The environmental, social and governance (ESG) performance of businesses can have a direct impact on societal wellbeing and University of Oxford Sustainable Finance Programme research shows that an increase in company-level ESG performance can result in a positive effect on a country’s living standard in developed and emerging markets, says advisory and services company PwC South Africa.

“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,” the company says.

Eighty per cent of the South African organisations surveyed by PwC South Africa have not yet made a net-zero commitment.

Local organisations are lagging behind their global peers in adopting ESG goals and strategies.

“The risks associated with climate change have many social implications, including unemployment, food insecurity, increasing health risks and migration. All of the risks mentioned also increase the risk for social unrest and upheaval, emphasising the need to evaluate the social impacts of climate risk, rather than dealing with it in isolation,” says PwC ESG lead for Southern Africa Lullu Krugel.

PwC’s twenty-fifth ‘Global CEO Survey’ found that six out of every ten local CEOs polled are also moderately, very or extremely concerned about physical and transition risks associated with climate change.

However, eight out of ten respondents indicated that their company had not yet made a carbon-neutral or net-zero commitment.

Globally, 28% of CEOs indicated that their company had made a carbon-neutral commitment compared with only 20% in South Africa.

“Why are South African companies 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 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.”

To be effective, ESG targets must be linked to CEO remuneration. South African companies are more likely to have non-financial ESG-related outcomes, such as greenhouse gas (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.

Sustainability achievements are now routinely acknowledged alongside traditional key performance indicators when it comes to executive remuneration, says PwC South Africa CEO Shirley Machaba.

“Stakeholders increasingly expect organisations to communicate and deliver convincing, measurable and sustainable ESG strategies. Including ESG metrics in executive pay packages is a tangible way to close the say-do gap,” she says.

Meanwhile, the survey found 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,” PwC South Africa says.

The global PwC network has committed to achieving net-zero GHG emissions by 2030, decarbonising its supply chain, embedding ESG factors into client engagements and supporting efforts to develop ESG reporting frameworks and standards.

“Our team of ESG experts has also compiled an ESG Africa report which highlights how organisations across the continent are lagging behind their global peers in adopting ESG goals,” the company adds.