Awe: NGX Regco Continuously Encourage Companies to Implement Listing Guidelines

The CEO of NGX RegCo, Ms. Tinuade Awe in this interview with Kayode Tokede speaks on her first 18 months in office, stating that the regulating subsidiary of Nigerian Exchange Group has continuously encouraged companies to implement listing guidelines post-demutualisation. She also talked about how the NGX RegCo together with NGX continue to play a leading role in developing the regulation for the development of Nigeria’s green bond market and other sustainable financial products that address environmental and social challenges affecting Nigeria

Since assuming office in 2021 as the first CEO of NGX RegCo, after the successful demutualisation of The Nigerian Stock Exchange, walk us through your responsibilitie and factors you would say contributed to your successful leadership.

That is a loaded question but I will try to keep my response as succinct as possible. As the CEO of NGX RegCo, I am primarily responsible for implementing the Board approved strategy of the company; budget formulation, planning and implementation; maintaining a good relationship between the Board and Executive Management; and general governance of the operational activities of NGX RegCo. I often refer to myself as the chief brand ambassador of NGX RegCo, and in summary, a typical workday consists of meetings, brainstorming sessions with my team, attending to matters referred to me for decision, and more meetings! To be a successful leader, one must have a formidable support system, the first being the team one is leading. I can say without a doubt that I have a very competent, resilient and dynamic team that has worked and continues working tirelessly with me at NGX RegCo to ensure we achieve our objectives. Secondly, my family has been supportive, always cheering me on and ever ready to provide the necessary domestic support on the home front. This enables me to maintain a proper schedule, devote the required level of attention to my work responsibilities, while also ensuring that I can spend quality time with my family and practice self-care. Bringing it home to me as a person, one cannot negate the importance of professional competence and imbibing useful character traits. At the foundational to middle management levels of my career working at the United Nations in The Hague and Geneva and prestigious law firms in Lagos and New York, I learnt the importance of: adequate preparation; customer centricity; and breaking down unnecessary hierarchical barriers in the workplace to enable teams flourish. Moving on to when I became part of the executive management at The Nigerian Stock Exchange (The NSE), I had the opportunity to observe different traits from other members of the executive and different Board members over a period and to imbibe them for my personal use. These include reading trends, providing direction and inspiring those around me to achieve lofty goals. I have tried to imbibe and live by all these traits, and I believe they have proven invaluable in my first eighteen months as the CEO of NGX RegCo.

There is no doubt that the advent of ESG reporting has brought about sustainable development across countries of the world. What strategy is NGX RegCo implementing to encourage its regulated entities on NGX adopt best practices in ESG reporting, in line with global trends?

While operating as the Regulation Division of The NSE prior to the demutualization, NGX RegCo worked with others teams at The NSE on the development of the NGX Sustainability Disclosure Guidelines, which became effective in January 2019. These Guidelines provide companies with a step-by-step approach to integrating sustainability in an organisation’s activities and operations and provide guidance on best practice sustainability reporting that comply with global standards including the Global Reporting Initiative (GRI). Post-demutualization, NGX RegCo continues to encourage listed companies to implement the provisions in the Guidelines by the listed companies. In addition, NGX RegCo together with NGX continue to play a leading role in developing the regulation for the development of Nigeria’s green bond market and other sustainable financial products that address environmental and social challenges affecting Nigeria. Further, our commitment to address climate change has inspired us to commence the development of the NGX Climate Disclosure Guidelines a dedicated set of guidelines for listed companies on global best practice in climate disclosure in line with the recommendations of the Task Force for Climate Related Financial Disclosure (TCFD) framework) leveraging the Action Plan on how stock exchanges can integrate the TCFD recommendations issued by the Sustainable Stock Exchanges Initiative (SSEI) in 2021. We plan to publish our zero draft in a few months after which we will initiate a public consultation for feedback. Lastly, and perhaps the most important, we try to lead by example by imbibing the ESG considerations internally within our organization, in our recruitment policies, the use of resources, and in our engagement with our community.

NGX RegCo is an independent regulatory company registered by the Securities Exchange Commission (SEC) as a self-regulatory organization to promote a transparent and fair market. How often does NGX RegCo develop market rules, practices and policies to foster market transparency and accountability?

We do not have a fixed frequency or period for developing “rules and regulations” (which is the umbrella description we often use). The rules and regulations we develop are often pro-active (i.e., when we evaluate the trends and potential occurrences in the market) and sometimes reactive (to forestall the reoccurrence of certain activities or block identified loopholes). These are all in a bid to  ensure that market participants carry out their activities in a compliance with applicable laws and regulatory policies; with transparency and integrity, due regard for the protection of investors vis-a-vis long-term sustainability of the regulated entities; and in a manner that mitigates systemic risk. Our comprehensive rule making process encompasses drafting and interpretation, and is managed by a dedicated team within our Rules and Adjudication Department.

