2024 Sanlam ESG Barometer Report

1 AUGUST 2024 REPORT

ABOUT THIS PUBLICATION

This publication was produced by independent research and media house Krutham, working in conjunction with Business Day and Andile Khumalo. It is sponsored by Sanlam.

The research was produced independently by Krutham and the editorial was developed independently by Krutham working with Business Day. The opinions expressed are therefore not those of the sponsors.

ACKNOWLEDGEMENTS

This report was funded by Sanlam which we gratefully acknowledge. We would also like to thank all companies that responded to the ESG Barometer questionnaire with a special mention to the companies that participated in the case studies.

DISCLAIMER

This report is based on information believed to be reliable and accurate, but Krutham and Business Day make no guarantees as to its accuracy. Krutham cannot be held responsible for the consequences of relying on any content in this report.

RESEARCH

Project manager: Dr Cecilia Schultz

Project consultant: Nicole Martens

Data analysis: Rumbie Pamacheche and Rudzani Nndwa

Researcher: Zonke Zwane-Sebonyane

EDITORIAL

Editor: Colin Anthony

Deputy editor: Janice Roberts

Editorial contributors: Cecilia Schultz, Nicole Martins, Aurelia Mbokazi-Kashe, Lynette Dicey, Gillian Klawansky, Johann Barnard, Janice Roberts

LAYOUT & DESIGN

SUNSHINE Design Collective

© 2024 This report is copyrighted by Arena Holdings and KhumaloCo. Copyright of the research data is held by Krutham

Arena Holdings (Pty) Ltd

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FOREWORD

BY PAUL HANRATTY CEO, SANLAM GROUP

From our demographic dividend to our rich resources and our people’s infinite ingenuity and optimism, Africa is a continent of unrivalled promise and opportunities. Sanlam is rooted in the African continent and operates out of 28 countries. Our core activities are not only influenced by endless business opportunities but also by intentionally creating sustainable positive impact. This includes contributing to socio-economic development and protecting the rich biodiversity in this continent that over 1.5 billion people call home.

For us, creating sustainable impact is driven by the “Additionality 1” factor. We strive to address immediate needs with benefits that can be sustained without depleting resources or causing harm to future generations.

Additionality – to catalyse positive outcomes through sustained, strategic investment – has all the potential to unlock Africa’s promise. ESG must be deliberate. It must be shared. It must be sustainable. As we move into a new phase of ESG maturity, it’s time to learn from and lean on one another.

This is why we are immensely proud to expand our Sanlam ESG Barometer research to include companies on the Nairobi Securities Exchange in Kenya. This marks a significant step in our commitment to driving sustainable impact on the African continent and enhancing ESG standards across Africa. It gives us key insights into ESG on the continent to foster deeper decision-making and knowledge sharing and drive best practice implementation. Our goal goes far beyond mere measurement; it’s to turn insights into lasting change and to build resilience across key emerging markets.

The Sanlam ESG Barometer provides critical insights into how our listed companies – now in South Africa and Kenya – embrace and integrate ESG aspects. Positively, most included companies now have an ESG strategy, driven primarily to attract investors, regulatory compliance, and maintain their social and environmental license to operate. It’s encouraging to see companies going beyond mere compliance to be purpose-led and impact-oriented. We need to amplify this energy.

This is particularly true for high-emitting, hard-to-abate sectors, where complexity can stymie progress. We’re seeing companies operating under tremendous pressure to transform their operations and transition to more sustainable ways of doing business. Lives and livelihoods are at stake. There’s no easy answer. To move forward, we need the shared will and buy-in from vast stakeholders in every link of the value chain. We must keep momentum for our people and this planet. Balancing capital attraction with ESG considerations, shifting to low-carbon technologies while looking after vulnerable communities, and engaging rather than simply excluding are some of the tough questions we explore.

In addition, we scrutinise progress in integrating the United Nations' Sustainable Development Goals into corporate ESG strategies. By examining how companies in Kenya and South Africa align sustainability frameworks with the SDGs, we can see where we’re ‘winning’ and where there are barriers to adoption. Additionality must be strategic and considered. By aspiring to global goals, we join a worldwide movement for good.

As ESG focus matures there needs to be more emphasis on shared standards. Data and measurement remain a challenge to ESG implementation. More must be done to meet ISSB standards on sustainability reporting so we can move forward regarding transparency and accountability.

We’re making progress as a business community in Africa. Most companies now seek projects with positive societal and environmental outcomes. The idea of additionality is deeply embedded in Africans’ way of doing business. We lift one another and rise together. As corporate Africa Inc., we have the influence, resources, and capability to move the needle and make change happen. Let’s double down on being the difference we all want to see.

1 Sustainability additionality refers to the positive environmental, social, and economic impacts that would not have occurred without a specific intervention or project. It measures the net benefits created by an activity that goes beyond what would have happened anyway. In essence, it captures the "extra" value or difference made by an initiative to promote sustainability.

BY DR. CECILIA SCHULTZ SENIOR RESEARCHER, SOCIAL ECONOMY, KRUTHAM

NAVIGATING ESG IN AFRICA

Corporate accountability for environmental and social consequences of business operations is rising across the continent while companies are improving the sustainability of their operations, often ahead of regulatory requirements.

Recent legal battles relating to Shell’s Nigeria operations highlight a growing trend in Africa: that ESG considerations are increasingly shaping legal outcomes. Also noteworthy is that more and more, local communities and non-governmental organisations (NGOs) are holding corporations accountable for the environmental and social repercussions of their activities.

Shell received a bloody nose in November 2023 when a UK high court ruled that human rights claims do not have an “expiry date”, diverging from previous UK rulings that rejected similar cases against Shell as they exceeded the six-year legal expiry date.

The High Court of Justice in London ruling permitted about 13,000 Nigerian farmers and fishers from the Ogale and Bille communities to proceed with their human rights claims against Royal Dutch Shell and its Nigerian subsidiary, Shell Petroleum Development Company (SPDC). The claims stem from Shell’s repeated oil spills in the Niger Delta, where 1,010 oil leaks from Shell’s operations have been reported since 2011, which have severely contaminated the communities’ water sources, land and livelihoods.

In the court ruling, Mrs Justice May concluded that it is arguable that these spills had violated the villagers’ rights to a clean environment under the Nigerian constitution and the African Charter on human and people’s rights. The court also ruled that claims under these rights have no limitation period, diverging from previous UK rulings that rejected similar cases against Shell as they exceeded the six-year legal expiry date. This case marks a significant moment in Shell's 87-year history in Nigeria, where the company has faced numerous legal actions since the 1990s.

Africa’s rich natural resources have long attracted foreign investment in sectors like mining and agriculture, which are vital for economic development. However, as the Shell lawsuit illustrates, these industries often cause significant environmental damage that can exacerbate climate change and environmental degradation. The increasing frequency and intensity of extreme weather events across the continent – themselves a result of climate change – have highlighted Africa’s climate vulnerability, which has drawn greater attention to the detrimental impacts of environmental degradation on local communities’ livelihoods, ecosystems and adaptive capacity to climate disasters. This has galvanised a socially conscious citizenry and prompted governmental action. Many governments have enacted progressive climate change legislation and private sector companies and financial regulators are increasingly recognising that ESG principles and frameworks are not only advantageous in contemporary global markets but also essential for sustainable development and enhancing climate resilience.

However, addressing climate change challenges requires extensive investment to support sustainable development trajectories, not merely withdrawing from extractive industries. It's crucial to make these industries sustainable and develop viable alternatives, requiring commitment from local governments, businesses and international stakeholders.

Companies in Africa have responded to this challenge by improving the sustainability of their operations, often aided by stronger regulations around climate change and investments. The growing number of ESG litigation cases in Africa, within a context where ESG regulations are expanding globally,

highlights the strengthening of regulatory environments and greater activism among stakeholders across the continent. For instance, in 2017, there were only two such cases in Africa, compared with 645 in the US and over 230 in all other countries combined. By 2023, this number increased eightfold to 16: nine in South Africa, two in Kenya, Nigeria, Uganda and one case in the East African Court of Justice.

This is also evident in African countries’ growing alignment with global ESG standards. For instance, in this year’s ESG Barometer survey, 60% of respondents – listed companies from Kenya and South Africa – plan to adopt the recently launched International Sustainability Standards Board (ISSB) standards; 24% within the next 12 months and 36% in a timeframe beyond 12 months. This is despite most investors not expressing any expectations for companies regarding the adoption of the ISSB standards and the fact that disclosure standards are not mandatory in both countries – adoption is largely voluntary.

The 2024 Sanlam ESG Barometer examines how listed companies in South Africa and Kenya are navigating the global ESG landscape, domestic priorities and sustainability objectives in the design and implementation of their ESG strategies. We aim to understand how firms are reallocating capital to foster "ESG additionality", a strategy that focuses on directing investments towards initiatives that enhance ESG compliance while also yielding positive social and environmental outcomes. This approach is vital in South Africa and Kenya, where significant investments are needed to make sectors like energy, transport, agriculture, mining and construction more sustainable. These investments typically involve developing sustainable infrastructure, expanding renewable energy grids and adopting technologies to reduce energy costs in manufacturing and mining. Below, we explore key findings from the survey related to these themes.

BEYOND COMPLIANCE: SDGS, ESG AND IMPACT

This year’s survey results reinforce the growing recognition and relevance of ESG considerations for African companies. More than 80% of respondents have an explicit ESG strategy and a further 16% are in the process of developing one. The main objective of these strategies goes beyond mere compliance. Nearly two-thirds (59%) identified "purpose-driven impact" as their top ESG objective, followed by operational sustainability and risk management. This reflects a nuanced approach that balances ethical responsibilities with practical ESG benefits in terms of operational sustainability and risk management. (See also ESG integration: the new business as usual, page 48.)

This brings the concept of ESG additionality to the fore, which refers to the positive changes resulting directly from an investment or project – outcomes that wouldn't have otherwise materialised. The Barometer emphasises forward-looking investments that promise substantial environmental and social impacts, moving away from reliance on historical ESG ratings and metrics for investment decisions. Relying solely on past performance limits the opportunity to have a positive impact. For example, excluding a company that is actively transitioning away from fossil fuels. This would be detrimental for companies in South Africa and Kenya, which require significant investment to ensure their low-carbon economic transitions are just and sustainable.

The survey results regarding additionality are encouraging, indicating that most companies lean towards “transition strategies” for their ESG investment decisions. Aligned with the additionality principle, transition strategies aim to support and encourage companies to implement changes to improve their ESG performance and investors choosing this approach want to be part of that journey by providing capital and support. This represents a proactive approach to driving positive change and influencing companies to adopt more sustainable and responsible practices.

Survey results show that nearly all respondents actively seek new projects and investments with positive social and environmental impacts, demonstrating a clear commitment to additionality. This commitment manifests in various ways. Most companies prioritise initiatives that deliver development additionality –social and environmental outcomes directly resulting from an ESG investment or project. This focus highlights a dedication

to creating tangible positive change. Governance additionality , which focuses on strengthening corporate governance beyond regulatory requirements, is another key area. Companies, particularly in Kenya, are enhancing data privacy protocols, integrating risk management and setting higher diversity targets, demonstrating a commitment to exceeding minimum standards. South African respondents show a strong preference for financial additionality , focusing on investments that generate positive financial outcomes otherwise unattainable. Examples include concessional loans to start-ups within their supply chains, infrastructure investments benefiting mining communities and investments in financial technologies to improve financial literacy among low-income populations.

This commitment to additionality extends beyond individual projects; it is also embedded in how companies engage with entities in their value chains on ESG issues. More than half of the respondents engage regularly, that is, not only when crises arise, so they’re taking a proactive and collaborative approach. As one respondent explains: “Whether one thinks from a risk management, compliance or legal perspective, one must look at ways to best manage the pressure that comes with an increased focus on ESG.… Therefore, you do require a collaborative effort. No single entity or individual could manage and deal with the massive issues that we face as organisations”.

The prevalence of active ESG engagement and investment among respondents is likely driven by material social and environmental risks. This proactive approach stems from a deep understanding of the interconnectedness of ESG issues. As one respondent aptly noted, “when society is not thriving, we cannot thrive". This is amplified by the limited feasibility of exclusionary approaches or divestment for domestic investors. Local equity markets, particularly in Africa, offer smaller opportunity sets compared with those in Europe or the US, necessitating a more collaborative and engaged approach to driving positive change.

This emphasis on proactive ESG strategies and the need for collaborative efforts to manage environmental and social challenges brings into focus the question of how these findings relate to the integration of the 2030 sustainable development goals into respondents’ ESG strategies. What role do SDGs serve? Which SDGs are prioritised? To what extent are SDGs meaningfully integrated into ESG strategies and investments?

SDGs: A blueprint for ESG strategies

The 2024 Sustainable Development Report paints a concerning picture of global progress on the SDGs. With only 16% of SDG targets on track and a staggering 84% showing limited progress or even regression, the urgency for action is clear. Significant challenges persist in areas such as zero hunger, sustainable cities, life below water, life on land, and justice and strong institutions.

These challenges are recognised in boardrooms across the globe. A 2022 UN Global Compact CEO study found that 87% of CEOs believe the achievement of SDGs is at risk. Despite these concerns, nearly all CEOs acknowledge their role in driving business sustainability, highlighting the critical link between corporate action and socioeconomic development.

