Finance

ESG and Sustainable Investment in Angola

ESG has become a link in the chain of sustainable commercial practices, hoisting Angola up to international standards.

Angola must reach the key signposts of commercial viability on the road to economic diversification away from hydrocarbons. These signposts lie in the physical sphere of infrastructure, technology, and workforce. But they also rely on the legal framework, environmental stance, and adopted commercial practice. Numerous, then, are the considerations that the government must factor into economic policy consistent with a formalized economy, and not least to ensure that prospective growth does not chase immediate returns at the cost of the environment.

For context, KPMG’s 2022 Global CEO Outlook study revealed that 69% of CEOs recognize significant stakeholder demand for greater transparency and reporting on ESG issues (58% in 2021). A  significant 72% expect the ESG attention to climate change and gender equality to accelerate. And tellingly enough, over a third of CEOs feel their firm is still behind the curve.

According to KPMG’s 2022 Global Survey of Sustainability Reporting, 79% of the leading 100 companies in each country surveyed currently report on sustainability. The figure rises to 96% among the world’s top 250 firms. The real battleground, not least for Angola, is the vast majority of firms in a largely informal economy.

For some time, the world’s advanced economies have built environmental, social, and governance (ESG) considerations into corporate strategy and financial reporting. Today’s sustainability report is almost as ubiquitous as a Starbucks by an office complex. Because as an ecosystem in itself, sustainability is baked into business analysis with non-financial impacts and initiatives weighed up to fine-tune corporate strategy. Employees increasingly expect a certain corporate mindset from their employers; moreover, firms expect the same values across their value chains; this determines who they do business with.

But What About Angola?

Angola is keen for economy and environment alike to benefit from the rigors of ESG reporting. Having suffered a recession since 2014, its economy has been impacted by declining oil prices, production, and the COVID-19 pandemic. Relying on strategic reform, the remedial response was the National Development Plan (NDP 2018-2022), resting upon the pillars of macroeconomic stabilization, privatization and diversification.

Before the march on environmental and social imperatives began, Angola shored up its tax base in 2019 by introducing value-added tax (VAT). In a TBY interview, José Viera Nuno Leiria, President of The General Tax Administration (AGT), spoke of the system’s overall success. With a domino effect, he explained, “Businesses that are not in our database have been brought into the system by their partners who they conduct business with, namely other taxpayers in our database.” And it gets better because “today, VAT, outside of oil tax revenue, brings in the highest tax revenues, accounting for around 29% of total non-oil revenues [and] is currently the state’s main source of tax revenue.”

ESG initiatives can only be built on international financial and commercial compatibility, including environmental standards. And so, in 2021, Angola presented its pioneering Voluntary National Report (VNR) on implementing the 2030 Agenda for Sustainable Development. Spearheaded by the Presidency and coordinated by the Ministry of Economy and Planning, the Platform for SDGs was launched in 2020, a UN-partnered initiative hitched to the relevant economic sectors.

The Council of Supervisors of the Financial System was tasked in 2022 with building on the sustainability pillar towards establishing a sustainable economy based on global criteria confirming national commitment to the UN Global Compact and the Paris Agreement on Climate Change. And while the country lacks an ESG disclosure framework, in January 2023, that same council launched a strategic plan to develop ESG policies, along with a best practice guide encompassing compliance and disclosure information.

A Bankable Proposition

Now, the National Bank of Angola (BNA) has grabbed the bull by the horns by prompting financial companies to deliver an annual ESG initiative report en route to alignment with international standards. BNA revealed the details in 2023 at the Sustainable Banking Initiative in the ESG Era and the Future of Governance event staged in Luanda by KPMG. Accordingly, the bank recommended establishing communication channels between regulators, banks, and other financial system agents and uniform compliance in laying down the sector’s ESG agenda.

BNA highlighted familiar shortfalls, including achieving inclusion, diversity, and a sufficiently skilled workforce, identifying commercial risks regarding social inequality, and the need to monitor social investments systematically. However, as BNA stressed at the time, the mere adoption of relevant international standards was insufficient. Angola must also “develop effective mechanisms to mitigate risks associated with the social, environmental and management dimensions.” According to KPMG, it seems that among the 100 largest Angolan companies, one-third already present sustainability information—including worker welfare, gender equality, and so on—along with their financials. The study data came from a sample of companies from all sectors, predominantly oil and gas companies at 67% and financial services at 21%.