Globally, there has been a recent trend in the introduction of mandatory ESG reporting by financial regulators. In your opinion, how effective is this approach towards achieving increased ESG disclosures from companies?

This trend may not be unrelated to the growing ESG expectations of investors, customers and governments, which have been taking root for a long time. These regulatory frameworks are laudable because their broad objective is to ensure companies are incorporating ESG-related risks and opportunities in their operations, adopting an inclusive approach to stakeholder management, and contributing to global development agendas such as the United Nations (UN) Sustainable Development Goals (SDGs). With adequate collaboration, engagement, support and enforcement regimes, mandatory ESG reporting disclosures would be quite effective in the efforts to not only increase ESG disclosures from companies, but also to ensure that the companies also enshrine ESG practices within their operations.

The practice of ESG-related initiatives has become a key criterion for attracting local and foreign investors in Nigeria. What are the main challenges associated with ESG reporting in Nigeria and how can these challenges be resolved?

The main challenge is that ESG-related issues are not yet prioritized by many stakeholders, perhaps because they are yet to realise the value in ESG reporting. While there is significant progress in terms of awareness and action, there is room for improvement across board. The rapidly evolving global ESG landscape requires a deliberate partnership between all Nigerian public and private sector stakeholders. Private and Public Sector companies must embrace their societal responsibility by publishing ESG reports that disclose their ESG performance and strategy for ESG-related risks and opportunities. Initiatives that the Nigerian government can adopt include introducing mandatory ESG obligations and strengthening the Financial Reporting Council’s role as the principal ESG regulator. Recent global ESG trends indicate that there will be an increase in mandatory reporting and Nigeria needs to catch up with this trend. Regulations in the climate change space are a good reference in this trend of increasingly mandatory ESG regulations. For example, a growing number of countries have issued mandatory regulations based on the TCFD framework including New Zealand and Singapore in 2021 whilst other countries such as the UK are in the process (climate change reporting will become mandatory in the UK by 2025).

Ongoing efforts are also being made by global regulators, such as the United States (US) Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC), to gain feedback from market participants and stakeholders on regulatory proposals that will impact the identification and assessment of climate-related risks and opportunities. Recent global ESG trends indicate that there will be an increase in mandatory reporting and Nigeria needs to catch up with this trend. In the sustainability reporting space, the EU Proposal to replace the existing Non-Financial Reporting Directive (NFRD) with the Corporate Sustainability Reporting Directive (CSRD) provides another indicator for mandatory sustainability reporting. The CSRD requires all large and listed EU companies to introduce mandatory sustainability reporting standards and Companies will need to report in line with mandatory EU sustainability reporting standards and provide external assurance of sustainability information. The Nigerian government can adopt this approach by ensuring our current legal and regulatory frameworks are mandatory for companies to report on.

Global standard setters, such as the recently established International Sustainability Standards Board (ISSB), are already making efforts to develop a comprehensive global baseline of sustainability-related disclosure standards that provide investors and other capital market participants with information about companies’ sustainability-related risks and opportunities to help them make informed decisions. Nigeria should prepare for this development by proactively creating a baseline for national ESG-related frameworks. Furthermore, the FRC should be responsible for monitoring and evaluating the performance of companies based on the country’s ESG-related frameworks and issuing sanctions such as fines, revocation of permits/licenses, forfeiture of assets, etc. for non-complying companies. The activities of the FRC in this regard can be strengthened by way of collaboration with sectorial regulators, and backed by emphatic statements and actions from policymakers at all levels of government. This approach would be beneficial towards ensuring private and public companies are complying with the best global and national ESG-related frameworks. In addition, it would nudge companies operating in Nigeria to regularly conduct compliance audits and develop a comprehensive compliance matrix to keep track of mandatory ESG practice requirements. In conclusion, Nigeria can achieve exceptional progress in its ESG journey if all stakeholders deliberately partner toward fulfilling ESG frameworks and obligations which is key to improving the country’s ESG performance and reputation.

The history of ESG can be traced as far back as the 1960s and the first-ever ESG-related issue mentioned in the 2006 United Nations’ Principles for Responsible Investment (PRI) report. Are there any important trends in ESG reporting in Nigeria’s capital market worthy of note? If so, can you please share?