Results from the Barometer align with these findings: 91% of respondents align their ESG strategies with the SDGs and 87% report on their impacts related to the SDGs. The 2030 SDG Agenda provides a framework to strategically guide companies in addressing their social, economic and environmental challenges. By tackling critical issues such as poverty, inequality, climate change and environmental degradation, the SDGs resonate strongly with ESG principles, particularly when ESG is viewed not merely as risk management but as a core value system shaping a company's operations and stakeholder interactions. This alignment fosters a "shared value" approach, where market potential is interwoven with societal needs and policy actions, driving sustainable and inclusive economic growth and wellbeing. ESG-based investment decisions, therefore, transcend purely financial concerns to encompass broader societal and environmental impacts, prioritising long-term value creation.

SDG goal priorities

While the commitment to the SDGs is evident across the board, South African and Kenyan companies demonstrate distinct SDG priorities, shaped by local priorities and regulations. For example, 89% of Kenyan companies target SDG 13: climate action. This is likely driven by the country’s acute vulnerability to climate change and extreme weather events that have devastating social and economic consequences. Between 2010 and 2020, Kenya experienced near-annual floods, affecting millions and underscoring the urgency of climate action. Droughts, which often span the entire country, have the most severe impact in arid zones, causing significant economic losses. A major drought that hit the Horn of Africa between 2008 and 2011 slowed the

Kenyan economy by an average of 2.8% and resulted in $12.1bn in damages and losses. In response, the Kenyan government has taken measures in terms of its climate change response and has implemented comprehensive regulations that aim to mainstream climate action into development strategies. These regulations are regularly updated, as seen in recent amendments to carbon trading regulations and the central bank's introduction of climate risk reporting rules for financial institutions.

In South Africa, ESG alignment heavily emphasises economic growth and job creation, specifically SDG 8, with 90% of respondents targeting this goal. This focus reflects South Africa's persistent socioeconomic challenges, including a 32.9% unemployment rate, widespread poverty (with over half the population living below the poverty line) and stark income inequality. These factors significantly hinder long-term value creation for companies and their stakeholders.

One respondent says that, given the extreme inequality that exists in South Africa, “it would be remiss of any organisation not to take account of the social environment … one of the trade-offs we must consider is that in our efforts to digitalise we naturally shrink the number of staff we employ. The group is very cognisant of the need to respond to that trade-off through effective management and appropriate training of our workforce.” This often translates into ESG strategies that prioritise job growth in labour-intensive sectors like manufacturing, renewable energy and transport. Furthermore, companies are investing in skills development programmes and forging partnerships with communities and NGOs to amplify their impact on these pressing social issues.

The depth of SDG engagement: room to improve

While the alignment of ESG strategies with the SDGs is promising, a deeper dive reveals a need for more substantive integration. Although 91% of respondents incorporate the SDGs, less than half strategically target and plan around the SDG sub-goals and targets. Furthermore, many companies, despite aiming to address seven or more SDGs, struggle to articulate a clear alignment between these goals and their sustainability objectives. This opens the possibility that the commitment to SDGs might be more about the appearance than the substance. That feeds the narrative propagated by critics that some companies may be using SDG references as a way to enhance the look of their reports – a practice recently referred to as “SDG icon-picking”.

This approach can come across as mere impression management and fuel concerns about “SDG washing”. At the same time, however, it is important to acknowledge the inherent complexities of embedding SDGs into corporate strategies. Several factors contribute to this challenge:

• COMPLEXITY OF THE SDGS: The interconnected and multifaceted nature of the SDGs demands a nuanced understanding and tailored approach.

• EXPERTISE GAP : To substantively address and target the SDGs and their sub-goals, in-depth knowledge of sustainable development is required, which may be lacking in many organisations.

• OPERATIONAL ALIGNMENT: Integrating SDG-related initiatives with existing business operations can be intricate and resource-intensive.

• MEASURING AND REPORTING: Robust data collection, analysis and reporting mechanisms are essential for tracking progress and ensuring accountability, yet often pose significant challenges.

Indeed, this year's survey found that the availability, accuracy and consistency of ESG-related data and measurements is the most significant barrier to implementing sustainability strategies. Additional prominent challenges include fostering internal understanding and buy-in for ESG initiatives and navigating operational constraints, such as budgetary limitations. This underscores the difficulty of integrating sustainability into core business strategies, which typically require a combination of building a strong internal culture of sustainability, aligning SDG goals with business objectives and exploring financing

mechanisms such as green bonds or sustainability linked loans to overcome budgetary constraints and mobilise capital towards sustainability related projects.

Another finding that underscores these complexities is that more than half of the respondents reportedly do not track their SDG-related spending and only 30% obtain independent audits for their sustainability reports. This leads to questions about how effectively these sustainability budgets are being used to meet the targeted SDGs. The limited auditing might stem from various reasons including cost, resource limitations, a lack of regulatory requirements or specialised auditing services.

Aligning ESG strategies with SDGs presents both opportunities and challenges for companies worldwide. While there is broad recognition of the importance of the SDGs and a strong alignment in ESG reporting, the depth of integration often falls short. Many companies demonstrate a commitment to these goals but face significant challenges in embedding them into their core operations.

Companies must navigate complex SDG frameworks, address expertise gaps and overcome operational and financial constraints to move from commitment to action. The challenge lies not only in setting ambitious targets but also in developing robust mechanisms for measuring, reporting and achieving these goals. Despite these challenges, the dedication to purpose-driven impact strategies suggests a genuine commitment to advance sustainability. As businesses continue to refine their approaches, build internal capacity and engage stakeholders, there is potential for more profound and effective integration of the SDGs into ESG strategies. This can be a significant step towards a future where corporate action aligns with global sustainability goals and drives significant positive change for both society and the environment.

NAVIGATING GLOBAL COMPLEXITIES: EU REGULATIONS AND ANTI-ESG SENTIMENT

African companies face a complex and evolving global ESG landscape. While momentum builds for strengthened sustainability disclosures and regulations in various regions, a countervailing anti-ESG sentiment persists, particularly in the US. This divide is likely to be exacerbated by the upcoming 2024 US elections, where climate action and ESG-related policies are expected to be highly contested issues.

The US political landscape in 2023 witnessed deepened divisions on ESG and climate action across different states. While California advanced legislation mandating climate change disclosures, other states, including Florida, Idaho, Kansas and Texas, actively opposed ESG initiatives through legislative measures and legal challenges. This year’s presidential election amplifies these divisions. The Biden administration has championed progressive climate policies, such as Executive Order 14008 “Tackling the Climate Crisis at Home and Abroad”, which operationalises a government-wide approach to address climate change, create low-carbon jobs and support communities affected by the decline of the coal and power plant industries. The Inflation Reduction Act of 2022 directs new federal spending towards reducing carbon emissions among others and aims to catalyse investments in the commercialisation of leading-edge technologies such as carbon capture and storage and clean hydrogen. In contrast, former President Donald Trump, a vocal proponent of fossil fuels, has consistently downplayed the scientific consensus on climate change. His previous administration's withdrawal from the Paris Agreement, environmental deregulation efforts and budget cuts to environmental agencies underscore this stance.

This political tug-of-war has contributed to some major financial institutions backtracking on climate-related pledges, raising concerns about a potential weakening of global corporate commitment to sustainability. However, this survey's findings reveal a reassuring trend: the anti-ESG sentiment has not yet shaken the commitment of participating companies to sustainable investment.

Interestingly, Kenyan companies expressed more significant concern than their South African counterparts about the long-term impact of these political debates on ESG commitment, despite the US being a more significant foreign investor in South Africa. This disparity might stem from the considerable influence US-based financial institutions and investors wield in global financial markets, including those upon which Kenyan companies rely for capital. A shift in sentiment on ESG and sustainable finance within these influential circles could have ripple effects that reverberate through the Kenyan business landscape. One survey respondent aptly captured the implications, saying that it strengthened the sentiment that for African companies, ESG was not worth engaging in. “If the developed world couldn’t make sense of it, why should we be ambitious around ESG performance?”

On the opposite end of the spectrum, the EU continues to bolster policy frameworks in support of its international climate and sustainability goals. This includes various disclosure regulations such as the Corporate Sustainability Reporting Directive (CSRD) which demands non-financial reporting from large companies, and the Corporate Sustainability Due Diligence Directive (CSDD) which aims to ensure businesses consider sustainability throughout their global value chains. Given the EU's role as a significant trading partner, these regulatory changes are set to influence future ESG priorities significantly for many African companies.

CONCLUSION: A MISSED OPPORTUNITY FOR CLIMATE ADAPTATION?

In 2021, heavy rains in China’s Henan province flooded several factories, wiped out inventories and destroyed essential roads and railways used for transporting goods. Major automotive and tech companies, including Foxconn, a key supplier to Apple, were forced to temporarily halt production, causing significant delays in global electronics distribution. This “once in a thousand years” downpour had profound ripple effects, increasing costs and causing delays for businesses intertwined with Henan’s supply chains.

The most recent report by the Intergovernmental Panel on Climate Change (IPCC) warns that extreme weather events (severe flooding, droughts, cyclones), even under optimistic 1.5°C scenarios, are likely to increase because of climate change. This poses significant risk not only to the operational and financial sustainability of companies across the globe but also to the sustainability of societies and environments with which companies engage and depend on.

Beyond immediate physical damage, businesses are also contending with escalating climate-related costs. For instance, reinsurer Munich Re reported a 50% rise in natural catastropherelated claims in 2021 compared with the previous decade. In June this year, Standards and Poor’s cautioned that extreme weather events in South Africa continue to test insurers’ ability to adapt to climate change, highlighting that these events would put pressure on the industry’s profits.

These developments highlight the urgent need for companies and governments to enhance their adaptive capacity to climate change. This necessitates investments in diversifying supply chains, bolstering infrastructural resilience and implementing advanced forecasting and planning technologies. It also demands collaborative efforts with the public sector to enhance the resilience of communities, financial systems and ecosystems overall.

This year’s Sanlam ESG Barometer explored companies’ future ESG investment priorities – including renewable energy and green technology, financial inclusion, resource management, climate change adaptation and social development. Both Kenyan and South African companies demonstrated a strong focus on social value creation, renewable energy and resource management,

specifically energy efficiency, water and waste management. While water and waste management form part of broader adaptation efforts, enhancing climate resilience was among the least prioritised areas. There are possibly several reasons for this. First, mitigation efforts typically dominate thinking around environmental initiatives, the E in ESG discourse. Mitigation aims to reduce or prevent greenhouse gas emissions and includes investments in obtaining electricity from renewable energy, improving energy efficiency, reducing waste or adopting cleaner production techniques. Second, these measures are generally easier to measure (eg, reduced CO2 emissions, percentage of water/waste recycled); and third, they offer quicker returns on investments.

Adaptation involves making long-term changes to natural or human systems to strengthen the adaptive capacity of a system, society or company to cope with and respond to climate hazards. This can include investing in climate resilient infrastructure (buildings, roads, seawalls), collaborating with local communities to develop and implement land use plans or investing in sustainable agriculture technologies. However, these efforts are more challenging to fund, implement and measure. For instance, in 2018 only 11.7% of Kenya’s climate finance was allocated to adaptation, against 78% for mitigation. Likewise, between 2019 and 2021, 12% of South Africa’s climate finance was directed to adaptation and 81% to mitigation. Adaptation inherently requires more collaboration and engagement with a broad range of stakeholders and entails a long-term investment horizon. Yet, it is vital for business continuity and resilience and neglecting adaptation risks undermining sustainability in all its dimensions.

Given the high vulnerability of Kenya and South Africa to climate change, which is expected to worsen, there is a pressing need for ESG practices to focus more on adaptation and resilience. This isn't a call to replace mitigation but to enhance companies' use of existing capabilities, such as predictive technologies and scenario planning, to integrate adaptation into their business continuity plans. However, while both Kenyan and South African companies aim to enhance social development, it is also an opportunity to strengthen the integration of adaptation into existing community development initiatives.

SENIOR RESEARCHER, SOCIAL ECONOMY, KRUTHAM

METHODOLOGY

The findings presented in this report are based on responses from 69 listed companies: 50 from South Africa and 19 from Kenya. This represents 19% of companies listed on the Johannesburg Stock Exchange (JSE) and 31% of those listed on the Nairobi Stock Exchange (NSE). The survey was sent to approximately 200 JSE-listed companies and 40 NSE-listed companies, targeting the top performers and sector leaders, including the JSE Top 40 and the NSE Top 20. The selection was strategically aimed at ensuring a broad representation across various sectors, particularly those known for their significant environmental impact or those showing substantial progress in ESG initiatives.

The research team was flexible in terms of survey submission, allowing companies to complete the survey online or through a Word document. All responses were systematically scripted into Qualtrics to ensure consistency and accuracy in data analysis. In cases where companies did not respond, the research team used publicly available data, including financial, integrated and sustainability reports to complete some sections of the survey. Depending on the depth and comprehensiveness of these reports, this approach allowed for approximately 50% to 65% of the survey questions to be answered. However, some questions could not be addressed using publicly available information. Seven out of 19 responses from the NSE sample were completed using this method and 10 out of 50 for the JSE sample. Furthermore, even if companies did complete the survey themselves, not all surveys were 100% complete and the sample sizes displayed in the graphs of this report represent the total number of responses per question.

SECTOR COMPOSITION

South Africa N=50

The majority of respondents from both South Africa and Kenya were in the financial services sector. This reflects the dominance of financial services in both economies, specifically in terms of

their contribution to gross domestic product (GDP). In South Africa, the financial sector contributes approximately 60% to GDP and around 55% to Kenya’s GDP.

