ESG – Old concept, new urgency

ESG

OLD CONCEPT, NEW URGENCY

During the Finance Meets HR Summit, South Africa’s leading finance and HR professionals revealed that it is their responsibility as key decision-makers and leaders to drive the ESG agenda within their organisations.

On 15 October, thousands of finance professionals streamed into the gamified conference and expo for the first-ever virtual Finance Indaba Network. The Finance Indaba, which is normally held at the Sandton Convention Centre once a year, was reinvented as an online event to adhere to lockdown regulations. Finance and HR leaders from across the province gathered in their numbers at PwC in Waterfall on 3 March, delighted to have the opportunity to once again interact in person after two years of social isolation. During the Finance Meets HR Summit, the executives discussed the changing emphasis in corporate South Africa around the importance of addressing the environmental, social and governance impact their businesses have. “ESG has always been around us, but with different letters and names, including corporate social responsibility and corporate social investment,” explained Risk Insights principal and interim CEO Andrey Bogdanov, who delivered the keynote address. He took the attendees through a brief history of the ESG transformations we’ve seen over the last decade, starting in 2010, when ISO released a set of voluntary standards to help companies implement, to 2022, where we are starting to see ESG initiatives in action. The attendees broke away into two separate groups to participate in an exciting new concept – a boardroom simulation. They were presented with a case study of Company X, and were tasked with fixing the environmental wrong it had committed. While the simulation was hypothetical, it yielded extremely relevant realworld insights.

Successes and challenges

After a short networking break, the CFOs and CHROs again broke into two groups for panel discussions,

WALKING THE TALK ON ESG

During the Finance Meets HR Summit, finance and HR executives broke away into two groups and were presented with a case study of Company X – which had committed an environmental wrong. In the wake of this environmental and reputational crisis, a research report was commissioned into the company culture, and it emerged that it was an extremely toxic place to work – especially for women. Despite these negative findings, the company’s finances remained strong. The hypothetical scenario gave the executives the opportunity to deliver insights on an important topic, and resulted in a blueprint for the successful adoption of and delivery on ESG policies. It allowed the audience to get in touch with their common beliefs around ESG, and their collective priorities in business. Masibulele Dem, CFO at Hulisani, who acted as Company X’s CFO for one of the simulations, stressed that a company’s performance is based on its employees and communities, and an organisation that fails to take care of these is shooting itself in the foot.

Mark Gounder, CFO at Hulamin, who acted as Company X’s CFO in the other simulation, said something similar, remarking that the most important capital in any organisation is its people. “Businesses need to invest in human capital as well as their balance sheet in order to be sustainable. Finance and HR need to come together and set clear guidelines and goals to balance their investments – together.” One of the attendees who was acting as a board member during the simulation proposed a solution to addressing the impact of Company X on its people. “We need to become aware of who the affected people are, and approach them to offer assistance. We need to tell them that the matter will be attended to and that action like this will not be tolerated.” Defining purpose

An executive in one simulation raised the point that any organisation should start with a purpose – and be very clear on what that purpose is. “ESG is such a topical strategy for any organisation, but you can only get there if you are clear on your purpose – and not just your internal stakeholders, but your whole value chain.”

Another attendee stated that every company has to focus on three things: its purpose and mission, its strategy, and its culture: “In order to align these three, we need to address all of them together instead of focusing on one at a time.” Lead from the top

Vinolia Singh, CPO at Adcorp Group, and CHRO for the purpose of the simulation, pointed out that no single person in a company is the owner or driver of culture, and that values are driven from the top, and through every line manager in the organisation. The designated CHRO for the second simulation, Accenture CHRO Lebogang Chaka, whistled the same tune, saying that, “to understand where a toxic culture in any organisation is coming from, you have to look at its leaders and what their strategy is. And in order to change that toxic culture, you need to implement a 360-degree leadership turnaround and embed an entirely new culture.”

Some of the attendees agreed that before they could address the problem, the board needed to ask themselves whether they were walking the talk in implementing the ESG framework. “Is the problem the framework or the implementation process and rollout of it?”

In the case of the scenario under debate, Brett Warrington, MD of Paragon Impact, then observed that while the company under question had seemingly good ESG policies in place, these were not being held up by action on the ground. “Companies tend to see ESG as a cost centre. They tick the box. This can give a misunderstanding of how well the company is performing. They had great policies, but on the ground it was quite different. Clearly, it’s not coming from the top down. So it’s important to put something in place that measures what’s happening on the ground.” He added that while Company X’s financials were strong in the wake of the crisis, this would probably not remain the case for much longer, as legal action and sanctions would probably arise as a result of the company’s problematic activities. ESG expert Aimée Girdwood explained that while ESG has a material impact for your business, your business has a material impact on the environment and communities in which it operates. She also concluded that, when the right frameworks are in place, it is up to the leadership of the organisation to make sure that they are being implemented correctly throughout all the levels of business.

Both boards found that ESG goals need to be tied into the company purpose, and that these should then be stated in KPIs that incentivise co-operation. Should these goals not be met, especially in the case of a company in crisis, there should be a consequence management framework in place. The boards agreed that this should be measured – not just at the end of a financial year but as an ongoing exercise, so that the company’s course could be corrected in good time. It was vital, both boards concluded, to share the findings and decisions with all staff, so that they could believe that change was coming.

where their peers shared some of their own ESG journeys in their organisations. Microsoft HR director Sameera Mohamed explained that the right place for ESG is in any company’s vision and mission statement, and that it is up to those players in the boardroom to ensure that everyone else in the company’s value chain understands what this purpose is. While Microsoft is planning to not only reduce its carbon footprint, it also has plans to reverse the impact it has had. Sameera explained that Microsoft plans to enable other organisations on the continent to do the same as well, and that this requires investment into ESG infrastructure and knowledge across Africa. DRDGold CFO Riaan Davel highlighted that purpose is a critical part of an authentic ESG strategy, and stated his business’s intention: “We remain committed to sustainable development with a focus on the goal of reversing the environmental legacy of early mining, limiting and reducing our impact on natural resources and improving the quality of life and communities affected in close proximity to historical mine dumps.” Palesa Ntoagae, human resources director at the JSE, revisited the idea that doing the right thing comes from the top, saying that working with a CEO who is people centric makes her job so much easier. She also highlighted that she believes the issues of gender-based violence and youth unemployment are specifically worth targeting for the stock exchange. “That’s the stance we’ve taken as an employer citizen.” CFO Ted Willcox unpacked PepsiCo Sub-Sahara Africa’s ESG framework, which is based around the organisation having a positive impact in all three spheres of ESG. This framework includes: a “positive agriculture” strategy, where the company sources new materials in a way that is regenerative for the Earth and builds farming communities; a “water positive” strategy, which sees it put more water back into the natural tables than it uses; and a “positive choice” strategy, which encapsulates its social responsibility to make sure all of its products are healthy and safe for its consumers.

A fundamental part of DNA

The final segment of the evening included an expert evaluation by PwC’s Jayne Mammatt, who agreed with the discussions, debates and conversations that took place during the night. She said that it’s refreshing to see that people have started to recognise the financial impact ESG has on organisations. “We’ve always made it a soft issue with no balance sheet implications, when really it's fundamental for any organisation’s success and needs to be part of its DNA.”l