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ESG in South Africa: understanding the 3 Areas of Environmental, Social and Governance risk and opportunity

Looking at ESG in South Africa: an Environmental, Social and Governance strategy is more and more an important subject in the business world. It entails reporting related to environmental, social, and governance, sharing data with stakeholders, and re-orienting toward risk reduction and capitalising on opportunities.

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ESG in South Africa calls for business to address risks and identify and capitalise on opportunity. An ESG strategy deals with performance, sustainability, diversity, and inclusion. Our firm is a strong partner on matters related to ESG in South Africa. Our model promotes the dissemination of data related to environmental, social, and governance aspects of a business, and looks holistically at current processes and systems in relation to sustainability. This data is shared with stakeholders to promote transparency and formulate tangible action plans toward risk management, while also identifying opportunities for growth. 

ESG encompasses various business facets that are not always accounted for in traditional financial analysis, yet can have a significant financial impact for a company. As problems of cosmic impact – such as climate change – persist, a failure to measure and action ESG in South Africa will eventually result in substantial exposure to multiple risks.

ESG as risk management: integration of environmental, social and governance concerns into financial analysis and capital market evaluations

The ESG (Environmental, Social, and Governance) framework was established in the mid-2000s through a seminal report authored by impact investing expert Ivo Knoepfel, titled “Who Cares Wins.” This report posits that ESG considerations should be integrated into financial analysis and capital market evaluations due to their ability to mitigate risks, enhance business evaluations, and drive positive social outcomes.

This report was informed by a joint initiative under the UN Global Compact, which was convened by former UN Secretary-General Kofi Annan. Over 50 CEOs participated in the initiative, which was supported by the International Finance Corporations (IFC) and the Swiss Government. The objective of this initiative was to explore ways in which the financial sector could embed ESG considerations into capital markets, with a focus on quantifying social impact and advancing responsible investing.

The three pillars of ESG: environmental, social and governance

With an understanding of what ESG stands for and its origin, let’s delve deeper into each of the three main criteria:

  • Environmental: The environmental aspect of ESG assesses the extent to which an organization operates in a responsible and sustainable manner with regards to the environment. This encompasses various environmental considerations such as waste management, air and water pollution, resource depletion, greenhouse gas emissions, deforestation, climate change, and more.
  • Social: The social aspect of ESG evaluates the impact of an organization’s operations on the human rights and well-being of its employees, as well as other community members. This covers diverse topics including workplace conditions, diversity and inclusion, employee volunteer hours, and pay equity. While the environmental impact of a business is relatively easier to quantify, the social aspect of ESG is equally crucial in mitigating risk and ensuring responsible operations.
  • Governance: The governance aspect of ESG focuses on the company’s internal policies and management processes. This includes elements of transparency, accountability, and compliance such as accurate accounting practices, leadership diversity, stakeholder engagement, avoidance of conflicts of interest, compliance with legal requirements, and and other relevant concerns. Good governance practices are fundamental to building trust with stakeholders and maintaining accountability. 

While ESG reporting is broken down into these three distinct categories, it is important to note that all three criteria are material risk factors that are valuable on their own terms. For example, reducing carbon emissions and ensuring fair compensation are important risk factors, regardless of whether they fall under the “environmental” and “social” categories.

Historically, environmental and social responsibilities were viewed as secondary to business operations. However, ESG reporting has become increasingly crucial to the business model as stakeholders, including employees, customers, investors, and others, demand greater accountability and transparency from companies with regards to their environmental and social impact. As a result, corporate sustainability reporting has become the norm for corporations, expected by shareholders.

ESG in practice: what does an ESG framework look like through the Kettle lens?

As a management consultancy and advisory firm, we consider ourselves as a robust growth partner to our clients. We are devoted to our goal of empowering businesses to care for the individuals and communities they serve by establishing a secure, inclusive, and environmentally-conscious working environment. As a catalyst in this field, we strive to continuously enhance our clients’ social and environmental performance, ensuring sustainable growth and profitability.

Kettle’s Environment, Social and Governance (ESG) consulting services focus on three crucial areas, which align with the three ESG reporting metrics: the planet, people, and responsible business.

  • Planet We assist our clients in understanding and optimising their utilisation of natural resources to advance sustainability. Key aspects include energy efficiency, waste management, and water conservation. By providing in-depth engagement on ESG, we help our clients set both short- and long-term, company-wide emission reduction targets, aligned with climate science action, and achieve net-zero emissions by specified dates across all their operations.
  • People Our ESG team supports our clients in valuing their employees by creating and maintaining a diverse and inclusive workplace that is an excellent place to work. This includes critical initiatives such as dedicated diversity and inclusion teams, employee resource groups, mental health support, and more. Additionally, we collaborate with our clients to define and clarify their stance on human rights and bolster their commitment to protecting the dignity of their employees through safe and fair working conditions.
  • Policy (processes and practices) It is imperative for organisations to adopt responsible business practices. To facilitate this, we advocate for our clients to clearly articulate their core values and maintain stringent adherence to these principles. Our aim is to assist executive management teams in communicating and exemplifying the company’s core values to employees and other stakeholders, thereby promoting a cultural shift within the organisation and in view of external stakeholders.We have established systems of accountability to preserve the integrity of core values. One such system is the Kettle Enterprise Risk Management (ERM) Benchmark, which assesses potential risks that could materially impact an organisation’s ability to attain its strategic objectives. Additionally, Kettle’s Business Resiliency Programme is devised to minimise vulnerability to threats and enhance the organization’s ability to restore operations in a prompt manner. We collaborate with our clients to drive toward desired outcomes by investing in the vision of the world they aspire to inhabit.
ESG in South Africa environmental social and governance

ESG strategy requires long-term commitment and focus, and does not work with a one-size-fits all approach. All aspects of ESG require a shift in mindsets and corporate culture, and this is a broad discussion that impacts all stakeholders. Kettle can help you hone in on and define your specific Environmental, Social and Governance objects, and develop, deploy and track your unique, robust ESG strategy. 

Insight by:

Humphrey Theodore K. Ng'ambi

ICT Consultant

Kettle Consulting (PTY) Ltd

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