With only about five years left to achieve the UN’s sustainable development goals (SDGs) — and the UN’s 2024 SDG report revealing just how far we are from meeting them, both globally and regionally — it’s easy to become despondent about the state of the global environment and socioeconomic development.
It’s reassuring, then, that the second annual Sanlam ESG Barometer report reveals there’s a heightened appreciation of creating healthier systems in which African businesses can thrive, with company environment, social and governance (ESG) practices running ahead of regulation.
Researched by Krutham and presented in collaboration with Business Day, this report examines evolving ESG dynamics and how listed companies in SA and Kenya are enhancing environmental and social outcomes through their operations.
Almost every respondent in the 2024 Sanlam ESG Barometer survey reported integration of the SDGs into their ESG strategies, with SA businesses prioritising socioeconomic issues and Kenyan companies focusing on issues related to climate change.
Furthermore, 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 both South African and Kenyan communities.
Traditionally, there are four crucial levers of influence for company behaviour. From the top down, there is 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 2024 Sanlam ESG Barometer findings suggest policy and regulation are not important drivers of South African companies’ integration of ESG into business operations.
Furthermore, 60% of surveyed companies are planning to adopt new, progressive sustainability disclosure practices, specifically the International Sustainability Standards Board’s (ISSB) standards, without this being mandatory in either SA or Kenya. This suggests companies are integrating ESG without being mandated to do so.
South African and Kenyan companies report that ESG integration is crucial 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 attracting investors is their most important driver for ESG integration.
Of course, financial performance is a crucial 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 little surprise, then, that investors have been identified as the most important stakeholder with respect to ESG strategy development. Less than 20% of companies surveyed identify customers as a crucial stakeholder when it comes to ESG integration, which would seem to suggest 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 nevertheless making efforts to do so. This reflects the reality that businesses in both countries are finding there are important financial benefits to 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 checklist.
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, as well as the importance of reducing negative and maximising positive effects for the purposes of creating healthier systems in which businesses can thrive. This is a critical and incredibly encouraging finding of the 2024 Sanlam ESG Barometer.
In the context of achieving the shared objectives set out by the SDGs, this behaviour acts as an example for companies in other markets, and it is in every stakeholder’s best interests that it continues.
