ESG has become strategically more important for most businesses and sustainability is no longer a nice-to-have, but rather a competitive necessity and a key driver of operational efficiency and innovation. This was one of the findings of the 2024 Sanlam ESG Barometer, presented in collaboration with Business Day on August 1, 2024.

This year the Barometer broadened its scope to include insights from listed companies in Kenya as well as JSE-listed companies in SA, marking a significant step towards providing a comprehensive assessment of Environmental, Social and Governance (ESG) practices across Africa. Abel Sakhau, chief sustainability officer at Sanlam, called on companies in the continent to show up and collaborate with the ESG Barometer in order to continue to build on this important research. He said the intention is to include other African countries in the research in due course to produce a truly pan-African body of research.

The second iteration of the ESG Barometer delved into how ESG dynamics are evolving and examined how companies are actively enhancing environmental and social outcomes through their operations. The research report further found that companies that operate sustainably tend to be more profitable and resilient, generate better brand value, have greater access to capital and are more responsive to employees, customers and society.

The ESG space is a complex one, complicated by political backlash, particularly in the US. The challenge is how to navigate around this pushback. Encouragingly, there is clear evidence of the benefits and opportunities in sustainability strategies. This year’s ESG Barometer research revealed that most companies are less concerned about the backlash against ESG.

Dr Achieng Ojwang, executive director of the UN Global Compact Network SA, an organisation that works to enable the UN’s sustainable development goals (SDGs) by helping companies achieve their sustainability objectives and accelerate their impact, agreed that initiatives such as the ESG Barometer are important as they play an important role in addressing one of the biggest challenges in the ESG space: a lack of data.

During a conversation with host, Andile Khumalo, she said, “Data enables action and the ability to identify gaps. The world is not on track to meet the goals of the UN’s SDGs. In SA, although some companies are making inroads into certain ESG areas, on aggregate, the country is not progressing as fast as it should be.”

SA first reported back on its collective performance in 2019. Local businesses believe they are advancing SDG 8: Decent Work and Economic Growth, most successfully.

Nicole Martens, head of Impact Investing Research at Krutham and Dr Stuart Theobald, executive chairman of Krutham revealed the main findings of the 2024 research. They include the following:

  • More than 80% of respondents have an explicit ESG strategy, primarily to attract investors and for operational necessities. While companies in basic material prioritise operational necessity, Kenyan companies focus on regulatory compliance.
  • Investors and shareholders are the most influential when it comes to the design of ESG strategy, followed by customers in SA and employees in Kenya. The lower priority given to employees and customers – proxies for broader society – contrasts with the concept that companies take an outward, ESG-additionality view.
  • Purpose-driven impact and sustainability are top priorities for two-thirds of respondents.
  • There is significant alignment between the UN’s SDGs and ESG strategies in both SA and Kenya. South African companies typically align their ESG strategies to economic growth (SDGs 8 and 11) to address systemic challenges including unemployment, while Kenyan companies target climate action-related SDGs (SDG 13).
  • Data and measurement are the biggest challenges for ESG implementation, followed by supply chain and external partnerships in SA and operational constraints in Kenya. Despite these challenges, most companies say they are comfortable about their ability to measure and attribute the impact of their ESG interventions, suggesting that their ESG interventions have been designed based on what is possible rather than stretching their goals.
  • As far as ISSB standards are concerned, most respondents agreed on the positive impact of ISSB standards with 46% of Kenyan companies planning to adopt ISSB standards, compared to 16% in SA. Interestingly, South African investors show fewer expectations for ISSB adoption while Kenyan investors expect partial adoption.
  • Additionality came through very strongly in this year’s research. The majority of companies look for projects with positive societal and environmental outcomes with a strong commitment to development additionality. South African companies expect higher returns on their ESG investments while Kenyan companies expect returns in line with their cost of capital.
  • In Kenya,75% of companies actively track financial expenditure on ESG compared with 38% in SA.
  • The research revealed that social development and community engagement are the highest priority areas for improvement, followed by renewable energy investments in SA and ethics and compliance in Kenya. Climate change adaptation, however, ranked low in both countries, highlighting a dominant focus on mitigation in ESG investments and reporting frameworks.

Two panel discussions followed. The first discussion focused on understanding the importance of ESG with perspectives from both SA and Kenya. Panellists included Frank Mwiti, CEO of the Nairobi Securities Exchange; Heather Jackson, chair of the Responsible Steering Committee at the Association for Savings and Investment SA (Asisa); Sylvester Sebico, ESG specialist at the Public Investment Corporation; and Lilian Mwikali, portfolio manager at Sanlam Investments East Africa.

The second panel discussion put the spotlight on ESG implementation in ‘hard to abate’ sectors such as mining and just energy. Panellists included James Mackay, CEO of the Energy Council of SA; Tsheko Ratsheko, general manager of Integrated Environmental Management, Sustainable Impact Division at Exxaro Resources; Professor Michael Solomon, chairperson of the ESGS Committee at the African Institute of Mining and Metallurgy; and Carl Roothman, CEO of Sanlam Investments.

Download the 2024 Sanlam ESG Barometer Report, visit www.sanlamesgbarometer.co.za/report-2024