ESG REPORTING FRAMEWORKS AND CREDENTIALS

The trend towards more stringent ESG reporting in recent years is gaining momentum across the globe and expected to continue. The ESG reporting landscape features around 600 reporting frameworks, though some are more widely used than others and the survey findings reveal the significant role regulatory institutions play in the adoption of specific disclosure frameworks. For instance, while not mandatory, the most popular reporting frameworks in South Africa is the Taskforce on Climate-related Financial Disclosures (TCFD) and the Carbon Disclosure Project (CDP), both of which are encouraged by the JSE and South

South Africa Kenya N=50 N=19

Taskforce on Climate-related Financial Disclosures (TCFD)

Carbon Disclosure Project (CDP)

Global Reporting Initiative (GRI)

UN Global Compact

S&P Global ESG Scores

MSCI Rating (eg MSCI AAA)

FTSE4Good Index Series

Sustainalytics

FTSE Russel ESG Rating

ISS ESG Ratings

Other

UN Principles for Responsible Investment

ISO certifications related to ESG

International Sustainability Standards Board S1 and S2

Bloomberg Gender Inequality Index

Dow Jones Sustainability Index

Equator Principles

In terms of ESG ratings and other credentials, which typically forms part of company branding to stakeholders, the results show that South African companies prefer the use of ESG ratings, which could reflect their stronger integration into global markets as well as differences in investor expectations. In contrast, Kenyan companies tend to favour ISO certifications, which may be linked to their international engagements, such as agricultural exports to EU markets.

African Reserve Bank (SARB). Conversely, the NSE’s proposed framework in Kenya is the Global Reporting Initiative (GRI), which is also evident in the survey findings. At the same time however, survey findings show a more diverse use of ESG reporting frameworks among Kenyan companies. In both countries, there is a strong alignment with the GRI and UN Global Compact, which may be due to their broader approach to sustainability, which includes social and governance aspects alongside environmental metrics.

Overall, the dominance of certain frameworks, ratings or credentials is likely influenced by regulatory environments, investor expectations, sector-specific priorities and the strategic focus of companies in different regions.

FEMALE REPRESENTATION ON BOARDS

Female representation on boards of directors is a prominent indicator to determine company commitment to gender diversity and inclusivity, which are important components of the social aspect in ESG frameworks.

According to the survey results, Kenyan companies, while not represented in the highest categories, demonstrate a higher overall female representation on boards compared to South

South Africa N=50

African companies. In South Africa, the majority of companies fall within the 26% - 40% range, with some in the higher representation categories of 56% - 70% and 71% - 85%. In contrast, the results from Kenya show a more balanced distribution, with a significant portion (32%) falling within the 41% - 55% range, which is higher than South Africa's 18% in the same category.

ESG AND THE SDGS

Does your company have an ESG strategy?

ESG STRATEGIES

The results to this year’s survey reinforces the growing importance of ESG for African companies, with more than 80%

having an explicit ESG strategy (83%) and a further 16% in the process of developing one.

Reasons for having an ESG strategy

Respondents were asked to list their main reasons for having an ESG strategy. The top reason reported was attracting investors, followed by operational necessity. Regulatory compliance, while still relevant, did not emerge as the primary driver for ESG strategies. This suggests that companies adopt an ESG strategy because they see value in it, either for expected financial gain or operational resilience.

MOST IMPORTANT REASON

The reasons for having an ESG strategy also vary among different sectors. For example, operational necessity is more significant than attracting investors in the basic materials sector, which includes mining companies. These operations often have significant environmental impacts and occupational safety concerns, which explains why ESG is used to strengthen operations by putting strategies in place to reduce fatalities, ensure safer working conditions and minimise environmental impacts.

DIVERGENCES AMONG SECTORS ON REASON FOR ESG STRATEGY

MOST IMPORTANT REASON FOR ESG STRATEGY

N=44 N=19

ESG OBJECTIVES

In addition to exploring the reasons companies have an ESG strategy, respondents were also asked what they aimed to achieve with their ESG strategies – what are the objectives of their ESG strategies?

The results show that the primary objective in both countries is purpose-driven impact, followed by operational sustainability.

This suggests once again that the adoption of ESG is motivated by more than just regulatory compliance or financial gains, but also by the desire to have a positive impact on society and the environment. It indicates that companies have an ESG strategy not only because they recognise its operational and financial benefits, but also because they choose to do more and strive to make a positive impact.

#1 SELECTED MOST IMPORTANT OBJECTIVE #2 SELECTED MOST IMPORTANT OBJECTIVE

ESG AND THE 2030 SDGS

The 2030 Agenda for Sustainable Development serves as a crucial framework guiding companies in navigating their social, economic and environmental challenges. Addressing key issues such as poverty, inequality, climate change and environmental degradation, the Sustainable Development Goals (SDGs) deeply resonate with ESG principles, especially when ESG is considered not just as a risk management tool but as a fundamental value

system that shapes company operations and stakeholder interactions. Despite the ambitious nature of these goals, global corporate leaders recognise their significance for business sustainability. This recognition is reflected in recent survey results, where 91% of respondents reported aligning their ESG strategies with the SDGs, and 87% actively report on their impacts related to these goals.

Does your company target the 2030 SDGs as part of its ESG strategy?

ESG AND THE 2030 SDGS

SDGS TARGETED: SOUTH AFRICA

SDG 8: Decent work and economic growth

SDG 1: No poverty

SDG 13: Climate action

SDG 12: Responsible consumption and production

SDG 10: Reduced inequalities

SDG 3: Good health and well-being

SDG 7: Affordable and clean energy

SDG 4: Quality education

SDG 5: Gender equality

SDG 9: Industry, innovation and infrastructure

SDG 6: Clean water and sanitation

SDG 11: Sustainable cities and communities

SDG 17: Partnerships for the goals

SDG 2: Zero hunger

SDG 15: Life on land

SDG 16: Peace, justice and strong institutions

SDG 14: Life below water

While the commitment to the SDGs is strong globally, companies typically have different SDG priorities, shaped by local needs and regulations. In South Africa, ESG alignment with SDGs focuses on economic growth and poverty reduction, reflecting persistent socioeconomic challenges like a 32.9% unemployment rate, widespread poverty and stark income inequality. These issues undermine sustainable value creation for companies and their

stakeholders. One respondent noted, "It would be negligent for any organisation not to consider the social environment. A key trade-off we face is that digitisation naturally reduces our workforce. Our group is very aware of the need to manage this trade-off effectively through proper management and workforce training."

RESULTS AND ANALYSIS

SDGS TARGETED: KENYA

SDG 13: Climate action

SDG 8: Decent work and economic growth

SDG 3: Good health and well-being

SDG 9: Industry, innovation and infrastructure

SDG 12: Responsible consumption and production

SDG 17: Partnerships for the goals

SDG 5: Gender equality

SDG 7: Affordable and clean energy

SDG 16: Peace, justice and strong institutions

SDG 4: Quality education

SDG 6: Clean water and sanitation

SDG 10: Reduced inequalities

SDG 1: No poverty

SDG 15: Life on land

SDG 11: Sustainable cities and communities

SDG 2: Zero hunger

SDG 14: Life below water

In Kenya, ESG alignment emphasises climate action, followed by economic growth and employment. The focus on climate action is likely driven by the country’s vulnerability to climate change and extreme weather events such as droughts and floods that result in devastating economic losses. The Kenyan government has responded to these threats by implementing progressive climate action policies and regulations to mainstream climate action into development strategies.

NAVIGATING THE

GLOBAL ESG LANDSCAPE

ISSB STANDARDS: IMPACT ON REPORTING AND ADOPTION

With approximately 600 ESG frameworks in existence, reporting standards have long suffered from a lack of clarity, transparency, and inconsistent ESG data that undermines comparability. Previously, companies could select which ESG issues were relevant to them, resulting in a collection of data that was not always useful. This fragmented landscape led to significant stakeholder demands for more consistent and comparable ESG standards.

The IFRS Foundation’s International Sustainability Standards Board (ISSB) released two sustainability standards that aim to

establish a global baseline for corporate sustainability reporting: IFRS S1 and IFRS S2. Effective from January 2024, IFRS S1 sets out general requirements for sustainability-related financial disclosures, while IFRS S2 focuses specifically on climate-related disclosures, including entities' transition plans to a lower-carbon economy. Companies have a one-year transitional relief to concentrate on climate-related disclosures, with jurisdictional adoption determining mandatory application. The introduction of these standards represents a pivotal development in the global ESG regulatory landscape.

To assess how the ISSB standards are perceived, the survey explored the opinions and anticipated impact in both countries. Survey findings reveal that the majority of respondents in both countries believe the ISSB standards will significantly influence sustainability reporting. However, there is a stronger consensus among Kenyan companies, with 69% agreeing (46% agree,

ADOPTING ISSB STANDARDS

23% strongly agree) on the substantial impact of the ISSB standards. The stronger consensus in Kenya may be attributed to the country's proactive approach in adopting the ISSB standards, underscored by the government and regulators' intention to implement them.

Do you anticipate your organisation adopting the new ISSB standards in the near future?

South Africa Kenya N=37 N=13

Unsure at this moment

We are currently evaluating the ISSB standards but have not made a decision yet

Yes, we plan to adopt the ISSB standards but in a timeframe beyond 12 months

Yes, we plan to adopt the ISSB standards in the next 12 months

South Africa Kenya

The strong regulatory support for ISSB standards in Kenya is also evident in companies’ anticipated timeframe in adopting these standards. Nearly half of Kenyan companies plan to adopt the standards within the next 12 months, compared to only 16% of South African companies. In South Africa, although the Companies Act mandates IFRS-aligned financial reporting, amendments are necessary to incorporate ISSB standards. The Integrated Reporting Framework is already mandatory and

supported by the Companies Act, the King IV Code, and JSE Listings Requirements. To this end, there has been a call to integrate ISSB standards with existing frameworks. This approach limits the full adoption of ISSB standards as it assumes that existing frameworks are sufficient. Yet, this overlooks how companies often miss a key aspect of TCFD, namely the financial impact of sustainability-related risks and opportunities on their businesses.

RESULTS AND ANALYSIS

ISSSB STANDARDS: EXPECTATIONS

The survey explored detailed expectations regarding the impact of ISSB standards on ESG reporting. Overall, companies in both South Africa and Kenya believe that these standards will boost transparency, encourage standardisation and reduce greenwashing—aligning well with the goals of ISSB to enhance the quality and reliability of ESG disclosures. However, there is a noticeable difference in perspectives on the practical challenges and resource implications of implementing these

standards. South African companies, in particular, express concerns about the potential increase in costs and time required for ESG reporting. This apprehension may stem from the existing regulatory requirements under the Integrated Reporting Framework, which is mandated by the Companies Act, the King IV Code, and JSE Listings Requirements, adding layers of complexity to their reporting processes.

NAVIGATING POLITICAL BACKLASH AGAINST ESG

While ESG is gaining traction and significance in many regions, there has been a rise in anti-ESG feelings in the US in recent years. This trend is expected to continue as 2024 marks an unprecedented election year, with approximately half of the world’s population is heading to the polls, including the US. While ESG has not been a focal point in South African elections, it remains a contentious issue in US politics, recalling the deep

divisions seen in the 2020 presidential race between Biden and Trump, who held opposing views on environmental and sustainability issues. The US, as a major player in global financial markets, plays a pivotal role in shaping investor sentiment, decision-making and perception on ESG and other sustainability matters.

Yet, survey results indicate that anti-ESG sentiment in the US is unlikely to influence company commitment to sustainable investing in both South Africa and Kenya and is unlikely to deter companies in both countries from committing from committing to sustainable investing. However, Kenyan respondents express more concern about the long-term effects of these sentiments, despite the US having a stronger investment presence in South Africa. This suggests that Kenyan companies and investors are more sensitive to the political and social ESG debates in the US, aware that these could sway investment behaviours.

Such negative attitudes towards ESG could jeopardise investment flows into climate initiatives, undermining long-term sustainability objectives.

Moreover, both South African and Kenyan companies note that potential regulatory changes driven by growing anti-ESG sentiment are causing concern among investors, as shifts in US policy could affect policy certainty and the ability to make long-term investment decisions.

The political debates surrounding ESG in the US are unlikely to affect our company's commitment to sustainable investing

We don't believe the US backlash against ESG will have a significant longterm impact on ESG

The potential for regulatory changes around ESG has become a topic of concern among our investors

The political debates surrounding ESG in the US are unlikely to affect our company's commitment to sustainable investing

We don't believe the US backlash against ESG will have a significant longterm impact on ESG

NEGATIVE SCREENING: CONSEQUENCES FOR RAISING CAPITAL

In an effort to better understand how global ESG investment practices affect South African and Kenyan companies, respondents were asked about the extent to which negative screening has affected their ability to raise capital from investors. The findings indicate that, in both countries, the influence of negative screening on the ability to secure investment, at least among domestic investors, is limited. This may stem from the

small size of local listed equity markets and the constrained investment opportunities available, which often leads investors to adopt a more proactive ESG investment strategy. Such strategies include engaging with companies to enhance their ESG performance or actively supporting companies that are transitioning towards sustainability, where investors contribute capital as part of the companies' transition efforts.

Do you anticipate your organisation adopting the new ISSB standards in the near future?

South Africa Kenya N=37 N=12

We

ESG CITED AS REASONS FOR DIVESTMENT

While the overall impact of negative ESG screening on capital raising appears minimal in both South Africa and Kenya, the dynamics of investor engagement with ESG issues are notably different between the two countries. The subsequent inquiry into whether investors have cited ESG factors as a reason for divesting reveals a striking contrast: 40% of Kenyan companies

reported such divestment due to ESG concerns, compared to only 8% in South Africa. This suggests that Kenyan investors may be taking a more proactive stance on ESG issues, or it could reflect a more varied investor base in Kenya with diverse and perhaps stricter ESG expectations.

Have any of your investors or shareholders explicitly cited ESG factors as a reason for divesting from your company?

