African retailers are aligning closely with global environmental, social and corporate governance (ESG) trends, driven by consumer and shareholder activism, retailers’ role in the circular economy and legislation, says law firm Webber Wentzel.

Aligned with their international counterparts, African retailers have embedded robust supply chain due diligence frameworks to ensure that suppliers adhere to ethical standards, including human rights and environmental regulations, says Webber Wentzel partner Chandni Gopal.

African retailers are also embracing the circular economy to minimise waste and maximise resource efficiency, with major retailers adopting the 9R framework – refuse, reduce, reuse, repair, refurbish, remanufacture, repurpose, recycle and recover. This, in turn, has led to innovative circular economy initiatives, she adds.

The circular economy offers a holistic approach to sustainability, providing a pathway for retailers to achieve their ESG goals while contributing to a more resilient and responsible economy.

In South Africa, retail and wholesale group Massmart’s e-waste programme is the country’s longest-running, retailer-led e-waste recycling initiative, collecting over 1 550 t of e-waste.

Going forward, retailers must intentionally apply and adopt circular economy principles in their operations and strategies. Successful and impactful circular business models are characterised by innovation and optimising existing infrastructure and resources, explains Webber Wentzel associate Zimkhitha Mhlahlo.

African retailers are also increasingly leveraging technology to track and report sustainability efforts to use the underlying data to embed sustainability into daily operations.

“In a world of increasingly conscious and price-sensitive consumers, embedding ESG into business strategies positively impacts [on] business reputation, consumer confidence and operational efficiency.”

Further, efficient supply chain management, energy efficiency and promoting sustainable choices can simultaneously support sustainability and affordability, she adds.

Commitments and Compliance
As investors increasingly prioritise companies with strong ESG practices, which are viewed as indicators of long-term sustainability and ethical operations, ESG compliance can significantly enhance the investment attractiveness of African retailers, Gopal says.

She notes that African retailers have been less impacted by shareholder activism compared with their overseas counterparts.

Nevertheless, African retailers have paid close attention to shareholder activism in other jurisdictions and have taken proactive measures to ensure that their ESG initiatives align with shareholder expectations.

“Notably, supermarket retailer Shoprite Group was able to secure R3.5-billion in sustainability-linked financing, demonstrating that ESG compliance and investment often go hand in hand,” Gopal says.

Beyond financing, ESG compliance offers significant value by assisting companies in identifying and mitigating risks related to environmental impact, social issues and governance practices. ESG commitments also enhance brand reputation and increase customer loyalty and market share, which also boost retailers’ investment attractiveness.

Actions
Retailers are also addressing key consumer activism risks, such as greenwashing or more broadly, colour-washing, and reputation laundering. Colour-washing refers to profit- driven marketing practices where businesses make unsubstantiated, misleading and exaggerated claims about how environmentally conscious or socially aware they or their products are.

For example, a ruling by the Advertising Regulatory Board in South Africa in August 2024 found energy company TotalEnergies guilty of greenwashing over marketing claims made in an advertisement with national parks management agency SANParks. This ruling emphasised the need for companies and retailers to ensure strict compliance with advertising standards, Gopal adds.

Mhlahlo explains that, owing to risks associated with greenwashing and reputation laundering, many companies have adopted due diligence, transparency and audit measures to demonstrate their commitment to and compliance with marketing standards.

“Independent third parties conduct due diligences and audits to stress-test, support and provide a basis for retailers’ sustainability claims,” Mhlahlo says.

Transparency, accountability and good governance practice by listed retailers have also been driven by ESG disclosure guidelines. The JSE Sustainability and Climate Disclosure Guidance documents aim to inform JSE-listed companies about best practice in ESG and climate disclosures, and to assist companies in navigating the various, and dynamic, reporting standards.

Additionally, retailers have introduced governance initiatives emphasising diversity, executive accountability and ESG-linked remuneration, says Gopal.

Holistic approaches to ESG compliance can also inspire consumer confidence, she elaborates.

By integrating ESG principles, African retailers can build consumer trust and contribute to a more resilient, responsible economy, Mhlahlo concludes.