding their commitment to ESG guidelines.
According to the commission, “since investments in assets, especially long term assets directly impact a nation’s development, it is crucial to get the allocation of financial capital right. The capital market operators’ role as intermediaries means they are critical channels through which pricing, regulation and their interaction with society, can direct financial capital to more or less sustainable economic activity.
“These principles, which should be adopted by regulated entities, are essentially a preferred benchmark on which their ESG practices must target. The opportunities that this path is opening, for both growth and value, make these principles relevant to all mainstream financial institutions. Finally, it is hoped that these principles will raise awareness and trigger the implementation of sustainable finance ideals among regulated entities and help facilitate the financing of the transition path to a sustainable economy” SEC added.