South Africa Kenya N=37 N=12

ENGAGEMENT ON ESG ISSUES

Building on the insights from investor behaviour regarding divestment due to ESG factors, it's evident that companies are also proactive in addressing ESG issues within their value chains. The majority of companies in both South Africa and Kenya engage substantially with entities in their value chain on ESG concerns. Only 20% of Kenyan and 11% of South African companies report minimal engagement, that is, engaging only when worrisome ESG issues surface. This approach underscores the limited

impact of negative screening and divestment strategies observed previously. Instead, there's a clear preference for positive engagement, where investors and companies collaborate to enhance ESG practices. This proactive engagement is crucial, especially in environments where companies are encouraged to adopt better practices rather than being excluded from investment opportunities based on their current ESG performance.

To what extent does your company engage with entities in your value chain on ESG issues?

South Africa Kenya N=50 N=15

We engage extensively

We engage substantially (e.g., regularly, with several entities)

We engage moderately with entities on ESG issues

We have minimal engagement on ESG issues (e.g., only in case of worrisome ESG performance)

We do not engage at all

Issues targeted during engagements

ESG INVESTING

ENGAGEMENT ON ESG ISSUES

Please rank the following stakeholders in order of how much they influence your ESG decisions

Following the recognition of active engagement on ESG issues within value chains, the survey also explored the influence of various stakeholders on company ESG strategies. Most companies consult some or all of the following stakeholders in the development of their ESG strategies: investors/shareholders, employees, peers and customers. Investors and shareholders are considered the most influential stakeholders in both South Africa and Kenya. This investor-centric approach suggests that ESG strategies are closely aligned with investor expectations, prioritising risk management and financial performance. Stakeholder groups such as employees and customers, which represents broader society, wield much less influence.

For example, only 8% of Kenyan companies and 23% of South African respondents view customers as influential stakeholders

in shaping their ESG strategies. Similarly, employees wield limited influence, particularly in South Africa, where only 6% of companies consider them key stakeholders, compared to 15% in Kenya.

This pattern suggests a potential gap in addressing broader societal needs and aligning ESG strategies more comprehensively with consumer expectations and employee well-being. The investor-centric approach tends to emphasise a risk management perspective over an ESG additionality approach, which aims to create positive, measurable impacts beyond financial returns. To achieve more comprehensive ESG outcomes, companies might need to foster greater engagement from all stakeholders, balancing investor interests with the perspectives of employees and customers.

HOW HAS THE IMPLEMENTATION OF YOUR ESG STRATEGY AFFECTED THE FOLLOWING AREAS?

The previous graph outlines the benefits of implementing an ESG strategy. Most companies from both South Africa and Kenya indicate that their operational performance and public reputation has improved. The the cost of capital is remained largely stable,

FUTURE ESG INVESTMENT PRIORITIES

In terms of future ESG investment priorities, survey results indicate a strong focus on social development, resource management and renewable energy and green technology. These areas offer immediate social and environmental benefits and are also crucial to creating shared value, where market potential is interwoven with societal needs and policy actions, driving sustainable and inclusive economic growth and wellbeing.

especially in South Africa. At the same time, more than half of Kenyan companies report an improvement in their cost of capital, compared to only 18% of South African companies.

Yet, the results also indicate that climate adaptation and resilience have yet to be envisaged in corporate imaginations of shared value and sustainability, and have received received limited attention in future ESG investment priorities. This is despite escalating climate risks and vulnerabilities in both Kenya and South Africa that pose significant threats not only to society but also the financial and operational sustainability of companies. The lack of focus on adaptation represents a missed opportunity in company initiatives to enhance long-term sustainability amid the pressing challenges posed by climate change.

Where do you see opportunities for your company to improve its ESG performance?

South Africa Kenya N=47 N=19

Social development and community engagement

Ethics and compliance

Environmental stewardship

Renewable energy and green technology

Partnering with suppliers on cleaner production methods

Resource management

New markets and technologies

Transparency and accountability

Financial inclusion

Climate change adaptation

Prioritising Southern Africa through local procurement

Other: please specify

BIGGEST CHALLENGES IN IMPLEMENTING ESG

As companies across the globe are under increasing pressure to demonstrate their commitment to sustainability, they face several challenges in their efforts to design and implement ESG strategies that are measurable and impactful. The graph illustrates these challenges, with data and measurement cited as the most significant obstacles. This encompasses issues related to the availability, accuracy and consistency of ESG data and metrics.

At the same time, companies still feel comfortable in their ability to measure and report on the impact of their ESG interventions. This suggests that ESG strategies are often tailored within

South Africa: #1 challenge

Data

the limits of what is quantifiable, potentially sidelining more ambitious or long-term initiatives, such as those focusing on adaptation and resilience, which are critical given the escalating climate risks.

To expand their ESG scope, companies could benefit from collaborating with industry peers, regulatory bodies and NGOs. These partnerships can provide the necessary support or resources needed to undertake more ambitious and long-term ESG activities that extend beyond immediate returns and address pressing sustainability challenges.

N=31

Kenya: #1 challenge

SECOND AND THIRD BIGGEST CHALLENGES

Following data and measurement, respondents from both countries identified operational constraints as the second biggest challenge. Operational constraints include budgetary issues that limit ESG initiatives, such as the cost of new technologies, training programmes or sustainability certifications. Additionally, companies face logistical difficulties, particularly to coordinate efforts across different departments and regions to roll out ESG initiatives.

In South Africa, “operational constraints” was ranked equally to supply chains and external partnerships as the second biggest challenge. This highlights the complexities involved in managing sustainable supply chains, particularly in sectors such as transportation and construction which are difficult

South Africa: #2 and #3 challenges

to decarbonise. Ensuring that suppliers adhere to ESG standards requires consistent monitoring and evaluation, which can be resource intensive and extremely difficult if these entities have different or varying levels of commitment to ESG issues.

In Kenya, the third biggest challenge is technology and infrastructure. Effective implementation of ESG strategies often requires advanced technological solutions, which may not be readily available or developed. Furthermore, infrastructural deficiencies in areas such as digital connectivity, water and electricity supply and transportation networks compound these challenges while addressing infrastructural deficiencies requires significant investment and long-term planning.

Kenya: #2 and #3 challenges N=13

Data

ADDITIONALITY

ESG ADDITIONALITY

The Sanlam ESG Barometer stands out for its emphasis on ESG additionality, aimed at highlighting how companies actively redirect capital towards fostering a more sustainable future. This approach moves beyond merely avoiding investments in firms with poor ESG profiles or where ESG initiatives entail significant costs. Instead, ESG additionality evaluates firms based on their potential for enhanced sustainability through strategic investments. This approach encourages the allocation of capital towards projects that not only comply with ESG standards but also generate substantial social and environmental benefits. In regions like South Africa and Kenya, there is a critical need for significant investments to transition key sectors such as energy, transport, agriculture, mining and construction towards more

sustainable and climate-resilient practices. These transitions are not without their social challenges, particularly in terms of impacts on livelihoods and employment, often disproportionately affecting the most vulnerable communities. Both countries are navigating these challenges by committing to “just transitions” that strive to harmonise economic growth with environmental sustainability and social equity.

The graph below reinforces the commitment of most companies in both South Africa and Kenya towards additionality-oriented ESG investment: 95% of companies in South Africa and 94% in Kenya affirm their commitment to identifying and initiating projects that can deliver beneficial societal or environmental outcomes.

Does your company actively look for new projects that will have positive outcomes on society or the environment?

Commitment to social and environmental impact is further evident in the next graph, which shows that the majority of projects aim to deliver developmental additionality.

Kenyan companies have a stronger focus on governance additionality, which entails interventions to strengthen corporate governance and accountability beyond regulatory requirements.

While governance additionality is significant among South African companies, there is a slightly stronger focus on financial additionality. This entails positive impacts that would not have occurred without a particular investment, such as loans extended in local currency to a startup business within a country where seed or venture capital is scarce.

In general, do your projects with an ESG motive:

South Africa Kenya N=45 N=13

Financial additionality: Provide new investment for sustainability that would not be available otherwise?

Development additionality: Provide social or environmental impacts that would not be available otherwise?

Governance additionality: Adopt enhanced governance measures that go beyond basic compliance

MEASURING ESG IMPACT

Most companies (70%) recognise the importance of the ESG additionality of their projects. Measuring additionality requires establishing a counterfactual – a hypothetical scenario that describes what would have happened in the absence of a specific intervention – and attributing observed changes to specific investments. The inherent uncertainties, data limitations and methodological challenges renders these measurements extremely difficult and often necessitates qualitative assessments and probabilistic approaches to reasonably estimate additionality.

As the graph below shows, most companies rely on ex-ante and ex-post assessments to measure the additional impact of their ESG initiatives. This enables them to measure and demonstrate the tangible value added by their projects or investments. In Kenya, measuring additionality also involves comparing outcomes for project beneficiaries with a similar group of nonbeneficiaries (45%). This comparison method provides a contextual understanding of performance, allowing companies to assess whether their initiatives are delivering superior results compared to standard practices or similar efforts in the region.

How is the causal relationship between projects or investment and impacts along ESG

dimensions identified, if at all?

Africa

Measurement and comparison of relevant ESG indicators before and after a project or investment begins

Qualitative interviews with project stakeholders to understand behavioural changes

Comparison of project outcomes with benchmarks/ studies conducted on similar projects and investments

Comparison of outcomes for project or investment beneficiaries with outcomes for a similar group of nonbenefitting people

Kenya N=19

Measurement and comparison of relevant ESG indicators before and after a project or investment begins

Qualitative interviews with project stakeholders to understand behavioural changes

Comparison of project outcomes with benchmarks/ studies conducted on similar projects and investments

Comparison of outcomes for project or investment beneficiaries with outcomes for a similar group of nonbenefitting people

Development of a theory of change

EXPECTATIONS FOR FINANCIAL RETURNS ON ESG PROJECTS

ESG is often conflated with corporate social responsibility (CSR), which focuses on activities like charitable donations, community engagement, and volunteering aimed at societal goals and enhancing company reputation. This is evinced in this year’s survey, where 22% of South African and 20% of Kenyan companies expect no financial returns on their ESG projects and 5% of South African companies expect returns below their cost of capital.

However, ESG is more comprehensive than CSR, as it is intended to be systematically integrated into companies’ core strategies, risk management and operational processes. While ESG investments are driven by reputational, social and environmental concerns, they they are also expected to yield financial returns, unlike the non-financial focus of CSR grants. Since ESG involves revenue and profit generation, ESG-positive investments can and should be expected to deliver financial returns.

What are your expectations for financial returns on the ESG projects discussed above (as opposed to your business as a whole)?

Despite some companies viewing ESG similarly to CSR, most South African and Kenyan companies integrate ESG into their core business strategies. Notably, 50% of Kenyan and 38% of South African companies expect returns from ESG investments in line with their cost of capital and around a third of respondents from both countries anticipate financial returns exceeding their cost of capital.

Thus, while ESG is still seen by some as an extension of CSR, there is a growing emphasis on integrating financial returns. The low percentage of respondents expecting returns below their cost of capital indicates that ESG projects are increasingly viewed through a lens of profitability, not just corporate philanthropy.

CASE STUDY NEDBANK PIONEER OF SUSTAINABILITY FOR MORE THAN THREE DECADES

The bank perceives the green economy as an expansive concept that transcends environmental sustainability, embodying the constructive collaboration between economic advancement, social equity and the conservation of the natural ecosystem. The bank’s aspiration is for the green economy to serve as an impetus for enduring economic development, with a particular focus on uplifting rural and semi-urban communities.

BY LYNETTE DICEY

NEDBANK GROUP: PROJECTS AND PROCESSES

NBI IRM PROGRAMME

Between 2017 and 2019, the National Business Institute (NBI) and Nedbank Eyethu Community Trust collaborated to deliver demand-led installation, repair and maintenance (IRM) skills, focusing on the plumbing and solar water-heating industry. These projects laid the foundation for the broader IRM initiative, aligned with the government’s post-Covid-19 economic recovery strategy that emphasises the re-industrialisation and growth of key sectors.

The initiative aims to expand job opportunities in IRM enterprises across various sectors of SA’s economy, particularly targeting SMEs. Its key objectives include unlocking demand for IRM skills and providing young people with the necessary skills and on-thejob training for employment, self-employment or further training.

Implementation across six strategic sites involves building local collaborations, establishing IRM township hubs, supporting SMEs, promoting entrepreneurial learning, delivering skills training through technical vocational education and training colleges and supporting young entrepreneurs. The Nedbank Eyethu Community Trust funded solar installers in Khayelitsha and Mamelodi as part of this initiative in 2023.

WHICH SDGS ARE AFFECTED BY THE PROJECT?

SDG 1 No poverty: Communities are provided with skills development and meaningful job opportunities in a growing and developing market.

SDG 2 Zero hunger: Growing skills development and job opportunities will have a positive effect on reducing the number of communities who struggle to access food.

SDG 8 Decent work and economic growth: The Nedbank Green Economy Fund provides funded projects to communities enabling access to work and economic opportunities.

Combined, these will have a positive overall impact on SDG 10 (reducing inequalities).

ESTIMATED MEASURABLE OUTCOMES OF THE PROJECT

The outcomes have not been quantified.

RISKS TO OUTCOMES FROM THE PROJECT

The programmes have organically matured and are managed under the organisation’s Transformational Nedbank Group corporate social investment spend. The group facilitates this process with several external partners. While cost is attributed to these programmes, it remains a CSI initiative with a ring-fenced facility to fund programmes of this nature. This minimises the risk of costs growing exponentially.

