Embracing ESG is good business

Over the past decade, ‘sustainability’ has become a global buzzword; however, the imperative behind the word is more than just a box-ticking exercise.

By Mark Boshoff*

During 2015, the UN adopted the Sustainable Development Goals, also known as the Global Goals, as a universal call to action to end poverty, protect the planet, and ensure that by 2030 we achieve a better and more sustainable future for all. However, according to Euromonitor International, a London-based market research company, there are five key trends one must be wary of, which affect global sustainability.

They include: • climate action • circular economy • commodity price volatility • resource security • environmental pollution.

Keeping abreast of these trends as they evolve beyond the pandemic and understanding the link between them and business performance will help companies to identify risks and new opportunities related to sustainability.

As part of the launch of its Commercial Banking climate-resilience digital campaign, Nedbank is playing a key role in supporting sustainable business practices for the future, with the emphasis on funding solutions in respect of renewable energy, clean water and sanitation, and waste management.

Delivering sustainable-development finance to the right business at the right time creates a positive change, to ensure that not only businesses prosper, but the people and planet too, and that further harm to our environment is halted and reversed.

Sustainability framework

The Nedbank Sustainable Development Framework was conceived in 2017 to focus attention and resources on the most material goals and targets, which were selected using a rigorous proprietary methodology created by Earth Security Group. Given that the greatest contribution a bank can make to the sustainable-development agenda is through its commercial offering, we give primacy to the products and services lever.

We focus our efforts and identify strategic focus areas with business opportunities and risks, as well as cost savings. While the precise value of these savings and opportunities may differ across geographies at a global level, they are colossal, with the Business and Sustainable Development Commission estimating them to be over US$12 trillion (R200 trillion) annually by 2030.

We have prioritised 9 of the 17 SDGs where we believe we have the greatest ability to deliver meaningful impact through innovation in our banking products as well as lending and investment practices. These nine goals are championed by nine group executives who are mandated to ensure that the percentage of our lending and investment towards sustainable-development finance grows in a manner commensurate with the needs of our clients. This activity is a key part of Nedbank’s overall strategy, driven through the ‘creating positive impacts’ focus area.

Adopting ESG

Adopting environmental, social and governance (ESG) criteria should become part of any company’s business ethos rather than be used as just another marketing tool. ESG criteria are a set of standards for a company’s behaviour used by socially conscious investors to screen potential investments.

Environmental criteria consider how a company safeguards the environment, including corporate policies addressing climate change. Social criteria examine how it manages relationships with employees, suppliers, customers and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls and shareholder rights.

While its impact is broader, franchising in South Africa is already embracing ESG criteria to ensure the industry becomes a better steward of the planet. South Africa’s franchise sectors – such as food, fuel, retail and automotive – rank among the world’s top five for economic output as a percentage of GDP.

According to the Franchise Association of South Africa (FASA), the country’s franchise industry contributes around 15% (R721 billion) to GDP, putting it on par with the likes of France, Australia, New Zealand and the Netherlands. What’s more, on average, the franchising industry contributes 2.7% to the national GDP of nations in which members of the World Franchise Council operate.

Therefore, it makes business sense for investors, shareholders, employees, consumers and society to adopt responsible consumption and business practices collectively. The key climate change principles that franchises should focus on involve identifying and quantifying the risk, as well as identifying resilient strategies that would allow for portfolio tilt, namely moving away from sunset sectors towards new sectors emerging from the climate change movement.

Transitioning away from fossil fuels to renewables would be a first step. Another step would be to reduce the business’s carbon footprint by lowering transport costs. These changes would send a clear message that the company is seriously relooking its own operations and activities in line with its sustainability commitments, to ensure perceptions change and that they are seen as a caring rather than an exploitative enterprise. This not only makes business sense, but it would also make an employer attractive to like-minded workers. Businesses would be better able to retain employees who are aligned with sustainable business practices, having hired them in line with recruitment policies aimed at identifying applicants who would ultimately foster the company ethos, and training them to practise responsible ethics in business and operations.

One of the main legacies of the Covid-19 pandemic is remote working, which forced businesses into changing the way they operate while also showing resilience to overcome unprecedented challenges. This has made the need for sustainability on all fronts clear.

Many fuel and retail franchises have shifted their focus to embracing renewable energy. Solar technology, in particular, has come a long way and grid-tied solar plants offer a cost-effective solution to forecourts by drawing on renewable energy.

The franchising sector is primed to play a key role in this regard.