By Harsheenee Aujayeb, General Manager, ESG Intellis Solutions Ltd
Regulatory bodies across the globe have been intensifying their efforts to standardise and enhance the transparency of corporate sustainability performance. For businesses struggling with ground realities and operating issues, new requirements like mandatory disclosure and due diligence may sometimes feel like an onerous compliance exercise.
However, new laws such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD) recognise the significant impacts that businesses have on the environment and society, not only in their jurisdictions but at a global level. Indeed, the EU’s CSRD and CSDDD also affect companies based in third countries which deal with the EU and therefore warrant assessments from firms based in such jurisdictions. For example, impact value-chain partners of EU companies may find themselves facing more comprehensive sustainability-related data requests.
Moving ahead, let us find out what the CSDDD and CSRD are, and why these laws are relevant for Mauritian and African companies, especially those involved in EU supply chains or trade.
What are the CSDDD and CSRD?
CSDDD: Corporate Sustainability Due Diligence Directive
- Objective: To mandate EU companies and their suppliers (including non-EU entities) to address human rights and environmental risks across their supply chains.
- Scope: Companies must assess, mitigate and disclose their due diligence processes.
- Implications for suppliers outside the jurisdiction: There are penalties for non-compliance and clear implications for global suppliers such as those from Mauritius and mainland Africa. In addition, there is no turnover limit for suppliers, which means that even small and micro enterprises must prepare to comply with this directive.
CSRD: Corporate Sustainability Reporting Directive
- Objective: To standardise sustainability reporting across the EU.
- Scope: Non-financial disclosures on ESG (Environmental, Social, and Governance) performance, based on the European Sustainability Reporting Standards (ESRS).
- Implications for companies outside the jurisdiction: As the directive only covers companies outside the EU that generate revenues in excess of €150 million in EU terms, or have significant operational footprint in the EU, smaller firms would not be impacted by this provision.
What it means for Mauritius and Africa
While the EU legislations themselves are relatively recent, it is the high degree of alignment among the new rules and existing sustainability standards such as those by the International Sustainability Standards Board (ISSB) that are significant for companies based in Mauritius and Africa. Indeed, the IFRS Sustainability Disclosure Standards (ISSB Standards) and the European Sustainability Reporting Standards (ESRS) have been developed in close coordination to ensure that these standards align well, with climate‑related reporting in full focus.
Moreover, some African jurisdictions are already on their way to adopt the IFRS Sustainability Disclosure Standards. The Chair of the ISSB met with leaders in Kenya, Nigeria and South Africa in March 2024 to discuss how the ISSB Standards can be best implemented in Africa. Against this backdrop, the close alignment between the ISSB Standards and ESRS means that it will be easier for companies in such pioneering African countries to comply with the EU legislations.
At the same time, the absence of mandatory sustainability reporting in Mauritius and African countries means that complying with the EU directives will require companies, especially the smaller ones, to gear up and prepare for several pressing challenges and fresh opportunities alike.
We foresee the following key implications for companies in Mauritius and Africa:
- Trade and Supply Chain Impact:
African and Mauritian companies exporting to the EU or serving as suppliers for EU businesses will need to comply with these directives.
We foresee potential challenges for small- and medium-sized enterprises (SMEs) in aligning with stringent EU standards as there is currently no regulatory pressure for Mauritian and African companies to factor in sustainability at the outset.
- Opportunities for Competitive Advantage:
At the same time, we see early adopters gaining a distinct advantage by positioning themselves as preferred suppliers to EU companies.
Indeed, enhancing transparency and showcasing their adherence to ESG practices may open the doors to funding, partnerships, and market access for such pioneering companies.
- Capacity and Infrastructure Gaps:
In emerging economies such as Mauritius and Africa, our ESG challenges are different from those faced by EU companies. For example, talks of gender diversity in the EU would involve discussions on women in senior leadership, board, and C-suite roles – whereas in Africa, the demand might be limited to ensuring basic infrastructure for women working in factories and construction sites. Similarly, in many African economies, access to electricity continues to be a major challenge. On green energy, African economies might be stuck at the starting block, as, for instance, investing in solar panels is expensive, finding financing avenues is tough and the technical capacity to maintain such specialised panels is hard to come by.
Thus, it is incumbent on us to highlight gaps in our understanding, capacity, or tools to meet EU standards. We must take the onus to discuss the regional challenges highlighted above, be it gender inclusion, limited ESG expertise or access to green financing.
How can we be ready?
While we expect that EU companies which must conduct such due diligence on suppliers will engage with the supply chain and undertake capacity building themselves, stepwise preparation from understanding the rules to leveraging technological tools will pay dividends for companies in getting ahead of the curve.
STEP 1: Understand the Requirements:
– Conduct training sessions and workshops for company leadership and staff to grasp CSDDD and CSRD requirements.
– Partner with EU-based consultants or organisations to understand expectations.
STEP 2: Adopt ESG Standards and Practices:
– Align with internationally recognised sustainability frameworks such as the Global Reporting Initiative (GRI), ESRS and the IFRS Sustainability Standards.
– Begin ESG data collection and implement governance structures for reporting.
STEP 3: Collaborate for Capacity Building:
– Work with local governments, industry bodies, and development organisations to build regional expertise.
– Advocate for policies and infrastructure that support businesses in transitioning to sustainable practices.
STEP 4: Leverage Technology:
– Invest in digital tools to track ESG metrics, monitor compliance and generate reports.
– Explore blockchain for supply chain transparency.
Shift in sustainability approach: From cost to opportunity
At the level of economies where regulation is yet to catch up with sustainability awareness on the ground, such indirect pressure to transition from voluntary to mandatory action is a good start. It motivates the private sector to raise the bar for corporate performance and disclosure on a range of sustainability topics and can provide a strong foundation for goal-setting efforts.
As ESG service providers, we feel a pressing mandate to encourage African and Mauritian businesses to view sustainability as a pathway to growth and resilience. Companies in Mauritius and Africa must do their part by spreading awareness at the level of industry associations and utilising forums such as expert panel discussions to reiterate the urgency of preparing for the EU sustainability rules.
Ultimately, the onus is on all businesses, big and small, to rethink their attitude to sustainability as a cost. New rules such as the CSRD and the CSDDD have set the stage for other jurisdictions to understand that compliance is not just a legal obligation but an opportunity to gain a competitive edge in global markets.