POWER GENERATION

Nedbank has partnered with clients to drive climate impact objectives through sustainable finance solutions, including providing more than R3.4bn in private power generation funding; raising R2bn in green bonds; and remaining a leading funder of the REIPPPP with funding of 4GW across 50 projects with exposure of R28.8bn. In 2024, Nedbank anticipates closing a further five deals for which it is the mandated lead arranger. Combined, these deals will contribute 540MW in additional capacity, supported by R7bn in new facility limits that the bank will extend.

WHICH SDGS ARE AFFECTED BY THE PROJECT?

SDG 7 Affordable and clean energy: Sustainable access to affordable and clean energy will ensure communities can consume energy for personal and commercial use, contributing to their upliftment.

ESTIMATED MEASURABLE OUTCOMES OF THE PROJECT

4GW of installed renewal energy capacity created through projects financed by Nedbank. Total avoided emissions attributed during 2023 are estimated as 10,350,780 tCO2e.

RISKS TO OUTCOMES FROM THE PROJECT

Credit risks associated with the individually financed projects. Capacity constraints on the national electricity grid to connect installed capacity to the national grid.

OPPORTUNITIES FOR EXPOSURE

Nedbank provides a variety of green bonds and use-of-proceeds instruments which provide investors with a mechanism to invest in products that are targeted at investing in renewable energy projects.

NEDBANK GREEN ECONOMY FUND

The Nedbank Green Economy Fund offers SDG-aligned debt funding for commercial and agricultural clients across water, energy (including solar installations) and waste management, and provides advisory services on the green economy to clients.

The fund was established with initial capital of R10m and a primary objective to support up to 45 start-ups operating in waste, water, energy and agricultural sectors. To date, Nedbank has invested R67.1m in green economy initiatives.

Nedbank’s green economy strategy goes beyond financial support and aims to drive positive change by creating sustainable jobs, especially for marginalised groups like the youth and rural communities.

NEDBANK GREEN ECONOMY FUND: WHICH SDGS ARE AFFECTED BY THE PROJECT?

SDG 6 Clean water and sanitation: Investments in water and waste management facilities will provide access to water management facilities ensuring a cleaner environment.

SDG 7 Affordable and clean energy: Sustainable access to affordable and clean energy will ensure communities can consume energy for personal and commercial use, contributing towards their upliftment.

SDG 8 Decent work and economic growth: The fund provides funded projects to communities enabling access to work and economic opportunities.

SDG 12 Responsible consumption and production: The funding opportunities allow for the purchasing, management and storage of equipment and facilities to develop sustainable food for communities and commercialisation opportunities.

Combined, these will have a positive overall impact on SDG 10 (reducing inequalities) and SDG 13 (climate change).

ESTIMATED MEASURABLE OUTCOMES OF THE PROJECT

The outcomes have not been quantified outside of the lending provided to the projects that make up the Green Economy Fund, which to date has provided R67.1m in funding.

RISKS TO OUTCOMES FROM THE PROJECT

The initiative is susceptible to any regulatory changes that affect any other parts of the business that provides Nedbank-backed initiatives. It is susceptible to regulatory changes which could potentially affect the profile of the fund. In this instance, the risk has been consolidated and forms part of a separate ring-fenced facility which will be managed under the organisation’s Transformational Nedbank Group corporate social investment (CSI) spend. The likelihood of scaling these initiatives is low to medium while the risks posed are low as they are managed through a function structure within the organisation.

OPPORTUNITIES FOR EXPOSURE

These facilities are internally funded by Nedbank and are currently not investable opportunities for investors. As projects such as the Nedbank Green Economy Fund are scaled, the bank will consider whether investable opportunities such as green bonds or impact financing exist.

CATALYSING THE GROWTH OF THE GREEN ECONOMY

Nedbank’s ESG strategy stands out in its forward-looking and impact-driven approach. The bank has been a pioneer in the sustainability area for more than three decades with its brand image closely associated with sustainability and the environment. Describing itself as a purpose-led, values-driven organisation, ESG has been core to its business model for more than a decade and is deeply embedded in its purpose to use its financial expertise to do good for individuals, families, businesses and society.

This purpose guides its behaviours, actions and strategy, including its ESG strategy, in both the short and long terms, to ensure that the bank not only helps to reduce the systemic risks to the environment in which it operates and to the people it serves, but also to deliver material, long-term, positive societal value.

As the landscape of environmental, social and governance (ESG) risks evolves, the bank expects these risks to affect its profitability and limit its ability to achieve its purpose in the long term. The bank’s governance structures and leadership are deeply committed to ESG investing and financing, which are both distinctive and future-oriented, with the executive management team and the boards being key stakeholders in the evolution and impact of ESG on the group.

Successful initiatives like the WWF Nedbank Green Trust have underscored the importance of long-term planning. This forward-thinking approach has positioned Nedbank at the forefront of identifying the risks and opportunities presented by the evolving regulatory landscape of sustainability. The bank has identified that it can deliver the greatest impact through its lending practices which have been aligned to nine of the UN Sustainable Development Goals (UN SDGs), where it believes lending can have the largest impact. This allows Nedbank to focus on initiatives that are purposeful and impactful to the communities in which it operates such as quality education, clean water, decent work and sustainable cities.

As a long-term investor, Nedbank incorporates ESG considerations into both qualitative and quantitative assessments, acknowledging that ESG risks may become apparent over an extended period. This approach is designed to improve the risk-and-reward profiles of portfolios.

Based on the belief that financial institutions can – and must –be at the forefront of environmental and societal transformation, Nedbank’s dedication to sustainable development is reflected

in its ambition to allocate at least 20% of its gross loans and advances towards supporting sustainable development finance aligned with the UN’s SDGs by 2025.

Daniel Mminele, Nedbank Group Board chairperson, says in the integrated report the bank is cognisant that its role must evolve beyond traditional banking to leverage its financial acumen and influence to drive sustainable development. “We are committed to being a force for good by working with our clients – many of whom are among South Africa’s largest organisations – towards more sustainable practices. This commitment is reinforced by our energy policy which delineates our approach to financing energy projects and by our recent nature position statement, which underlines our pledge to safeguard biodiversity and nature.”

The bank’s energy policy, which it adopted in 2021, aims to guide the transition away from fossil fuels while accelerating efforts to finance non-fossil energy solutions needed to support socioeconomic development and build resilience to climate change. The policy includes plans to provide no new funding for new thermal coal mines from January 2025, not advance new finance for oil production from 2035 and eliminate direct exposure to fossil fuel-related activities by 2045.

Bruce Thomas, finance executive responsible for group reporting at Nedbank, tells Krutham that the bank’s ESG strategy has from the outset been driven by the board of directors who have been very clear about the long-term impact it should achieve. “It has taken time to mature our ESG strategy,” he concedes, adding that former CEO Mike Brown was always very insistent that the bank would only achieve something of significance if it set itself goals with the appropriate stretch in place. “This is exactly what we have done with regard to our ESG strategy, whose primary objective is purpose-driven impact to create a meaningful, measurable change that aligns with the bank’s purpose and vision.”

From a green economy perspective, the bank believes there is significant opportunity both for itself and the country to move towards a net-zero economy which will potentially bring holistic economic growth to a broad base of market participants.

“From a climate perspective, there are credit risks attached to lending to a business that is at risk of being negatively impacted by climate change. From a financing perspective we need to mitigate those risks as far as possible,” says Thomas.

Nedbank, which has aligned itself with the United Nations Principles for Responsible Investment (UNPRI), has adopted a valuation-based approach that accounts for ESG factors in company value assessments. These considerations are an integral part of investment decisions.

The bank is very explicit when discussing value creation. In the short term, it is required to generate an acceptable return to shareholders and depositors. However, creating superior returns over the long term requires a sustainable business model and balancing short-term requirements with long-term value creation. Its ESG strategy is key to achieving this.

STANDING UP FOR THE ENVIRONMENT

Widely recognised as the “green bank”, Nedbank has long been a strong advocate for and influencer of environmental matters. Its focus on environmental issues predates the modern concept of ESG, which started taking shape in the mid-2000s. Nedbank launched the Green Trust in association with the World Wide Fund for Nature in 1990. The trust is funded through the Nedbank Green Affinity Programme, which has so far helped raise more than R300m to support more than 200 environmental projects throughout South Africa. The Green Affinity Programme is one of four options given to Nedbank clients to support a cause of their choice at no cost to themselves. The other three are the Arts, the Children’s and the Sports Affinity programmes.

In 2010, Nedbank became the first bank to achieve carbon neutrality. A year later, it launched the Nedbank Green Index, South Africa’s first green index. In 2019, it became the first bank in South Africa to list a renewable energy bond on the green segment of the JSE. Between 2019 and 2023, it invested R25m in the WWF-SA Water Source Areas partnership to safeguard critical water source areas, improve rural livelihoods and promote land stewardship. In 2020, the bank proactively raised climaterelated resolutions at its 53rd AGM, for which it received a 100% vote of approval by shareholders.

CATALYSING GROWTH OF THE GREEN ECONOMY

Nedbank’s approach prioritises catalysing the growth of the green economy. Thomas explains that the bank perceives the green economy as an expansive concept that transcends environmental sustainability, embodying the constructive collaboration between economic advancement, social equity and the conservation of the natural ecosystem. The bank’s aspiration is for the green economy to serve as an impetus for enduring economic development, with

a particular focus on uplifting rural and semi-urban communities. It has set itself very clear objectives to improve employment by fostering skills development and by nurturing entrepreneurship. It has also extended its support to initiatives within key sectors of the green economy: water, energy, waste management and agriculture. It is a multifaceted approach encompassing the encouragement of entrepreneurial ventures; providing skills development opportunities; creating employment prospects and promoting education programmes.

“Our strategy is the result of extensive research and consultation, leading to the identification of four pivotal areas for Nedbank’s Corporate Social Investment (CSI) within the green economy,” explains Thomas. “We prioritise CSI partnerships that not only provide immediate empowerment but also promise long-term sustainability and we look for collaboration with fellow corporations, non-governmental organisations and public sector entities to achieve these ends.”

Fostering a sustainable future through the green economy, he adds, underscores the bank’s commitment to community upliftment and environmental stewardship.

THE NEDBANK SUSTAINABLE DEVELOPMENT FRAMEWORK

Four years ago, Nedbank adopted the UN’s Sustainable Development Goals. To operationalise these globally accepted goals, the group developed a Sustainable Development Framework which prioritises nine SDGs the group links to financing activities. The bank believes that its greatest impact can be achieved through its purpose-led lending activities to support clients.

These are SDGs 4 (quality education), 6 (clean water and sanitation), 7 (affordable and clean energy), 8 (decent work and economic growth), 9 (industry, innovation and infrastructure), 10 (reduced inequalities) 11 (sustainable cities and communities), 12 (responsible consumption and production) and 15 (life on land). The framework focuses on the bank’s sustainable development efforts in terms of both financing and identifying business opportunities, risks and cost savings.

In addition to its environmental focus, the bank also invests in initiatives that create sustainable jobs, particularly for marginalised groups such as the youth and rural communities, agricultural initiatives, quality education and sustainable cities. While the precise value of these opportunities and savings may differ across geographics at a global level, Brigitte Burnett, Executive Head: Sustainability at Nedbank, says it is nevertheless significant.

Thomas says measuring impact can be challenging in some areas. For example, the bank has committed R22bn in lending to small businesses, a sector where there is a high demand for developmental finance, although measuring the impact of the jobs created remains difficult in these early stages. Similarly, R28bn has been allocated to support farmers who, in turn, provide employment opportunities and address food security. The impact is more easily measured in its renewable energy investments (the bank has financed 4GW of renewable energy to date), student accommodation (more than 11,000 student loans and more than 43,000 student beds) and home loan lending portfolios (more than 33,000 affordable housing units funded).

Material topics are identified based on their impact on the company, stakeholders and broader society. Thomas explains that the bank looks at sustainable investments that can positively impact multiple parts of the economy. A strategic lever called Creating Positive Impacts informs this approach in a way that helps to create long-term value.

ESG is a particularly useful tool when considering strategic trade-offs, says Thomas. “Given the extreme inequality that exists in South Africa, it would be remiss of any organisation not to take account of the social environment. For a bank such as Nedbank, one of the trade-offs we must consider is that in our efforts to digitalise we naturally shrink the number of staff we employ. The group is very cognisant of the need to respond to that trade-off through effective management and appropriate training of our workforce. As a result, Nedbank’s reductions in staff numbers have mainly come through natural attrition.”

THE FIVE-YEAR VIEW

Nedbank sees a growing role for ESG within its business over the next five years and beyond. “Businesses that understand and integrate ESG into their thinking are likely to generate superior long-term returns because of their ability to add value to their stakeholders and their business,” says Thomas, adding that businesses that get ESG right will see the benefits. “We have established a Purpose Programme of Work to develop the right systems, data and organisational structures to support the growing ESG requirements. We are also using this programme to define the skill and talent that we need to attract to remain a successful bank in a rapidly changing world.”

The bank is looking at how it can integrate ESG principles into the way it creates and unlocks value, manages risk and makes decisions. ESG training is provided to all Nedbank staff members

so that everybody within the organisation understands the principles of the concept and how it fits into the bank’s business model. Another way Nedbank is embedding ESG into its business operations, says Thomas, is by aligning its products and services with its purpose of using financial expertise to do good for individuals, families, businesses and society.

Nedbank has developed a range of solutions that cater to the needs and preferences of its clients who want to invest in a more sustainable way, such as green bonds, renewable energy financing and impact investing. Nedbank also supports its clients in their own ESG journeys by offering advice, tools and incentives to improve their environmental and social performance. By doing so, the bank aims to create shared value for its stakeholders and contribute to a greener, more inclusive and more resilient economy.

