A survey of 282 African CEOs reveals that businesses need to demonstrate their ability to create value, build trust and contribute to solving important problems in the context of global climate and societal challenges.

A crucial way organisations can do this is through their commitment to addressing environmental, social and governance (ESG) matters, says tax, assurance and advisory company PwC Africa.

Increasingly, more stakeholders expect that companies should be purpose-led and committed to contributing towards important ESG goals through their influence in society.

Purpose-driven companies are reaping the benefits of focusing on the triple bottom line of people, planet and profit, thereby positioning themselves for sustainable success, it emphasises.

The CEOs say they are concerned about climate change and social instability. Some of them are taking action, and there is a great deal to learn from these experiences and insights, according to the PwC Africa 'Africa Business Agenda: ESG Perspective 2023' report.

“Our latest Global CEO Survey shows that companies across sub-Saharan Africa are taking action on climate and social risk issues. However, more needs to be done,” says PwC Africa CEO Dion Shango.

Historically, many private sector organisations believed that climate change and social justice were matters that should be addressed by the public sector, specifically governments. While the provision of a social safety net is a primary role of government, macroeconomic and environmental shocks and their impact on vulnerable groups remain persistent and endemic for a range of reasons within and outside direct government control.

PwC’s twenty-sixth Global CEO Survey highlighted the need to balance short-term economic challenges with long-term existential threats. Thinking just about the short term is a threat to sustainability, he adds.

“We need to re-think how businesses operate, how success is measured, what the definitions of fiduciary duty, the regulatory environment and transparency are, and how boards are remunerated. This requires buy-in and support of all stakeholders, including investors and shareholders, as real collaboration is the only way forward,” he says.

ACTIONS AND RISKS
However, when it comes to acting on climate risk, the survey results show that more organisations are taking a holistic, operational approach in which concerns about social wellbeing and the environment are fully integrated with corporate strategies.

Further, there is also a cost implication associated with climate risk. About 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. These costs include insurance liabilities and financial outlays to comply with new regulations.

“Companies have a key role to play in setting science-based targets to enable the transition to a net-zero economy by 2050. This includes decarbonising how they operate, as well as engaging with their suppliers to help reduce climate impact.

“Investors and other stakeholders expect organisations to be building resilience and creating long-term sustainable value,” says PwC South Africa purpose-led growth director Sayuri Moodliar.

It is in the best interest of the private sector to help address climate and social challenges, not only because these organisations may have additional capabilities to complement and augment public sector efforts, but rather because, by working together, we can create more stability, which is conducive to growth, she adds.

Meanwhile, about 46% of sub-Saharan African business leaders surveyed said they expect their companies to face moderate, high or extremely high exposure to threats stemming from social inequality over the next 12 months, compared with just 26% globally. This includes concerns about social and political instability.

However, 67% of the South African CEOs were concerned about exposure to threats stemming from social inequality. The rioting and looting during the so-called July unrest in 2021 in South Africa was a typical example of what can happen when aggrieved communities feel ignored about the inequality they experience, the company said.

“Governments cannot, on their own, fix the risks linked to social inequality. Private organisations have a role to play and we have seen that purpose-driven companies are reaping the benefits of focusing on the triple bottom line of people, the planet and profit, which positions them for sustainable success,” says PwC Africa ESG lead Lullu Krugel.

“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, as well as deliver improved sustainability for their businesses and suppliers.”

Meanwhile, while companies prefer to collaborate with governments and nongovernmental organisations to address societal issues, many of the other stakeholders are being left behind. The survey results show that, across sub-Saharan Africa, entrepreneurs and start-ups are the least likely to be meaningfully included in such collaborative efforts, and only 18% of CEOs mentioned working with them to a large or very large extent to address societal issues, she highlights.

DATA-DRIVEN
Data is invaluable in informing emissions-reducing strategies, PwC Africa states.

“Immediate concerns like affordable food, fuel and security tend to be top of mind among many stakeholders, despite being impacted by underlying environmental and social factors. An effective ESG strategy takes into account these underlying immediate factors as well as future sustainability,” the company says.

However, despite this, only 50% of sub-Saharan African companies surveyed are working on, or have implemented, a data-driven, enterprise-level strategy for reducing emissions and mitigating climate risks, compared to 65% globally. This means the other half are not in this process of strategy development. Concerningly, 23% of CEOs in sub-Saharan Africa indicated that they do not plan to do this at all.

“We understand there are many reasons why African companies seem to be behind the curve in adopting ESG-related strategies to reduce emissions and mitigate climate risks.

"These factors include human resource constraints, the need for a sustainability champion at the top of the corporate ladder, diversity in regulatory requirements, or lack thereof, on reporting ESG matters, and seeing risk mitigation as a cost and not an investment,” says PwC South Africa purpose-led growth director Julie Rosa.

“However, what remains clear is that by addressing social challenges and climate change, opportunities are presented for the public and private sectors to work together,” she adds.

An ESG narrative that tells the story of a company’s values and purpose must be backed with credible data to provide a holistic picture of its performance throughout its value chain.

By determining, gathering and analysing material data points, an organisation is empowered to manage its stakeholders through its reporting and any other formal interaction. With this data, companies can also react swiftly and aptly to changes in the socio-economic landscape owing to real-time data transparency, says PwC East Africa ESG lead Edward Kerich.

ESG-focused data analytics will help an organisation not only to manage operations more cost effectively, but promote supply chain visibility, identification of customer insights, the impetus for innovation and serve as a critical lever to managing risk.

Digital transformation to ensure that an organisation can focus on analysing material data, rather than just gathering and verifying data, seems a prudent strategic choice and worth taking on the challenges of adjusting organisational structures, systems and processes, and finding new talent to grow the bottom line, he advises.