African governments need to act together on energy transition or risk bungling ESG targets

Wind turbines

AS the global market continues to pivot toward a low-carbon economy, African governments can no longer afford to ignore the energy transition. The shifting focus on sustainable investment was reinforced at this year’s Mining Indaba, where environmental, social, and governance (ESG) standards were a major theme.

A recurring question is the extent to which ESG measures are comprehensive, coherent, and well understood. A more salient question might be: do they make a difference? The answer depends largely on how quickly African governments and companies operating in Africa can respond. The current focus on ESG investing can pay dividends – laying the foundations for more sustainable African economies for future generations. But achieving this objective requires companies, governments, and other stakeholders to collaborate effectively to meet development priorities.

Multi-stakeholder approaches have had some success in building trust and informing evidence-based policies. These elements are essential for the responsible management of the extractive industries. One of the challenges for any international standard, however, is to incentivise progress and ensure minimum thresholds, while not greenwashing practices that should be discouraged.

Addressing systemic challenges and policy priorities in a way that goes beyond box-ticking is key. In the Democratic Republic of Congo, for example, where poverty alleviation is a major focus, good governance means systematically reporting on mining royalties paid by companies to local governments, helping stakeholders understand how these revenues contribute to local development. The sums involved are substantial. From 2018 to 2020, mining companies paid more than $920m in royalties. Around 40% – over $350m – should have been paid to provinces and local government entities.

I am optimistic that African governments can leverage the focus on ESG investment to ensure that natural resource revenues can contribute to developmental outcomes. But ESG standards need a more comprehensive and coherent approach. Otherwise, they run the risk of bringing confusion rather than clarity to investors and industry. But African governments will also need to move with more haste to respond to the opportunities presented by the energy transition and to create an enabling environment for ESG-driven investment to bear fruit.

While we have seen reforms across the region, many have tended to be behind the curve vis-à-vis the energy transition. To ride the wave of ESG investing, governments will need to implement timely, evidence-based policies, collaborate closely with industry stakeholders and ensure that expectations are clearly communicated. In the past, the industry has made the mistake of creating high expectations among stakeholders for economic dividends that it cannot fulfill. ESG investing affords a second chance – and an opportunity not to repeat this error.

Bady Baldé is Deputy Executive and Africa Director of the Extractive Industries Transparency Initiative (EITI). Through its multi-stakeholder approach, the EITI has been effective in building trust and informing evidence-based policies that promote the responsible management of the extractive industries in twenty-six countries in Africa. The EITI Standard is implemented in 55 countries globally.