By: Kristina Gubic

Mounting pressure from customers for stronger ethics and increasing regulation are forcing organizations to integrate sustainable practices into business strategy. Acting responsibly and future-proofing your business need not be a sacrifice. Empirical evidence proves that businesses do not have to choose between sustainability and profits; businesses that integrate ESG principles into their operations outperform their peers.

In July 2024, Institutional Investor reported that the S&P 500 ESG Index — applying an ESG lens and measuring the performance of businesses against sustainability criteria — had outperformed the S&P 500 by a cumulative 15.1% over five years.

This year also marks the twentieth edition of S&P Global’s Sustainability Yearbook, celebrating the top-scoring companies by S&P’s Corporate Sustainability Assessment. Only 759 out of 9,400 companies qualified, based on industry-specific scoring and exclusion criteria explained in their methodology. Notably, no African companies scored in the top 10%, but results may not reflect regional companies forming part of multinationals registered on international exchanges. Several African organizations, however, were applauded as ‘industry movers’, suggesting they are on the right path.

While still voluntary, the United Nations Global Compact (UNGC) provides a guiding framework for companies to act responsibly and ethically across four themes: human rights, labour practices, the environment, and anti-corruption.

With 20,000 active participants across 64 countries, UNGC compliance, together with CEOs’ pledges on energy and water efficiency, are widely used by international ratings agencies as a sign of adherence to responsible business practices. Earlier this year, UNGC found that ESG performance resulted in a 50% lower cost of capital, 88% better operational performance, and an 80% better stock price performance.

So What Does ESG Integration Look Like?

It means embedding ESG principles in your business strategy with long-term sustainability as the prized outcome. Educating everyone in the business on what sustainability means is essential. Organizations must evaluate the impact of their operations holistically across communities, employees, the environment, supply chains, and customers to determine what actions need to be taken to reduce any negative impact and maximize positive impact.

Stakeholder engagement may reveal idiosyncratic risks that your industry peers may not be experiencing, so engage everyone. Where the regulatory framework is weak, often characterized by good policy but poor enforcement, businesses in Africa must balance the need for sustainable profit with the overwhelming social inequality in their host communities.

A recent survey by the World Economic Forum showed 98% of CEOs were committed to corporate sustainability but did not necessarily know how to drive the shift. Implementing ESG does not necessarily mean higher costs. ESG factors can also reveal risks and opportunities for utilizing resources like energy and water more efficiently and considering how operations impact land use and biodiversity across the value chain. Baseline data collection should align with the reporting mechanism you intend to follow so that you can accurately track your progress and meet your ESG reporting obligations consistently. Leading consultancies like EY say that sustainability targets need to be linked to performance incentives for management, employees, and suppliers.

With the upcoming ESG Africa Conference taking place at the Sandton Convention Centre from 1-2 October 2024, the discussion on ‘Integrating ESG into Strategy’ has a stellar panel of experts to discuss the topic.

I asked Ryan Short, managing partner at Genesis Analytics, whether ESG integration was being driven by a carrot or stick. Is it corporate altruism or simply businesses looking to comply with regulatory pressure? Short will frame the discussion in his keynote address and will be accompanied by Colleen Theron of Ardea International, Mpho Mookapele of EWSETA, Kiera Petterson of the African Circular Economy Network, and James Brice of EY. Moderating the conversation is a veteran of ESG reporting, now using technology and AI to support companies with their ESG integration: Thamsanqa Mayo from Nerdma.