STANDARDS, DISCLOSURES AND RANKINGS

The bank has started aligning its reporting methodology to the recently released International Sustainability Standards Board’s IFRS S1 and IFRS S2 and is considering adopting these standards in due course. For now, it provides disclosures using a variety of frameworks and tracks its ESG efforts against top independent ESG rating agencies. It tends to be in the top 10% or better in the major ESG-related rankings and is ranked in the top three in South Africa in CDP scores (previously known as the Carbon Disclosure Project). “Although there are particular areas where other banks are ahead of us, overall Nedbank is a market leader when it comes to ESG,” says Thomas.

ENDURING PARTNERSHIPS PAY OFF

Nedbank engages extensively with partners and other entities in its value chain on ESG issues. Its partnerships with both the Green Trust and the World Wide Fund for Nature (WWF) have provided valuable sounding boards for the group, as have several partnerships in the social space. Thomas is particularly proud of Nedbank’s “Proud of My Town” initiative, a holistic community transformation initiative created by the bank in partnership with urban planning social enterprise, Ranyaka Community Transformation. The initiative, which invests in an array of programmes based on the needs and opportunities identified in collaboration with a specific community, is active in 28 communities in 15 towns across eight provinces in South Africa. It is funded via Nedbank’s Proud of My Town Fund, which takes a percentage of Nedbank’s primary clients’ transactional fees in every town where the initiative is being implemented to contribute – at no cost to the client – directly to initiatives that form part of the programmes in that town.

The bank’s other partnerships include one with Holm Energy to offer Nedbank clients affordable solar solutions and another with the University of Johannesburg to accelerate and enable a digital organisation in a fast-evolving business context.

“We believe in the power of partnerships between like-minded organisations given that they are an effective way for the bank to be able to address real-world issues. We expect more collaborations in the future, particularly as demand for new skills and products increases,” says Thomas.

THE FINANCIAL SECTOR’S ROLE IN SUSTAINABLE DEVELOPMENT FINANCE

Burnett says for the financial sector to maximise its contribution to sustainable development and achieve the outcomes required, it must commit to the deliberate allocation of capital that is commensurate with the scale and time sensitivity of the challenge. Demand for sustainable development finance outstripped supply in 2022.

Nedbank’s focus on sustainable development finance results in the group using more of its investment and lending on juristic entities and individuals to deliberately deliver positive social and environmental outcomes across a wide range of sectors through three primary focus areas: sustainable finance, financing the energy transition and financial inclusion products and services.

Sustainable finance aims to create a positive impact through the bank’s clients by financing business activities with positive social and environmental impacts. Social categories include projects that provide access to water and sanitation, energy, finance, infrastructure, education and land, small business development and affordable housing. Environmental categories include circular economy activities, green buildings, clean technology, energy efficiency, renewable energy, sustainable land use and agriculture and water quality and conservation. Lending in these categories is mapped to and aligned with the SDGs for disclosure purposes.

Nedbank’s efforts in terms of financing a just energy transition include ensuring that the bank contributes to the decarbonisation of the real economy in line with the Paris Agreement over time in support of Africa’s Just Transition, and working with clients in climate-sensitive sectors such as agriculture, aluminium, cement, coal, commercial and residential real estate, iron and steel, mining,

oil and gas, power generation and transport to decarbonise their businesses. These climate-sensitive sectors, except for mining, are aligned with the Net-Zero Banking Alliance categorisations. Nedbank added mining to this list given its impact and materiality to the African continent.

Its financial inclusion solutions have been designed to cater to clients to enable easy transacting that remains safe, promotes savings for a range of scenarios, improves borrowing, promotes good financial planning, protects livelihoods against unfortunate circumstances through insurance, and goes above and beyond banking to elevate the lives of clients so that they can leverage financial services to fully participate in and contribute to society and the country.

TARGETS AND COMMITMENTS

The bank is on track to achieve its goal of allocating at least 20% of its gross loans and advances towards supporting sustainable development finance aligned with the UN’s SDGs by 2025. As of 31 December 2023, this figure was at 16%. Nedbank had R145bn invested in sustainable development finance aligned with SDGs 4, 6, 7, 8, 9, 10, 11, 12 and 15, building on the R108bn of aligned lending in 2021 and the R123bn of aligned lending in 2022 to increase sustainable development finance exposures to more than 20% of the group’s total gross loans and advances by the end of 2025, with more than R150bn of new sustainable development financing aligned with the SDGs.

Nedbank has also committed to zero exposure to fossil fuel-related activities by 2045 with plans for an orderly exit. It will continue to expand its ambitions in a manner that is commensurate with the needs of clients, the size of the strategic opportunities offered and the bank’s own desire to continue to leverage its competitive advantage in this area, says Mike Davis, Nedbank group CFO.

Environmental and social commitments, including delivery of its energy policy and Sustainable Development Framework, have for the first time been included in the group’s long-term incentive scheme. In 2023, the group amended its remuneration policy to include more granular targets relating to its energy policy, disclosure of fossil fuel-related glidepaths in its 2023 reporting, its 2025 sustainable development finance ambition and other specific social commitments.

Nedbank is also committed to achieving the goals of the Paris Agreement and has a target of 100% of its lending and investment activity supporting a net-zero carbon economy by 2050. Davis explains that this effectively means aiming to create a balance between the quantity of greenhouse gases produced and replacing GHG-intensive technology in the energy mix to contribute towards reducing GHG emissions in the atmosphere. The bank is using the carbon budget construct to develop science-based targets and glide paths that will inform sectoral policies that will enable it to help clients to realise a net-zero economy by 2050.

Davis says its Sustainable Development Framework will continue to inform the bank’s understanding of how to close financing gaps and capture new business opportunities linked to creating the next economy while its Climate Risk Management Framework will provide an overarching framework for identifying and managing climate-related risks.

CHALLENGES

The biggest challenge Nedbank has faced when it comes to climate reporting has been accessing relevant, reliable and complete data. “Concepts such as emissions have required new data to be captured that were not necessarily captured when the loan originated. The cost of funding these data gaps can be significant,” says Thomas.

Another challenge is sourcing appropriate skills given that much of the environmental expertise required of ESG reporting are not skills that have traditionally resided within banks. “While there is less of a skills gap when it comes to governance, as far as the environment, biodiversity and climate is concerned, our workforce does require upskilling to better understand the risk factors.”

KEY LEARNINGS FROM NEDBANK’S ESG JOURNEY

The best advice Thomas could give other entities embarking on their sustainability journey is for ESG to become part of the organisation’s DNA. “ESG can’t fit on top of the business. It needs to be entrenched in your strategic decision-making process. Identify what ESG means in your organisation and then drive that narrative throughout the business. The key is to understand what values you bring to the table. For Nedbank, the launch of our purpose, mission and vision marked the start of our ability to articulate our ESG journey. If you start with your purpose and build out from there to strategy, you will be more likely to end up with an integrated response that can stand up to scrutiny and avoids accusations of greenwashing.”

CONCLUSION

There is no question that Nedbank’s ESG can stand up to scrutiny. In 2023, the bank retained its MSCI ESG AAA rating, placing it within the top 5% of global banks. It has also received numerous awards in recognition of its efforts to manage its business sustainably. In 2023 alone it won Outstanding Leadership in Sustainable Bonds at the Global Finance Magazine Awards; Best Corporate Sustainability Strategy South Africa at the Global Banking & Finance Awards; Sustainability-linked Loan of the Year at the Environmental Finance Awards; and Sustainable Bank of the Year at the African Banker Awards, among others.

Not only does Nedbank’s commitment to sustainable investing and its emphasis on long-term value creation create a unique value proposition for the bank, perhaps, most importantly, the bank is increasingly seeing the green economy as a lens through which to unlock opportunities.

HEAD OF IMPACT INVESTING RESEARCH, KRUTHAM

ESG INTEGRATION: THE NEW BUSINESS AS USUAL

Heightened appreciation of creating healthier systems in which businesses can thrive, with company ESG practices running ahead of regulations, is an encouraging finding of this research, writes Nicole Martens.

With about five years left to achieve the sustainable development goals and the UN’s 2024 SDG Report revealing just how far off the mark we are at a global and regional level, it is easy to become despondent about the state of the global environmental and socioeconomic environment.

Almost every respondent in this year’s survey (about 90%) reported integration of the SDGs into their ESG strategies, with South African businesses prioritising socioeconomic issues and Kenyan companies focusing on issues related to climate change.

While implementation of SDG-related strategies remains imperfect, integration into business operations is a positive step. Further, about 90% of companies surveyed report that the main objective of this practice is to achieve purpose-driven impact. This is of course good news for South African and Kenyan communities. But what is behind it?

Traditionally, there are four key levers of influence for company behaviour. From the top down, there are policy and regulation. Coming from the bottom up is market demand. And right at the centre are the interconnected issues of financial materiality and investor demand. To understand where South African and Kenyan businesses are in their thinking on ESG, it’s useful to look at each of these in turn.

POLICY AND REGULATION

In both South Africa and Kenya, policy and regulation continue to move towards impact. Kenya’s climate policy environment is well-established as being progressive, while South Africa’s emphasis on social protection stands out in the region.

Disclosure requirements are becoming more stringent and less focused on retrospective performance, with frameworks like the Taskforce for Climate-related Financial Disclosures (TCFD – to which 80% of survey respondents subscribe) placing increasing emphasis on sustainable strategy and impact.

While it is moving in the right direction, the Sanlam ESG Barometer findings suggest that policy and regulation are not major drivers of South African companies’ integration of ESG into business operations – only 5% of South African companies and roughly one fifth of Kenyan companies report that regulatory compliance is a driver of ESG integration. This suggests that companies are integrating ESG without being mandated to do so. Further, 60% of surveyed companies are planning to adopt new, progressive disclosure practices, specifically the ISSB standards, without this currently being mandatory in either South Africa or Kenya.

FINANCIAL MATERIALITY AND INVESTOR DEMAND

South African and Kenyan companies report that ESG integration is key to the financial sustainability of their operations, with nearly one-third of all respondents listing this as their main reason for adopting an ESG strategy. A similar number of companies say that attracting investors is their most important driver for ESG integration. Of course, financial performance is a key driver of investment, so it stands to reason that effectively integrating material ESG issues into business operations should – through the self-reported positive impact on company operations –make a company more attractive to investors.

It’s of little surprise then that investors are identified as the most important stakeholder with respect to ESG strategy development

by almost 70% of companies surveyed. However, while the survey finds that about a third of companies in each market note attracting investors as a reason to integrate ESG, the proportion of companies that have actually experienced any penalty for failing to do so varies significantly. South African and Kenyan companies have experienced very different interactions with their investors in this regard. Less than 10% of South African companies report having been subject to exclusion from portfolios based on ESG performance compared with 40% of Kenyan companies.

This suggests either that South African companies tend to perform better than Kenyan companies with respect to ESG, or that investors in these markets are operating at substantially different levels when it comes to walking the talk on expecting ESG integration by companies. In either case investors in South African companies are far less likely to divest from a company based on ESG performance than investors in the Kenyan market. Though not explicitly covered by the survey, it is also possible that this discrepancy reflects differences in the geographic origin of these investors, with international investors often expecting higher standards of ESG integration than local investors, given the typically more rigorous regulatory context in which international investors operate. South Africa has a relatively large domestic investor base.

Less than 20% of companies surveyed identify customers as a key stakeholder when it comes to ESG integration. This would seem to suggest that market demand for sustainable business remains low.

WHAT THIS MEANS

The research shows us that for the most part, companies are not legally mandated to integrate ESG (at least, not yet), and are not being excessively pressured by customers to operate more sustainably. Despite this limited top-down and bottom-up pressure to integrate ESG, South African and Kenyan-listed companies are

making efforts to do so. This likely reflects the fact that businesses in both South Africa and Kenya are finding that there are significant financial benefits to effectively integrating material ESG factors into their operations – including attracting investors.

But are South African and Kenyan listed companies integrating ESG issues into their operations purely to the extent that it drives financial performance?

No – these businesses are going one step further. They are designing ESG strategies that are purpose-driven. In most cases, the number one objective of the ESG strategy is to achieve positive social or environmental impact. More often than not then, both South African and Kenyan companies are going above and beyond ESG integration for the purposes of ticking a box on an investor’s check list. ESG integration for impact is becoming the new business as usual.

The implication is that there is increasing appreciation by listed companies of the interconnected nature of systemic issues and financial sustainability, and the importance of mitigating negative and maximising positive impacts for the purposes of creating healthier systems in which businesses can thrive. This is a critical and incredibly encouraging finding of this research.

While it has long been the belief that investors and regulators are the key drivers of changes in company behaviour, what the 2024 ESG Barometer results would seem to suggest is that – at least in South Africa and Kenya – it may actually be the other way around, with businesses operating ahead of policymakers, regulators and investors and driving change themselves.

In the context of achieving shared objectives as set out by the SDGs, this behaviour acts as an example for companies in other markets, and it is in every stakeholder’s best interest that it continues.

Sanlam’s commitment to Socio-economic development & sustainability

As a leading financial services company, Sanlam is dedicated to driving socioeconomic development and sustainability in the communities in which we operate. We follow a comprehensive approach that aligns with the six capitals of integrated reporting which include: financial, manufactured, intellectual, social and relationship and natural capital. In 2023 we focused on making positive contributions to each of these areas, demonstrating our commitment to long-term success and sustainability.

