ESG – The New Trend in the Post-Covid Era!

ESG – The New Trend in the Post-Covid Era!

ESG is more of a journey than a destination. In Mauritius, to date, there is no proper legal or regulatory framework for ESG principles. The corporate social responsibility concept is provided for in the Mauritius Income Tax Act 1995, and principles around good corporate governance (including a company’ relations with its employees and stakeholders), only apply to certain types of entities or those generating specific turnover thresholds under the National Code of Corporate Governance of Mauritius. Environmental and Social Impact assessments do benefit however from a clearly identified framework for real estate schemes in Mauritius whereby promoters are required to assess and demonstrate the impact of such property development schemes on the environment and on the community as a whole with a set of parameters and objectives for implementing such schemes.

In line with the current trend for ESG investing and ESG investments in the post-Covid era, the question arises as to the need for businesses to adopt an ESG-integrated framework in order to facilitate and sometimes enhance their value proposition for financing and investments by investors and financiers who are more conscious about Environmental, Social and Governance principles and their overall impact.

This article aims at introducing the concept of ESG and to demonstrate how ESG integration can be a key factor for financiers and fund managers. Although there is still progress to be made for convergence towards a harmonized global ESG framework, the practical aspects of ESG reporting and ESG impact measurement are becoming equally important to investors in the post-Covid period.

What is ESG?

ESG is the acronym for Environmental, Social and Governance (referring here to Corporate Governance), in a way in which those issues converge to impact a company and its stakeholders[1]. The concept of ESG originated from the growing recognition in the 1980’s of health and safety measures in employee regulations, and evolved to establishing concepts such as sustainability in the 1990’s, corporate social responsibility in the years 2000-2010’s and finally to ESG principles as from 2020.

Development Finance Institutions (DFIs)[2] as well as institutional investors had the ESG principles nested in their investment objectives and investment strategies for over a decade now. DFIs are well-known to operate in a sustainable and responsible manner. However, overtime, investments with ESG-embedded principles and ESG principles themselves have reached out to the most common business in Europe, and most developed economies have now placed ESG criteria at the heart of every corporate decision.



The ESG criteria

(1) Environmental

The environmental criterion resides in a company’s environmental stewardship and includes for instance, a company’s strategy in raw material sourcing, the use of renewable energy sources, its waste management scheme, how it deals with air or water pollution linked to its operations, deforestation, and climate change.

(2) Social

The social criterion relies on how a company creates value for its stakeholders, and usually includes concepts such as corporate purpose and societal impacts. This can range from benefits (over and above wages and salaries) which are not commonly attributed to employees, fair pay (or more generous wages compared to other companies operating in the same sector), retirement plan contributions, solid and applied ethical workplace policies which include important factors like inclusion, non-discrimination, diversity, prevention of sexual and other forms of harassment, employee continuous trainings, the level of employee turnover, management of customer relationship, and contribution to society as a whole.

(3) Governance

The Governance criterion refers principally to how a company is managed at board or senior executive management level, and how it responds or attends to the interests of its shareholders, employees and clients as a whole. Good corporate governance principles are usually the reflection of a board collectively acting in a genuine fiduciary capacity towards its stakeholders and avoiding conflicts of interest, in addition to avoiding (huge) bonuses in challenging times where salary cuts are on the agenda.

In essence, ESG is the ability to create and sustain long term value in a rapidly changing marketplace, and managing the risks and opportunities associated with these changes. There is no universal categorization of ESG issues nor a defined list of ESG strategies used to integrate ESG criteria in the investment decision process. The ESG underlying principles that are identified usually depend on the industry in which the companies operate or the company’s business model, and these may also vary depending on the relevant investment asset class(es).

There has been a growing recognition by investors over the years that ESG influences their risks and returns. The Word Bank, CDC and KfW are adamant that integration of ESG principles in private equity investments have proven to enhance operational efficiencies through better environmental management and help contribute to more stable financial returns for investors[3]. While some institutional investors may include ESG considerations in their overall risk assessment and management, others will include the ESG criteria when examining the risks for specific investments.

This recognition, coupled with an increased client demand for greater transparency around how their money is invested, and regulation (both national and international) especially since the 2008 crisis where the public sector recognized that the private sector played a key role in addressing global public threats like climate change and human rights violation, have been the main drivers in bringing ESG at the heart of every corporate and investor decision.

“Impact investments” are often presented as a more “advanced” ESG strategy adopted by investors and investment managers in their choice of investment. Impact investors are known to put more weight on ESG factors in their investment strategies, and fund managers dedicated to impact investing will usually place their focus on investing in a range of ESG-embedded and ESG-linked products.

As part of this initiative, it is interesting to note that the Agence Française de Développement (AFD) has developed a number of ESG-linked loans where pricing is indexed to the progress made by borrowers in terms of their ESG practices, leading in interest rates being adjusted in relation to the borrower’s ESG practices. This incentive is quite innovative in that borrowers can actually find themselves with a decreased interest rate during the repayment period if they exceed their ESG targets[4].

Towards an ESG Recognised Framework?            

