By Nicole Martens, Head of Impact Investing Research, Krutham
Heightened appreciation of creating healthier systems in which businesses can thrive, with company ESG practices running ahead of regulations, is an encouraging finding of this research.
With about five years left to achieve the sustainable development goals and the UN’s 2024 SDG Report revealing just how far off the mark we are at both global and regional levels, it is easy to become despondent about the state of the global environmental and socioeconomic development.
It’s reassuring then, that almost every respondent in this year’s Sanlam ESG barometer survey reported integration of the SDGs into their ESG strategies, with South African businesses prioritising socioeconomic issues and Kenyan companies focusing on issues related to climate change. Further, about 90% of companies surveyed report that the main objective of this practice is to achieve purpose-driven impact. This is of course good news for South African and Kenyan communities.
Traditionally, there are four key levers of influence for company behaviour. From the top down, there are policy and regulation. Coming from the bottom up is market demand. And in the centre are the interconnected issues of financial materiality and investor demand.
Things are moving in the right direction. The Sanlam ESG Barometer findings suggest that policy and regulation are not major drivers of South African companies’ integration of ESG into business operations. Further, 60% of surveyed companies are planning to adopt new, progressive disclosure practices, specifically the ISSB standards, without this currently being mandatory in either South Africa or Kenya. This suggests that companies are integrating ESG without being mandated to do so.
South African and Kenyan companies report that ESG integration is key to the financial sustainability of their operations, with nearly one-third listing this as their main reason for adopting an ESG strategy. A similar number of companies say that attracting investors is their most important driver for ESG integration. Of course, financial performance is a key driver of investment, so it stands to reason that effectively integrating material ESG issues into business operations should – through the self-reported positive impact on company operations – make a company more attractive to investors. It’s of little surprise then that investors are identified as the most important stakeholder with respect to ESG strategy development.
Less than 20% of companies surveyed identify customers as a key stakeholder when it comes to ESG integration, which would seem to suggest that market demand for sustainable business remains low.
What this research suggests is that, for the most part, companies are not legally mandated to integrate ESG (at least, not yet), and are not being excessively pressured by customers to operate more sustainably. Despite this limited top-down and bottom-up pressure to integrate ESG, South African and Kenyan-listed companies are making efforts to do so. This reflects the fact that businesses in both countries are finding that there are significant financial benefits to effectively integrating material ESG factors into their operations – including attracting investors.
These companies are also designing ESG strategies that are purpose-driven. More often than not then, both South African and Kenyan companies are going above and beyond ESG integration for the purposes of ticking a box on an investor’s check list.
The implication is that ESG integration for impact is becoming the new business as usual and that there is increasing appreciation by listed companies of the interconnected nature of systemic issues and financial sustainability, and the importance of mitigating negative and maximising positive impacts for the purposes of creating healthier systems in which businesses can thrive. This is a critical and an incredibly encouraging finding of this research.
In the context of achieving shared objectives as set out by the SDGs, this behaviour acts as an example for companies in other markets, and it is in every stakeholder’s best interest that it continues.
Download a copy of the 2024 Sanlam ESG Barometer at www.sanlamesgbarometer.co.za/report-2024