2 MANUFACTURED CAPITAL

We strive to incorporate our physical assets and infrastructure to create a lasting impact and improve ways of working for our employees and investments that helped build sustainable cities. Over the past decade the SanFin Infrastructure Fund invested:

R1.6bn in wind infrastructure

1.8bn in solar PV in South Africa and Egypt

R905m in battery energy storage R862m in Concentrated Solar Power (CSP) R578m in water infrastructure

Insurtech joint venture with MTN aYo over 4.5 million lives touched across Africa, providing cost efficient products to the underserved

Solar PV Project At the Sanlam Bellville Head Office to be launched in 2024 over R100 million invested

TRAINING AND DEVELOPMENT

R258m spent on black employees

R15m spent on unemployed black people

HUMAN CAPITAL (2022: 61, industry average of 50) Culture score of 60

4

3

1 FINANCIAL CAPITAL R1.3tn

Assets under management (2022: R1.1 trillion)

Contributed to the National Green Finance Taxonomy initiative in South Africa

(TCFD) best practice case study 2023 yearbook by the Financial Stability Board (FSB) in South Africa

Launched the first Sanlam ESG Barometer in South Africa

Launched the third Sanlam Transformation Gauge

SANLAM CERTIFIED as a Top Employer for the ninth consecutive year by the Top Employers Institute

SANLAM INVESTMENTS AWARDED

2023 Sustainable Asset Manager Award by 27four Investment Managers

R800k spent on persons with disabilities 113

21

R14bn

Supplier procurement spend reached (2022: R11.6 billion)

R4.4bn spent on SMMEs (2022: R4.4 billion)

R139m

CSI spend (2022: R130 million)

R20m

invested in Youth for Tourism funding. Reached over 700 youth

R10m

in interest-free loan support made available to SANParks rural SMMEs

84%

Trust in the Sanlam brand with an increase in lives touched and client satisfaction

Sanlam has achieved a BBBEE level 1 for 6 years consecutively with a year -on-year increase in total points.

60k people reached across South Africa with disaster information, education and awareness in collaboration with strategic partners in the Partnership 4 Risk and Resilience (P4RR) programme

Our products touch the lives of 69m

clients in Africa and Asia (2022: 32 million)

WageWise with ASISA Foundation

21120 beneficiaries

Money Fo ‘Sho with Avocado Vision

14370 beneficiaries

CONSUMER FINANCIAL EDUCATION: through 528 face-to-face workshops through 479 face-to-face workshops

Financial Services Consumer Education (FSCE) Foundation:

5461

Learners reached from 277 schools through High School CFE National Competition, funded by the Sanlam Foundation.

persons with disability

Santam partnered with 95 municipalities under (P4RR). These interventions have an indirect influence on more than 13 million individuals. As part of its adaption strategy, Santam collaborated with Capricorn District Municipality to plant approximately 200 indigenous trees. Over 30 000 people received targeted disaster risk education and awareness training, bringing the total to 66 338. Additionally, 252 persons were trained in firefighting safety, disaster management, and related courses, bringing the total to 712.

SPECIAL PROJECTS

Kay Motsepe Schools Cup WoW Spelling Competition

awarded total prize money of R11.75 million to winning schools participating in the school competition for u19 boys, u14 girls and u14 boys

with the University of Stellenbosch reached 231 700 beneficiaries through 149 Spelling Festivals held nationally at primary and high schools

4 843 hours of business development support provided to SMEs under the Sanlam Foundation’s ESD programmes.

109 500 food packs prepared through the Staff Volunteerism Programme.

281 767 beneficiaries supported through the Sanlam Foundation’s Special Projects programmes.

SMALL GRANTS

FUND

Support towards SDGs

517590

meals served and 8 391 learners received meals in schools that are beneficiaries of the Sanlam Foundation Education Programme.

Through its Small Grants Fund, the Sanlam Foundation donated R1.9m to 19 NGOs focusing on youth, people with disabilities, orphans, abused, neglected and vulnerable children, GBV and LGBTQIA+ causes

Sanlam is intentional and prioritises SDGs that provide the biggest opportunity for shared value creation.

6

NATURAL CAPITAL

Invested a total of R16m

SANLAM FOCUS

BY ABEL SAKHAU CHIEF SUSTAINABILITY OFFICER, SANLAM GROUP

CORPORATE SA CAN CHANGE THE NATION THROUGH STRATEGIC EMPOWERMENT

Corporate SA is key to driving long-term socio-economic change in South Africa. Sanlam, Africa’s largest non-banking financial services group, is committed to actively driving sustainability and development in the communities it serves. To combat the three horsemen of poverty, inequality and unemployment, the group invests in ‘six capitals’ of measurable, scalable impact. Collectively, these capitals catapult the group closer to achieving its north star: To empower all Africans to be financially confident, secure, and prosperous.

Abel Sakhau, Chief Sustainability Officer at Sanlam, says, “Behind the numbers there are names. Behind every investment, there are lives changed. Ripples of impact create tides of change. This continent thrums with boundless potential. It’s our privilege and duty to use our influence to create a better Africa for all to share in and inherit.”

Sakhau adds that corporate social responsibility should be rooted in purpose and a deliberate plan. “We have chosen to take a very methodical, measurable approach to doing good. We want to do good well. That means aligning our mission with measurable impact, the right strategic partnerships, consistency and accountability. This isn’t a tick-box exercise. It’s embedded in our culture and values.”

Sakhau urges other corporates to join Sanlam in its mission to contribute across the six capitals for maximal shared impact. Here are some of the group’s highlights:

Financial Capital: Sanlam currently has R1.3 trillion in assets under management (as at 31 December 2023). The group is committed to achieving optimal outcomes for its clients and Africa, by directing fund flows to generate robust financial – and sustainability – returns, while bolstering resilience and confidence, continent-wide.

Manufactured Capital: Sanlam strives to invest in physical assets and infrastructure to create a lasting impact. Over the last decade, the SanFin Infrastructure Fund invested:

- R1.6 billion in wind infrastructure

- R1.8 billion in solar PV in South Africa and Egypt

- R906 million in battery energy storage

- R862 million in concentrated solar power

- R578 million in water infrastructure

- +R100 million in solar PV for the Sanlam Bellville Head Office (to be launched in 2024)

Additionally, its Insurtech venture with MTN aYo reached +4.5 million underserved people across Africa with cost-efficient products.

Intellectual Capital: Knowledge means powerful interventions where they matter most. In 2023, Sanlam contributed to the National Green Finance Taxonomy Initiative in South Africa, launched the nation’s inaugural Sanlam ESG Barometer, and published its third Sanlam Transformation Gauge. This critical research benchmarks ESG and transformation across South Africa, giving critical insight into how SA Inc. is faring and areas to improve.

The group also continued to prioritise its people; it was certified a Top Employer for the ninth consecutive year, and Sanlam Investments received the 27Four Investment Managers’ 2023 Sustainable Asset Manager Award—a testament to its team.

Human Capital: Investing in people is pivotal. The Sanlam team is 113 748 strong worldwide, with 21 125 employees in South Africa. For the sixth consecutive year, Sanlam achieved B-BBEE (Broadbase black economic empowerment) level 1 the highest level of achievement as it relates to Socio-economic Transformation performance in South Africa. Transformed teams are critical to innovation and performance. Sanlam is comprised of 79% black employees, 51% black female employees, and 62% women. In terms of training and development, in x, the group spent R258 million on black employees, R15 million on unemployed black individuals, and R800 000 on people with disabilities.

Social and Relationship Capital: Change happens when shared value ripples down the chain, impacting every supplier touch point. South Africa’s SMMEs are the engine of the nation’s economic growth. Empowering entrepreneurs is one of the best ways of generating jobs for the long term. The 2023/24 GEM Global Report found South Africa’s early-stage entrepreneurial activity has declined to below pre-pandemic levels. It’s crucial to create enabling environments with access to funding for SMMEs to thrive. In 2023, the Sanlam Foundation ESD programmes devoted 4843 hours of business development support to SMEs.

- In addition, Sanlam spent R14 billion on supplier procurement; R4.4 billion on SMMEs; R20 million on its Youth for Tourism initiative, which upskilled 700 young people in marketable marketing skills; and R10 million on interest-free loans for SANParks SMME suppliers.

Changing lives across the continent: The group’s products and services touched the lives of 69 million clients across Africa and Asia, with 84% trust in the Sanlam brand.

- Additionally, 60 000 people were reached across South Africa with disaster preparedness through the Partnership for Risk & Resilience, which bolsters resilience in some of the nation’s most vulnerable communities.

- Financial education is crucial to empower more people to lead lives of confidence. In collaboration with the ASISA Foundation, and Avocado Vision, the Sanlam Foundation supported 38 934 beneficiaries through 1 008 financial upskilling in-person workshops. In addition, the Sanlam Foundation reached 5 461 learners across 277 schools in partnership with the Financial Services Consumer Education Foundation (FSCE Foundation) through the National FSCE High School Speech Competition.

- In terms of employee volunteerism, Sanlam staff volunteers prepared 109 500 food packs, and the Sanlam Foundation Education Programme served 517 590 meals to 8 391 learners nationwide. 281 767 beneficiaries were supported through the Sanlam Foundation’s Special Projects Programme, and R1.9 million was donated to 19 NGOs through the Foundation’s Small Grants Fund.

National Capital: Preserving nature is crucial to protecting the planet and its scarce resources for generations to come. In 2023, Sanlam invested R16 million in its long-standing partnership with WWF South Africa, with a special focus on protecting freshwater source areas across South Africa.

Sakhau concludes, “Inclusion and Empowerment means touching lives holistically excluded across the six capitals identified for immediate, long-term impact. As a purpose-led group, doing good is deeply embedded in our DNA, as is our ethical stance. We take a strategic stance, seeking ways to scale shared value through robust partnerships. We urge other corporates to join us. Together, we have the might to move the needle and make a real difference to this country and continent.”

CASE STUDY SANTAM SANTAM’S SUSTAINABILITY APPROACH ROOTED IN RESILIENCE

The leading general insurer in South Africa with a market share of more than 24%, Santam takes a collaborative and proactive approach to its ESG activities. This is exemplified by its Partnership for Risk and Resilience initiative, designed to support community resilience through disaster management by partnering with the municipalities in which Santam operates.

BY GILLIAN KLAWANSKY

SANTAM: PROJECTS AND PROCESSES

PARTNERSHIP FOR RISK AND RESILIENCE

BRIEF DESCRIPTION OF THE CASE STUDY

The P4RR is designed to create a purpose-driven impact by working with municipalities as part of Santam’s responsibility to support community resilience in the areas in which it operates. This is done by assisting municipalities in building capacity to combat the risks of fire and flooding in vulnerable communities. This ultimately builds societal resilience and, more broadly, contributes to economic growth in those areas.

WHICH SDGS ARE AFFECTED BY THE PROJECT?

SDG 3 Good health and well-being: Employee wellness and the wellbeing of clients in the areas in which Santam operates is a priority.

SDG 4 Quality education: A key part of the work done is to drive educational awareness around the need for insurance through Santam’s corporate social investment (CSI) programme. This is done either in partnership with the South African Insurance Association or in collaboration with the wider industry.

This is also conducted through the P4RR to promote disaster management know-how.

SDG 10 Reduced inequalities: This is achieved by ensuring underresourced communities are not adversely affected by disasters by empowering municipalities through disaster management support, making them less physically and financially vulnerable.

SDG 11 Sustainable cities and communities: Providing support to municipalities through proactive risk management. Municipalities are capacitated in the face of disasters with, for example, firefighting equipment and smoke alarms and providing relevant risk assessments.

SDG 13 Climate action: The Green Book Initiative, an element of the P4RR, has a partnership with the Council for Scientific and Industrial Research to develop climate adaptation plans for municipalities across the country.

ESTIMATED MEASURABLE OUTCOMES OF THE PROJECT

Since the P4RR was launched in 2012, 95 municipalities have been empowered to proactively combat risks of fire, flooding and other disasters. To this end, Santam has invested more than R100m, reaching upwards of 13-million people.

Looking ahead, the focus is on ensuring that the organisation develops appropriate metrics and targets to measure impact in projects that are aligned with the SDG targets listed above.

The programme, meanwhile, is tracking the number of partnerships with municipalities, the number of people trained in firefighting and the number of people reached with disaster risk education.

To help gauge impact, Santam checks for improved decision making and efficiencies in how municipalities respond to disasters.

RISKS TO PROJECT OUTCOMES

Setting realistic and attainable targets in such projects and the wider business remains a challenge. Yet this represents a low risk as this challenge is one that Santam anticipates will be overcome once there is a well-developed climate response strategy which includes setting targets across its operations, underwriting and investments.

The need to collaborate with multiple stakeholders with different interests, familiarising them with the project and maintaining their buy-in, is a medium-risk factor.

TACKLING THE RISK PROTECTION GAP IN THE FACE OF CLIMATE CHANGE

Floods, fire and a lack of preparation is a deadly – and costly –combination, with the risk of extreme weather events rising in the face of climate change. In recognising such disaster risks across South Africa, Santam established its P4RR programme in 2012, aimed at building societal resilience in the form of proactive risk assessment and management.

The programme fits neatly into Santam’s overall environmental, social and governance (ESG) strategy – as noted in its 2023 Integrated Report, Santam’s strategic ESG pillars focus on what is important to its stakeholders and what is most material to its business. Geared towards contributing to a sustainable and transformed South African economy, these pillars include:

• Running a responsible business

• Helping to build resilient societies

• Nurturing talent and culture

These pillars feed into Santam’s sustainability approach, one that is rooted in resilience – a key value in today’s evolving insurance landscape. As such, Santam is dedicated to narrowing the risk protection gap (the difference between insured and uninsured losses) in the markets in which it operates. It does this through collaboration, proactive risk management and provision of inclusive risk management solutions.