It is also interesting to note that notwithstanding the absence of a harmonized ESG framework in the Mauritius legislation, the Stock Exchange of Mauritius (SEM) has launched in 2015, the SEM Sustainability Index (SEMSI), which provides a robust measure of listed companies on the SEM, against a set of internationally aligned and locally relevant ESG criteria. SEMSI’s eligibility criteria, which are based on GRI G4 Guidelines, are aligned with international ESG and sustainability issues, while also taking into account the local imperatives. The SEM has recently seen Mauritius listed companies adhere to the SEMSI, which will hopefully pave the way for greater concern by Mauritius businesses and regulators about the need for a set of standardized ESG principles in the current regulatory framework across all sectors of the Mauritius economy. 

In France, the enactment of the PACTE Act 2019[5] validated a principle developed by case law, by adding the following provision to Article 1833 of the French Civil Code: “The company is managed in its corporate interest (…)“. Further, it is to be noted that the company is now to take into consideration “the social and environmental issues related to its activity.”

The amendment to Article 1835 of the French Civil Code allows companies to specify their “raison d’être” in their constitution. However, one can question the legal impact of these amendments to the concept of social interest in the French Civil Code – as regards the sanctions for failing to comply with the new provisions of Article 1833, amendments have been brought to Articles 1844-10 of the French Civil Code and L.235-1 of the French Commercial Code to remove violations of the corporate interest as grounds for the company’s nullity (L., Art. 169). Consequently, a management decision that breaches the company’s corporate interest cannot lead to the company’s constitution being declared null and void.

The recent “forced departure” of Danone France CEO in March 2021[6] has unfortunately shown that the strive for investor returns finally outweighed the ESG intent of the entity. Let us hope that French and EU case law will do the rest by laying the right framework for enforcement of the ESG best practices to the corporate sphere, so that the ESG principles are ultimately given their true meaning.

Whilst the EU Supervisory Authorities have highlighted a series of guiding principles and best practices on ESG disclosure templates under the Sustainable Finance Disclosure Regulation (SFDR)[7], the UK and the US have also come up with specific recommendations on best practices to enhance ESG investment product disclosures, the aim being that companies give a clear and uniform description of their strategies to their clients. Even the Oil and Gas Authority’s Environmental, Social and Governance Taskforce has produced a number of expectations which operators and licensees should meet with regards to disclosure and investor reporting. Brexit has however placed an interesting challenge on the application of both EU and UK regulations and implementation timelines for ESG with investment funds and fund managers based either in the EU or in the UK but operating in both jurisdictions and having clients based in both the EU and the UK.

It is expected that the cost of meeting Africa’s commitment to the global Climate Change Agreement presents an investment opportunity estimated at over US$3 trillion by 2030, and that the bulk of those resources will come from the private sector. The African Financial Alliance on Climate Change (AFAC) launched by the African Development Bank in 2018, aims at bringing together representatives of Africa’s financial institutions and regulators including development and commercial banks, central banks, insurance companies, sovereign wealth and pension funds, private equity, stock exchanges and other investment companies towards the common goal of significantly raising the share of climate finance (that promote low carbon and climate resilience) in their respective investments.

The objective of the AFAC initiative is to address climate change risk and opportunities by the African financial sector by supporting knowledge sharing, disclosures, processes and instruments for climate action. The set of principles serve as a guide to financial institutions in Africa and include commitment to urgent climate action, managing climate action and risks, integrating climate action into strategic decisions, developing and monitoring climate action, and disclosing climate actions and risks.

What is in there for small businesses and corporates?

The ESG trend is meant to have an overall impact on the operations and internal organization of conglomerates and high turnover companies. However, small businesses and entrepreneurs who are not captured under this framework have all the merits to start embracing this concept and implementing ESG principles within their organizations and in their dealings with other parties, which will ultimately contribute to adopting (at last), a more human culture in the business sphere.

Whilst the ESG efforts in emerging markets are still underway, businesses who wish to adhere to the ESG principles or to start creating impact at their respective levels, can have a go at the 17 Sustainable Development Goals of the United Nations, which provide a useful framework through which business leaders can evaluate their own strategies to create impact. The goals and targets are meant to stimulate action over the next 15 years in areas of critical importance for humanity and the planet[8].

ESG Investing, the New Trend?

Investment and fund managers have now placed their focus on various ESG strategies departing from a non-harming approach in their investment decisions and processes, to making a positive global impact. The trend therefore has demonstrated that this ESG initiative does not limit to the corporate structure itself but has extended across all underlying asset classes.

ESG criteria have seen an increasing interest in corporate and investment strategies due to investor, customer and global regulatory exigencies. The Covid-19 pandemic has definitely amplified awareness around responsible consumption and reduced carbon emissions, and this has contributed in sharpening this trend for ESG principles in the corporate and investment world, and which is of particular importance for these entities to attract younger generations into their organisations.

For instance, the global pandemic has greatly impacted the work environment where more people work from home, and where lay-off strategies have resulted in more people remaining at home. Employers and employees have seen the pros and cons of a working from home scheme and the work environment will see a different trend in the coming years with emphasized negotiations between employers and employees on flexible working arrangements and work from home options.

