ESG performance influences business growth and economic development gains
Last year, carbon dioxide emissions reached the highest levels ever recorded. Now, new research by the World Meteorological Organisation shows that the world is increasingly likely to experience global warming of 1,5 degrees Celsius within the next five years because of record greenhouse gas (GHG) levels.
Despite this concerning incline, 80% of the South African organisations surveyed by PwC South Africa have not yet made a net-zero commitment.
Business leaders can no longer afford to ignore the importance of Environmental, Social and Governance (ESG) performance as this can have a direct impact on societal well-being. Research conducted by the University of Oxford’s Sustainable Finance Programme shows that an increase in company-level ESG performance can result in a positive effect on a country’s living standards — both in developed and emerging markets.
PwC South Africa’s latest South Africa-focussed ESG research highlights that local organisations are lagging behind their global peers in adopting ESG goals and strategies.
PwC’s 25th Annual Global CEO Survey showed that 73% of South African CEOs are very or extremely concerned about social inequality in the country impacting their company over the next 12 months. It is clear — now more than ever before — that South African organisations simply cannot afford to downplay the importance of ESG in their business strategy.
The CEO survey found that six out of every 10 local CEOs polled are also moderately, very, or extremely concerned about physical and transition risks associated with climate change. Nonetheless, eight out of 10 respondents indicated that their company has not yet made a carbon-neutral or net-zero commitment.
Globally, 28% of CEOs indicated that their company has made a carbon-neutral commitment compared to only 20% in South Africa.
Lullu Krugel, PwC ESG lead for Southern Africa, says the risks associated with climate change have many social implications, including unemployment, food insecurity, increasing health risks, and migration. “Last, but not least, all of the risks mentioned increase the risk for social unrest and upheaval. This emphasises the need to always evaluate the social impacts of climate risk rather than dealing with it in isolation.”
The survey found that South African companies are more likely to have non-financial ESG-related outcomes — such as GHG emission targets — included in their long-term corporate strategy than their global counterparts. However, only 20% of local CEOs have GHG emissions linked to their remuneration package, compared to 37% globally.
Shirley Machaba, PwC South Africa CEO, says sustainability achievements are now routinely acknowledged alongside traditional key performance indicators (KPIs) when it comes to executive remuneration. “Stakeholders increasingly expect organisations to communicate and deliver convincing, measurable and sustainable ESG strategies,” she says. “Including ESG metrics in executive pay packages is a tangible way to close the say-do gap.”
A key question facing South African companies is “why are they lagging behind their global counterparts in adapting strategies that embed ESG factors?”.
“One of the challenges could be the absence of an empowered Chief Sustainability Officer (CSO) and experienced sustainability staff to drive transformation from the top,” Krugel says. “From a financial perspective, implementation, compliance, and reporting of ESG issues might still be treated as a cost line by some businesses instead of being treated as an investment.”
PwC’s view is that South African companies should integrate ESG considerations into their corporate and investment initiatives and activities, and internalise ESG holistically to build trust and ensure long-term sustainability, agility, and competitiveness.