You will have seen high level ESG related commitments being formulated by large companies, banks and investment companies as well as consultancy firms increasingly specialising in ESG. A plethora of jobs have also been created in the ESG space for strategists, analysts, the legal profession, etc. However, there does not seem to be a universally agreed upon definition of what it means and how it works.
The way I understand ESG (and it is debatable) is that it refers to a framework of metrics, matrices, indicators, approaches, tools, standards, processes, which are aimed at measuring and analysing the environmental, social and governance performance of companies and therefore their measurable and actual impacts (positive or negative), especially from a social and environmental perspective.
The ESG data can then be used by companies to improve their ESG performance over time. It is also used by investors to inform their analysis process which in turn enables them to identify material risks and growth opportunities for their investments. Applying this information aims to bring a more rigorous approach to reaching better decisions. We must however understand, that currently, ESG means different things to different people.
So, as we try to understand what it means for us in Africa, which ESG standards, matrices, and indicators to use, it is also time to stop, think (appreciating that thinking time is a rare commodity these days) and ask ourselves, what do we, as Africans want the outcomes of our ESG approach to be and for whose benefit should it be? Is it just going to be about numbers, ranking, comparing risks, and informing investment decisions for better returns? Or are we going to collectively build an ESG framework which will support actual and measurable positive social and environmental impacts on the ground, showcasing African ESG leadership and its determination for a positive impact on society. For ESG to translate into real benefit and not just be another corporate “buzzword”, we must ask ourselves how the ESG approach and framework we are developing will incentivize companies (including SMEs), investments and investors to contribute substantially to a more inclusive, sustainable, regenerative, just, fair and mindful society in Africa.
For ESG to drive change and influence and assist companies in delivering positive impacts on society, its application should transform companies, investors and possibly our economy in a more meaningful way than just metrics and numbers. Africa’s ESG approach must be about real positive impacts and genuine added value to the company and society. While being able to measure, analyse, compare and account are all important elements of our ESG journey, we must be honest and understand that this alone will not be enough to achieve the social and environmental impacts needed to address the vast array of serious problems the world (and Africa) is facing. These include the biodiversity and climate crisis, inequality, lack of inclusivity, poverty, security and extreme weather events, universal access to basic services, health, and education to only name a few.
There is a real difference in measuring what you are doing compared to measuring your real impact. We also cannot carry on only talking about “reducing” our negative impact. These are great and necessary steps, but it is important to realise that reducing negative impact is no longer enough. ESG must push us all to talk about our added value to society and what value we have added in terms of environment, social and governance aspects.
We must decide which of the following questions our ESG approach will answer:
– Which investment is the least risky from an ESG performance perspective but will deliver the most return, or which investment will deliver the most value in terms of ESG and financial returns?
– How do I reduce my negative impacts on ESG considerations so that I can still access finance, or how can my business add real ESG value to society so that I become future fit and become a partner of choice for investors, government and other businesses?
Looking at ESG this way requires a substantial mindset shift. This approach positions companies as active agents of change to support a more sustainable, inclusive, fair and just society. An ESG approach like this will influence our corporate culture, mindsets and purpose. It will change the way we look at business and its role in society including the way we define business success and how we measure it. It will change the products and services we offer and the way we develop them; it will transform the way we truly engage with stakeholders and communities; and ultimately, it will change the way we do business for the better. It will change corporate DNA.
Now is the time to ask ourselves which ESG framework we want for Africa and what value and impact it should deliver for the continent. ESG must be purpose driven rather than numbers driven. It must be about delivering systemic and transformative impacts for the continent. It is our time to come together as businesses to become more pro-active, collaborative, and lead the ESG discussion, for the continent, and at a global level. This must be a co-shared approach, an inclusive one, and we will have to be agile. It will not be a simple or linear process. We are going to have to be transparent, we are going to have to experiment, and be honest about our actual performance, share our successes and our failures, so we can learn from them together. We must think differently, push ourselves, be innovative, and, as leaders, we are going to have to be brave and to take risks. At the end of the day, it is about our individual and collective responsibility and purpose as citizens, leaders and companies.
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