Nairobi — Listed companies have been challenged to adopt sustainability reporting mechanisms to enhance their profitability and investment attractiveness to local and foreign investors.

Speaking during a deep dive session of the 6th edition of the Absa Africa Financial Markets Index (AFMI) 2022, the Nairobi Securities Exchange(NSE) CEO, Geoffrey Odundo said that due to the impact of the climate action agenda, investors are increasingly looking for more information around the level of Environmental, Social and Governance (ESG) compliance and asset allocation in listed companies.

"We have provided listed companies with an ESG compliance manual to guide them as they adopt regular sustainability reporting. Embracing these measures enhances their overall investment profile," says Odundo.

As of the end of July, only 10 per cent of companies listed on the NSE had started reporting on ESG.

They include Safaricom, East African Breweries, Nation Media Group, Bamburi Cement, KCB Bank Group, Kakuzi, and Standard Chartered.

This means the country is still lagging behind following the release of the ESG guidelines for listed firms in December 2021.

Despite this, in the index, Kenya ranked highest in the Market Transparency, Tax and Regulatory Environment pillar following the introduction of climate risk regulatory frameworks and ESG asset classes such as Green Bonds in the capital markets.

This comes on the back of regulations introduced in 2021 by the Central Bank of Kenya (CBK) requiring financial institutions to adopt climate risk guidelines to foster sustainable finance practices in the banking sector.

Kenya also recorded the highest growth in access to foreign exchange with an increase of 29 basis points, ranking fifth out of the 26 African countries that were assessed in this year's AFMI report.

Overall, Kenya moved up two places to rank eighth, having scored 61 points up from 55 points in a similar period last year.

This was attributed to better ESG market frameworks in the country's financial sector.