In recent years, there has been a growing emphasis on considering environmental, social, and governance (ESG) factors during business decision-making.
This is in line with the ideals that are espoused in the Constitution of Kenya, 2010. Various legislations and policies have been enacted or aligned to give effect to the constitutional provisions, such as the Environmental Management and Coordination Act, Climate Change Act, and Sustainable Waste Management Act related to environmental aspects.
On the other hand, the social aspects are given effect by, among others, the Employment Act which regulates labor practices by asserting the fundamental rights of employees. Additionally, the right to privacy is enforced by the Office of the Data Protection Commissioner.
Finally, governance aspects are attended to by the Companies Act which outlines, among others, the duties of a director and the impact of a company’s operations on the community and environment.
Regulatory Changes
It is no wonder that there is a notable shift by consumers toward consumption habits that have a low environmental footprint, thereby increasingly holding companies accountable for the ESG impact of their business practices. Research indicates that 60% of consumers globally are willing to pay 9.7% more to access sustainable and eco-friendly products.
Simoultaneously, 76% of consumers indicate they would boycott companies that treat their environment, employees, or the community in which they operate, poorly. Businesses that perceive ESG as value addition are, therefore, more likely to yield higher returns and exhibit stronger resilience against risks.
Kenya’s private and public sector players have not been left behind; they are proactively integrating ESG components into their operations to respond to this shift in consumer trends. State corporations, for instance, guided by the Mwongozo Code of Corporate Governance, are obligated to align their strategies to long-term sustainability goals. The ESG Guidance Manual published by the Nairobi Securities Exchange in 2021 requires listed companies to publicly report their positive and negative ESG performance annually, at the least.
ESG implementation requires a multi-dimensional approach with a focus on collaboration amongst industry players. The question begs; is the country’s competition law regime flexible enough to accommodate these broader societal concerns? This being one of the emerging areas of competition regulation, various competition agencies around the world have taken steps to make the competition laws more ESG-friendly.
For instance, the European Union has revised the guidelines to allow agreements among entities, that while they are competitors, are pursuing sustainability objectives. This is also similar to Austria’s amendment to the Cartel Act to incorporate sustainability exemptions on collaboration agreements with an environmental benefit.
Other competition agencies, such as in the Netherlands, issue informal guidance to parties desirous of collaborating or cooperating on sustainability initiatives to ensure that competition is upheld in markets, while attending to ESG considerations. The informal guidance notes enable the parties to self-assess and notify the competition agency of their intentions. The competition agency independently verifies the assessment and determines within eight weeks.
Adapting Competition Policy
Needless to say, regulators must carefully consider how competition law can be adapted to address the challenges and opportunities presented by mainstreaming ESG considerations in businesses.
First, competition law can be a barrier to the adoption of ESG practices if enforcement restricts companies from collaborating on sustainability initiatives or sharing information on ESG performance. This can limit the ability of companies to address environmental and social issues.
While agreements among competitors is prohibited by law, since it can stifle competition, regulators should consider granting exemption or issuing guidelines, as is the case with the Netherlands, if the key objective of the partnership is enhancing production, distribution, or supporting economic or technical development that is likely to result in environmental benefits that outweigh the lessening of competition.
Secondly, ESG should be considered during merger assessments, as is the case with the European Commission, because sustainability is fast becoming one of the key considerations driving consumer habits and decisions. Competition re
Moreover, the impact of the competition regulator’s decisions on sustainability should be considered.
The probable impact on environmental and social aspects post-merger, for instance, will reduce greenhouse gas emissions or create a more inclusive workforce while ensuring that governance aspects are considered during decision-making.
Ninette Mwarania is the Manager, Policy and Research at the Competition Authority of Kenya.