Regulators in Nigeria have been prioritising ESG issues and reporting as evinced by the ESG legal and regulatory frameworks implemented so far. Flowing from the Nigerian Sustainable Finance Principles (NSFPs) issued by the Financial Services Regulation Coordinating Committee (FSRCC), the Securities and Exchange Commission (SEC) in April 2021 issued “Guidelines on Sustainable Financial Principles for the Nigerian Capital Market”. As a complement to the existing requirements of the Nigerian Code of Corporate Governance (NCCG) 2018, which contains twenty-eight (28) broad corporate governance and sustainability principles with recommended practices under each principle, these guidelines make key aspects of the NSFPs applicable to other institutions outside the financial services sector as long as they are public companies. The NCCG 2018 explains in Principle 26 that paying adequate attention to sustainability issues ensures successful long-term business performance and projects a company as a responsible corporate citizen contributing to economic development. Also, it recommends in Principle 28 that companies should include – in their annual reports – highlights of sustainability policies and programmes covering certain social issues including ESG initiatives.

Further to this, the SEC’s guidelines places, among other things, a sustainability reporting obligation on public companies as part of their disclosures guidelines. With this, we expect to see an uptick in ESG compliance for companies outside the financial services industry, and ESG as a major factor for successful public capital raising in Nigeria. Despite lacking legal precedents, digital assets are gradually gaining momentum across various countries of the world. What is the outlook for the regulation of digital assets globally? Without a doubt, more countries will develop and implement regulatory frameworks to regulate digital assets. This will either be: within the confines of existing laws (which may prove restrictive); by amending existing laws; and/or by enacting new laws to effectively regulate digital assets.

Just by the very nature of digital assets, I envisage that the related regulatory processes would cut across multiple sectorial regulators. Using Nigeria as an example, the SEC has made many efforts towards the regulation of the digital assets space, which most recently culminated in the SEC New Rules on the Issuance, Offering Platforms and Custody of Digital Assets. In February 2021, the SEC informed the public that it had commenced engagements with the banking sector regulator, the Central Bank of Nigeria (CBN), and had agreed to work together to further analyse, and better understand the identified risks of digital assets. Subsequently, in May 2022, the SEC released its Rules on the Issuance, Offering Platforms and Custody of Digital Assets. This represents the current framework regulating investments in digital assets/virtual assets in Nigeria. The new Rules for Digital Assets seek to regulate all forms of digital assets/virtual assets such as cryptocurrency, non-fungible tokens (NFTs) and other forms of digital assets, including trading in those assets. Thus, with SEC’s recognition of digital assets/virtual in Nigeria, it is hoped that the CBN may take the same route to recognize digital assets and provide a regulatory framework to allow banks facilitate cryptocurrency transactions.

With the decentralized and transparent features that blockchain technology presents, there is a perceived indication that digital assets are here to stay. How can regulators ensure that investors are protected?

To ensure investors protection, six key considerations are non-negotiable. The first is capacity development, both for the regulators and the operators, to ensure both parties sufficiently understand the process(es), market(s), and securities (s).  Secondly, legally and operationally enforceable regulatory frameworks have to be developed and implemented. Thirdly, adoption of a collaborative style of regulation hinged on substantial engagement with the operators to maintain an open line of communication. Fourth, is the establishment of adequate Anti-Money Laundering/ Combating the Financing of Terrorism (AML/CFT) processes. Fifth, incorporating solid market surveillance practices, and last but certainly not the least, extensive investment in efficient investor education programs.

There have been various investment schemes embarked on by Nigerians in the past with some failing because of an absence of regulatory strongholds. Is NGX RegCo considering carrying out self-regulatory activities in the digital assets space?

We are not averse to carrying out self-regulatory activities in the digital assets space. However, any activity in this regard will be subject to the approval of the SEC.  In the interim, NGX RegCo will continue to pay attention to the developments in the digital assets space and build its capacity, while providing support to all parties within the confines of the existing rules in the Nigerian Capital Market.

NGX RegCo is in its second year since its establishment as a self-regulatory organization. What do we expect to see from NGX RegCo, short-term and long-term?

In the short term, we continue to work closely with market participants, regulatory bodies and international organisations to support cooperation against market abuse, promote rule enhancement, and ensure a well-regulated market. Our long-term vision is to be Africa’s SRO of Choice, by growing from our status as a well-experienced start-up, into a successful multi-client company, with strong brand presence and recognition in Africa. Anyone who knows or has worked with employees of NGX RegCo would be able to attest to their diligence and strong work ethics. They are the biggest drivers of achieving our goals and if they continue with this passion and drive for success they currently have, I am optimistic that we will certainly achieve most of what, if not all, we have set out to do