Kenyan firms surge ahead of South Africa in ESG adoption, but glaring gaps exist

By Seth ONYANGO

Kenyan firms paced ahead of South African peers in adopting Environmental, Social, and Governance (ESG), Sanlam’s Barometer shows.

The report, which now includes Nairobi Securities Exchange-listed companies alongside Johannesburg Stock Exchange firms, shows a clear divide in how these two economies are approaching sustainability.

Kenya leads with 46% of its companies planning to adopt International Sustainability Standards Board (ISSB) guidelines, compared to just 16% in South Africa.

This sharp contrast shows Nairobi’s push toward aligning with global ESG benchmarks, driven by strict regulatory pressures and heightened investor scrutiny.

Sanlam’s report further shows that Kenyan firms are embedding sustainability into their core operations, tracking ESG spending more rigorously than their S.A counterparts.

In fact, 75% of Kenyan companies actively monitor their ESG investments, far outstripping the 38% in South Africa.

While over 80% of companies in both countries have formal ESG strategies, their motivations differ.

Kenyan companies are primarily driven by regulatory compliance, reflecting a strong government push for sustainable practices.

Meanwhile, South African firms focus more on operational needs and investor expectations, particularly in addressing systemic issues like unemployment.

Both Kenyan and South African companies face hurdles. Data and measurement challenges top the list, making it difficult to gauge the true impact of their ESG initiatives.

South African firms are particularly troubled by supply chain management and external partnerships, while Kenyan companies wrestle with operational constraints that slow down the full implementation of their ESG strategies.

Social development and community engagement are top priorities in both Kenya and South Africa.

But while Kenyan companies also place more emphasis on employee input, suggesting a more inclusive stakeholder engagement model that brings internal voices into the ESG decision-making process, in neither country are companies thinking adequately about the long-term impact of their strategies, the report suggests.

Rather, companies are setting ESG targets based on what’s easily achievable rather than pushing for more ambitious, transformative goals.

While South African companies are keen on renewable energy investments (with Kenyan firms zeroing in on ethics and compliance, which aligns with their regulatory-driven approach to ESG), climate change adaptation ranks low on the agenda in both countries, indicating a stronger focus on mitigation strategies.

This could represent a missed opportunity to address the long-term risks that climate change poses, particularly in a region as vulnerable as Africa, the report suggests.