Moreover, climate change resilience which is at the heart of discussions among States and multinationals will hopefully be translated into decisive actions at the forthcoming United Nations Climate Change Conference (COP2026) in November 2021. The global pandemic has contributed to rising interests in climate change and it is expected that private companies and businesses will also be paying close attention to the outcome of this event.

According to a research report in 2020 by the Centre for European Policy Studies and the European Capital Markets Institute[9], it was recognized that derivatives market can play a very important role in facilitating the transition to a sustainable economy. This is because derivatives can enable the raising of more capital to be channeled towards sustainable investments; derivatives can help market participants to hedge risks related to ESG factors; they facilitate transparency, price discovery and market efficiency; and generally help contribute to long-term sustainability.

The Question of ESG Impact Measurement

Although there is need for clearer ESG standards and a harmonization of the ESG framework across sectors and industries, one can recognize that investors and corporations have continuously contributed towards enhancing ESG implementation and standardisation. For instance, the Global Reporting Initiative (GRI)[10] standards, and investor initiatives such as Climate Action 100+, PRI (Principles for Responsible Investment) and We Mean Business Coalition coupled with other corporate initiatives like RE100 and the UN Global Compact, have contributed in uplifting concepts like corporate purpose, and have helped in establishing crisis management (including climate catastrophe) strategies as well as the creation of new opportunities and ventures in these challenging times, driven towards making impact.

With the introduction of reporting requirements and standards for investment funds and investment managers on implementation of ESG principles and ESG risk assessment in their processes, the question remains as to whether there has been a positive global impact on a country’s environment and community as a whole, especially with regards to the hugely capitalized projects of DFIs in Africa in the implementation of their investment principles.

Although Africa has seen many projects led by the DFIs with already-embedded ESG principles in their investment approach and strategies, it has now become increasingly crucial to know how to measure such impact, especially in the actual context of the Covid-19 pandemic. DFIs are well-known to be the rigid observers and implementers of international standards including ESG principles.

While the usual measurement approaches led investment professionals to compare their ESG score to other players operating in the same business, or against a recognized index or even against their own investment history, the appropriateness of each approach depends on specific circumstances and parameters, including the risk profile of the portfolio, the composition of stakeholders, and any fiduciary obligations associated with the investment.

The international challenging context brought by Covid-19 has definitely created a shift in the approach for ESG management. Measuring the impact of ESG principles will entail a new approach whereby other factors like crisis management and business continuity planning, unemployment, and labour welfare and health will tend to become key indicators (and perhaps main drivers) of measurement, on the same level as pollution and deforestation.

In terms of ESG reporting, France has recently taken the lead on creating a common platform named “Impact” where reporting businesses and CAC 40 companies are able to publish up to 47 ESG applied indicators in anticipation of the EU Directive on Corporate Due Diligence and Corporate Accountability awaited later in 2021. This will aim at promoting the investors’ ability to investigate companies’ approach to ESG, and to then act on the sustainability information provided.

As mentioned at the start of this article, ESG is more of a journey rather than a destination. If you are planning to start your ESG journey, to conduct an ESG impact assessment, or if you need any assistance on ESG reporting and monitoring solutions, please do not hesitate to contact us:

PL Consulting Ltd


T: +230 57102783

Thank You

[1]Stakeholder refers to any individual or entity that is affected by or can affect, a company’s business – these can be internal and external to a business (e.g., owners and employees v/s the company’s customers, suppliers and investors, including Governments and media).

[2] DFIs are specialized development banks and subsidiaries of them set up to support private sector development in developing countries. They are usually the investment arm of governmental and parastatal bodies and usually source their capital from national or international development funds and usually benefit from governmental guarantees, which enhance their creditworthiness on the international scene and enable them to raise large amounts of capital.

[3] For instance, the CDC reported a business case where KKR partnered with the Environmental Defense Fund (EDF), a non-profit organization to develop KKR’s Green Portfolio Program. At the end of 2013, 19 companies reported their results: cumulatively, the participants had achieved US$917 million in avoided costs and added revenues, while avoiding 1.8 million metric tons of greenhouse gases, 19.5 million cubic metres of water use and 4.7 million tons of waste.

[4] Usually, an impact assessment is conducted after 3 years for a 10-15 AFD loan.

[5] C.f. Law no. 2019-486 of 22 May 2019, French Official Journal 23 May 2019.

[6] which was principally due to lower returns for Danone shareholders compared to other listed companies operating in the same business segment, and a CEO who laid too much emphasis on ESG principles in its conduct of the Danone business.

[7] Regulation (EU) 2019/2088 of the European Parliament and of the Council of 27 November 2019 on sustainability‐related disclosures in the financial services sector. It applies to certain financial services sector firms as from 10 March 2021.


[9] Sponsored by the International Swaps and Derivatives Association (ISDA).

[10] GRI is an independent, international organisation that provides the global most widely used standards for sustainability reporting – the “GRI Standards”.