Environmental, social and corporate governance (ESG) is gaining prominence in South Africa, but is still not at the level it should be, a panel of speakers at FTI Consulting’s ESG breakfast discussion, held in Johannesburg on Tuesday, agreed.
Cambridge Institute for Sustainable Leadership Brussels executive chairperson Martin Porter said ESG had risen very rapidly to the top of the corporate agenda globally, driven by policy and regulation, particularly in the European Union (EU).
He noted the EU Sustainable Finance Taxonomy report, released last week, was an example of the importance being placed on ESG.
The Taxonomy is a tool to help plan and report the transition to an economy that is consistent with the EU's environmental objectives.
While this showcased that the world was moving rapidly forward with ESG, the extent to which this was appreciated by investors varied enormously, said Porter.
According to a survey undertaken for the report, corporates maintaining high ESG standards are responding to pressure from investors more so than because of nongovernmental organisations, he noted, adding that this was a significant change from a few years ago.
Cannon Asset Managers founder and chief executive Dr Adrian Saville, meanwhile, posited that, as a collective, South African corporates were prioritising other matters ahead of ESG, given the state of the economy and the high unemployment rate.
ESG was often considered a luxury, he noted.
However, there had been notable change over the past 24 months, he indicated, with political changes underscoring the importance of ESG.
Refinitiv investment and advisory Middle East and Africa director Franita Neuville said Refinitiv had identified three trends in ESG in South Africa.
Firstly, she reiterated Saville’s message, that ESG was not necessarily the top priority for corporates and investors in the country; however, there were signs of change.
Secondly, she said that, from an investor and analyst point of view, there was a definite shift from just the social or environmental element of ESG, towards looking at it as a whole and focusing on creating sustainable companies.
Lastly, regarding corporates, she noted that these were moving out of survival mode to active participation and taking proactive steps to measure ESG and measuring how they stack up locally and internationally.
In respect of global trends that the country needs to be cognisant of, she mentioned that corporates without proper ESG reporting were considered a higher-risk investment, which put them at a risk of losing out on capital investment.
Neuville emphasised that global competition for these funds was increasing.
Therefore, ESG needs to be reported in a responsible manner in the country if corporates want access to global funds.
Moreover, she indicated that passive funds were becoming more prominent and, with these being long-term investments, it was important that companies were sustainable in order to attract funds.