Africa Inc builds trust, creates value on the back of ESG

Africa Inc builds trust, creates value on the back of ESG

Businesses across Africa, including the insurance sector, are leveraging their environmental, social and governance (ESG) strategies to build trust and create value, according to a new report.

The Africa Business Agenda: ESG Perspective 2023 report, published by PwC, draws from a larger body of work, PwC’s 26th Annual Global CEO Survey, to consider how Africa Inc is responding to environmental and social concerns.

“In the context of climate and societal challenges, businesses need to demonstrate their ability to create value, build trust and contribute to solving important problems,” commented Lullu Krugel, PwC ESG Africa platform leader, to reinforce the report’s findings. In this context, the traditional approach of “business as usual with a narrow focus on profitability” is considered obsolete. The ESG Perspective 2023 report highlighted that Africa’s business leaders “are concerned about climate change and social instability” and are, for the most part, acting on these concerns.

“More stakeholders expect that companies should be purpose led, committed to contributing towards important ESG goals through their influence in society,” the report noted. “Purpose-driven companies are reaping the benefits of focusing on the triple bottom line of people, planet and profit [thus] positioning themselves for sustainable success.” People and planet are clearly aligned with the ‘S’ and ‘E’ of ESG, whereas profit – allowing for some poetic licence – can be included under the ‘G’ pillar.

The remainder of this article expands on the two main report findings being first, that private and public sector co-operation is non-negotiable in tackling societal changes; and second, that business’ holistic, operational responses to climate change are value accretive. You might consider the former as a welcome digression from Africa’s legacy position of holding government wholly responsible for tackling social ills; and the latter as the realisation that striving for net-zero carbon emissions and participating in other environmentally friendly activities need not damage a firm’s bottom line. (The writer has rephrased these key findings, though they remain in line with the message imparted in the 14-page document, dated March 2023.)

The “social challenges” angle is based off the percentage of Africa-based CEOs who expected their firms to face moderate, high or extremely high exposure to threats stemming from social inequality in the coming 12 months. Southern Africa (67%); sub-Saharan Africa (46%); and west Africa (42%) topped the tables; but all five African regions covered by the survey came in higher than the global CEO average, at just 26%. PwC mentioned that social inequality spanned areas like ethnicity, gender and income before singling out the Southern African Customs Union, comprising Botswana, Eswatini, Lesotho, Namibia, and South Africa, “as the world’s most unequal region from an income and consumption per capita perspective”.

Africa Ahead has previously reported on the unrest experienced in South Africa in July 2021 when a wave of looting affected areas of Gauteng and KwaZulu-Natal, causing in excess of R50bn in economic damage. The ESG Perspective 2023 report singles out this civil unrest as “a typical example of what happens when communities feel aggrieved and ignored about the inequality they experience”, but there were political forces at play too. Nonetheless, few would argue that absent inequality, poverty and unemployment, this event would not have occurred.

“Governments cannot fix these problems alone,” wrote PwC. “They need the private sector and other stakeholders to work together on addressing social challenges; [fortunately] many private organisations across sub-Saharan Africa are already doing their part to address inequalities and associated social risks”. The firm sited decisions by many of its large corporate clients to implement fair-pay policies that focus on “living wages” over legislated minimum wages as evidence of this “shift”.

Traditionally, firms have met their E and S obligations through Corporate Social Investment (CSI) programmes, but PwC’s latest report shows that these requirements are increasingly being met using “a more holistic operational approach, where concerns about social wellbeing and the environment are fully integrated with corporate strategies”.

On the “hot” topic of climate change, the report focused on global CEO observations regarding the extent to which climate risks would impact on the cost profile of their business over the next year. In this case, African firms were more aligned with the global average, though only 6% of respondents from Southern Africa and 10% from East Africa felt there would be no impact from this phenomenon.

“Some 52% of sub-Saharan African companies surveyed expect a moderate, large or very large impact from climate risk on their cost profile over the next 12 months, compared to 50% globally [with] costs including insurance liabilities and financial outlays to comply with new regulations,” wrote PwC.

The increasing frequency and severity of natural catastrophe events is well documented, with 2022 proving to be a bumper year for both economic and insurance losses. The ESG Perspective 2023 report noted that flooding in South Africa’s KwaZulu-Natal and Eastern Cape provinces were among the most expensive climate disasters globally in that year. In fact, global reinsurer Munich Re noted that the April 2022 KwaZulu-Natal floods resulted in insured losses of more than US$1bn.

The continent took some hard hits in 2022, with heavy rainfall and floods in west Africa; cyclones and other tropical storms threatening Mauritius, Seychelles and Réunion; and landfall damage in southern and east Africa, to name a few. Again, turning to Munich Re’s 2022 natural catastrophe report, we learn that large parts of Nigeria were flooded following unusually heavy monsoon rains. The reinsurer noted that “well over 100 000 buildings and crops on more than 5 000 square kilometres of farmland were destroyed, while more than 600 people lost their lives”. East African countries in the Horn of Africa, meanwhile, faced drought. But climate impact is not limited to weather catastrophes.

PwC noted that new regulations aimed at reducing greenhouse gas emissions across the European Union (EU) would have a significant impact on companies that trade with that bloc, including the sub-Saharan Africa region. “The wide ripple effect of regulatory compliance, direct and indirect, could compel sub-Saharan African companies exporting to the EU to comply with its expectations of environmental stewardship,” they wrote. “The EU’s evolving climate change rules could drastically affect what organisations can and cannot export to the region.”

To conclude, PwC restated that addressing social challenges and climate change presented opportunities for the public and private sectors to work together. “Private sector organisations have the skills and capacity to positively influence a broader community of stakeholders, far beyond the financial bottom line; their efforts can create value for customers, shareholders and the communities where they operate, and deliver improved sustainability for their businesses and suppliers,” they wrote.

The caveat is that “transforming from a reactive, compliance-driven organisation to a pro-active, purpose-led organisation that makes a real impact on societal challenges and climate change is not simple”. It is a journey that begins with assessing current maturity, baselines, risks and readiness; it takes time before the various stakeholders develop more “commercially integrated perspectives on ESG opportunities”.



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