The P4RR programme is a clear example of this. It directly addresses Santam’s second ESG pillar – helping to build resilient societies. The programme is run through collaboration and partnerships with all spheres of government, state-owned entities, research and academic institutions, community-based organisations and private sector agencies. They co-create initiatives to enhance the institutional capacity of vulnerable municipalities to identify and mitigate disaster risks.

This is also how Santam’s ESG offering goes beyond basic compliance to make a positive impact on the societies and environments in which it operates – indicating the additionality intrinsic to its ESG offering. In addition to Santam’s proactive

take on risk management, it also provides disaster relief to communities after catastrophes through its various CSI programmes.

IMPORTANCE OF INTEGRATING ESG INTO BUSINESS MODEL

As a socially responsible listed entity, Santam has always ensured that ESG integration is integral to its business model.

“The importance of ESG integration is undeniable in the context of where we find ourselves in South Africa,” says Thabiso Rulashe, Santam’s head of strategy and relations. “This is clear if one looks at the broad spectrum of ESG, beyond the environmental, the social and governance aspects, but also at the legislative framework and the transformation imperatives. Despite the fragmentation we see coming up, particularly in North America, our view is that ESG integration into business strategy will gain prominence going forward.”

Pointing to the drivers for the increasing relevance of ESG, specifically over the next five years, Rulashe says that Santam’s clients are starting to ask that the business be a lot more intentional about its focus and initiatives in the ESG space. What’s more, shareholders are asking about some of Santam’s own views and positions on the broader ESG landscape. Added to that are existing regulatory environmental demands.

“We’ve been asked a lot more to disclose and report about our progress on key various aspects of ESG,” says Rulashe. He’s confident this trend will gain traction, especially when looking at global trends. “In the UK, and largely in Europe and Australia, there are some mandatory ESG disclosures which we feel will come to the South African market as well.”

The work done by Santam’s Strategy and Investor Relations unit is also central to driving an ESG focus, says ESG and strategy analyst, Zimkita Nkata. “Part of our role in this unit is driving the social ethics and investment committees to flag some of these developments and trends. We play that mediatory role to ensure that ESG remains on top of the board agenda.”

CONTEXTUALISING CLIMATE CONCERNS

Over the years, Santam’s ESG strategy has naturally evolved, largely in line with the increasing centrality of environmental concerns, says Rulashe. “Recent shareholder activism as well as the regulatory environment has really put the spotlight on the E part of ESG. The advent of the Task Force on Climate-Related Financial Disclosures (TCFD), from an environmental perspective, has really been the key driver of how we as an organisation are focusing a lot more on these aspects.”

Addressing the introduction of the International Sustainability Standards Board’s (ISSB) inaugural sustainability standards, which aim to standardise reporting practices, Rulashe says these align fully with the TCFD approach. “We have been reporting TCFD for the last three years. The ISSB, however, mandates that from a financial reporting perspective, you now start to report and talk a lot more about how your business is financially impacted.”

Nkata says adopting the ISSB sustainability standards is a positive development that can help to improve ESG collaboration across the business. “We’ve conducted climate scenarios in the last year and the huge question is how this affects the business in terms of the quantification of the risks. So, that’s what the ISSB standards have been able to provide us with. We’re able to speak to financial risk managers to say, ’help us with quantifying climate-related risks’.”

Strategic decisions such as which sustainable development goals (SDGs) to prioritise are governed by their focus on materiality – a stakeholder priority, Rulashe says. This is grounded in the idea that “material matter has the potential to impact Santam’s performance materially and can create, protect and erode value for its stakeholders”.

“At Santam our ambition is to narrow the risk protection gap in markets and segments where we operate – a key cornerstone that drives our focus on ESG,” says Rulashe. “This is centred on investigating how to build resilient communities, while also playing a meaningful role as a good corporate citizen. In line with this, we’ve done our own internal mapping in terms of how the SDGs relate to our own ESG focus areas.”

While in that regard there are a number of SDGs that are accounted for, a large part of the work that Santam has been doing, particularly around P4RR, is essentially focused on the

resilience aspects of the SDGs. “At the core of insurance is to ensure that clients are not left worse off,” Nkata explains. “If you think about it, that’s the core in building resilience. “And so, what matters to stakeholders is important, but so too is what matters to the business at its core – to build the resilience of societies. And so that is what feeds into our ESG strategy –the building of this resilience.”

This revolves around educating people with awareness around the need for insurance and promoting good health and wellbeing for employees. Significantly, this is largely done through the P4RR programme, which empowers municipalities by facilitating proactive disaster risk management strategies in their areas.

FACILITATING DISASTER MANAGEMENT WITH P4RR

While Santam’s focus, particularly through the P4RR programme, is on climate and adaptation, its ESG strategies cover two other key areas: employee wellness and good corporate citizenship. Marrying good corporate citizenship and climate and adaptation, the P4RR programme aims to help build a resilient society in the face of climate change.

Feeding into the P4RR is the internal work Santam has done on geocoding, something directly linked to business outcomes. “Here, we seek to understand exactly where our clients are located through mapping their coordinates,” Rulashe explains. “That helps us to understand their proximity to firefighting stations or to flood-prone zones, and understanding whether the areas where they live are prone to such disasters – a key aspect linked to our understandings of the risks they face.”

This geocoding work has yielded significant savings for the Santam group. “Our claims incurred were at least R55m less than what they would have been if we had not implemented this proactive risk management tool to help us to better understand the risk on the ground.”

Aspects of the P4RR programme that speak to climate resilience and adaptation are born out of this work. For example, when fires broke out in St Francis Bay in 2012, most of the affected houses were insured by Santam. Yet the lack of firefighting capability in fire stations at the time, which resulted in greater damage, was only understood afterwards. Thus, the P4RR was born. At the time Santam also enlisted its black empowerment partner,

the Emthuzini Community Trust, which was at the centre of this initiative to build resilience in underresourced communities.

The P4RR was also formed in response to a call by the government for companies to support municipalities through the Baam (Business Adopt a Municipality) project, facilitating collaboration to uplift communities.

“One of the practical ways to build disaster management resilience was to identify municipalities especially with limited firefighting capabilities,” says Rulashe. “Here, we could work with municipalities, either providing them with communication tools or funding for training where required.” In addition to fire, the P4RR also focuses on floods.

“We now work with municipalities to understand the impact of floods in their areas. When the municipalities do mediumto long-term planning, they consider several aspects, from population growth to the long-term projections around climaterelated aspects,” Rulashe explains. “They also look at economic development and, within that context, municipalities ensure that in their planning, they consider how to build climate-resilient and adaptative infrastructure moving forward.”

Together with the CSIR, Santam’s P4RR programme has developed the Green Book initiative, a multidisciplinary, open-access planning support system which it leverages to drive climate adaptation planning. Providing individualised current and future climate risk and vulnerability assessments for each of South Africa’s 213 municipalities, the Green Book encourages them to adapt their cities and towns to these present and upcoming climate change impacts. Through the Green Book, those involved are working to develop implementation guidelines for such municipal climate adaptation plans.

MAKING THE CASE FOR CLIMATE-FOCUSED ESG

Climate-related catastrophes have affected the global insurance industry. In South Africa in recent years, the KwaZulu-Natal floods, the Knysna fires and Gauteng’s hail events are among the disasters that prompted the insurance sector to act. “The number of claims we’ve had to process has been unprecedented,” says Rulashe, “which is why we’ve had to drive disaster management initiatives.” Through the P4RR, Santam therefore works to increase municipal capacity to build resilience, especially in underprivileged and vulnerable communities. “Therefore, instead of municipalities

being reactive or responsive, they now can be proactive to risk management, especially in the area of disaster management.”

As part of its P4RR work, Santam ensures that fire stations are better resourced so that they can respond faster to emergencies. This proved invaluable in a 2022 intervention with the Mangaung Metro Fire Services in the Free State, where Santam provided firefighting foams and blowers to help the city combat wildfires in surrounding rural areas. A month later the metro’s fire services used the foam to successfully contain a major industrial fire, also protecting adjacent properties insured by Santam.

In some areas, the P4RR provides financial assistance especially in the case of drought. “For example, years ago in the Northern Cape when there was drought, through our agriculture business we contributed some disaster relief funding to farmers and communities to provide financial support,” says Rulashe. “In the informal segment, we have also installed fire or smoke detectors to provide advance notice to the community where there’s a fire so they can take appropriate action to save lives and property.

“We are also talking to a number of our peers who are willing to participate in the P4RR and contribute because this is a programme for South Africans, not necessarily for just Santam.”

AN INCREASING NEED FOR COLLABORATION

Speaking of whether Santam expects to increase its investment in its ESG capacity over the next five years, Rulashe says the company has, in fact, essentially reduced headcount in the space. However, this does not circumvent growth but rather means that required developments will need a collaborative effort, especially with key departments or functions within the business. This is particularly important considering the potential that Santam’s ESG work has still to realise.

As leaders in the short-term insurance industry, Santam’s ESG practices are often in the spotlight, says Rulashe. “Nevertheless, we’re not quite ahead of our peers in the ESG space,” he admits, “but we’re not too far behind either. We maintained our spot in the top 30 of the FTSE/JSE Responsible Investment Index in 2023. Whether one thinks from a risk management, compliance or legal perspective, one must look at ways to best manage the pressure that comes with an increased focus on ESG. How we work collaboratively internally, without necessarily overinvesting

in headcount but rather in terms of maximising other non-human resources, is an anticipated investment requirement.” For example, to collaborate with higher learning institutions, and to develop and research new areas – areas in which Santam can potentially excel – would require some investment.

Expanding on the need for collaboration, Rulashe points to the fact that ESG issues are complex by nature. “Therefore, you do require a collaborative effort. No single entity or individual could manage and deal with the massive issues that we face as organisations.” These include issues around regulation, understanding the impact of climate risk on organisations and embedding ESG into the supply chain.

“Our membership of the United Nations Environment Programme Finance Initiative (UNEP FI) Principles for Sustainable Insurance (PSI), in itself, is a good example of collaboration,” Rulashe says. “There we work with several other insurers globally, where we can learn from one other’s experiences and share our own diverse perspective as a South African company.” Sharing learnings on driving sustainable insurance therefore offers a beneficial form of collaboration. The P4RR itself is also driven by collaboration, he reiterates. “We work with municipalities and communities, as well as other partners who are keen to participate and work on driving collaborative efforts in reducing risk on the ground.”

Rulashe expects such collaborations to increase over the coming years. “The more complex the challenges we face, the more we need to collaborate,” he says. He and his team also anticipate increasing work done with institutions of higher learning because such groups spend more time researching and understanding what solutions need to be implemented in light of the challenges society faces. “We also think that collaboration will happen internally, within the Sanlam group of which we are a part, and across the broader industry.” Nkata agrees, stressing the need for Santam to leverage the expertise of the network of businesses in which it functions.

KEY LEARNINGS

Santam’s ESG journey thus far has highlighted the need for executive and board support as well as building a dedicated and resilient team that drives ESG initiatives, says Rulashe. “Not everyone will see things the way you do,” he cautions those working in the ESG space. “Yet, if you are resilient and are guided by purpose, and I daresay by science as well, that’s key in driving and embedding ESG. The team needs to draw on its internal resilience, by pushing and doing what it believes is the right thing for the organisation, for communities, clients and stakeholders.”

Speaking of executive board-level support, Nkata adds that the accountability that’s attached to this support is key. “You can have board-level oversight on paper but, to ensure accountability, the organisation needs to place certain ESG-related KPIs on management scorecards.”

CASE STUDY

SUN INTERNATIONAL SUSTAINING SUN FRAMEWORK ALIGNS OPERATIONS WITH GLOBAL STANDARDS

Sustainability integration is achieved through Sun International’s ESG framework –Sustaining Sun. Drawing on internationally recognised best practice, this framework provides a structured approach to the company’s operations, aligning with global standards and ensuring a balanced focus on ESG considerations.

BY JOHANN BARNARD

SUN INTERNATIONAL: PROJECTS AND PROCESSES

Sun International has recently made significant investments into two notable risk mitigation projects focused on bolstering the group’s energy and water security. The first is the R16m 1.6MW Sun City solar project that reduces its reliance on grid electricity and contributes to the group’s lower carbon emissions. The second is the R3.5m reverse osmosis plant it installed at its Boardwalk property in Gqeberha. This has reduced its reliance on municipal water supply, producing nearly 140,000 litres of clean water a day.

SDGS AFFECTED BY THE PROJECTS

These projects form part of Sun International’s ESG strategy, dubbed Enviro-Ambition 2025, which focuses on carbon emissions, water, electric energy, waste and biodiversity.

Both the solar and water treatment plants are aligned with:

SDG 6 – Clean water and sanitation

SDG 12 – Responsible consumption and production

SDG 13 – Climate change

ESTIMATED MEASURABLE OUTCOMES

The Sun City solar project will produce the equivalent of 2,300MWh of renewable energy, reducing the property’s carbon emissions by 2,510 metric tonnes.

Electricity supply is critical to the group’s operations, with load-shedding adding considerable costs due to mitigation strategies such as diesel-power generators. As a result, the group spent R98m in 2023 to keep the lights on during load-shedding –this is a 73% increase over its diesel costs the previous year.

The Boardwalk reverse osmosis plant has boosted water security at the property by supplying 140,000 litres of clean water per day for its operations. This plant uses water from an underground freshwater source, which was previously diverted into the ocean via a stormwater drain. Today, the water produced by the plant provides clean water for general consumption in the hotel and casino, for its air-conditioning towers and for irrigation of the property.

RISKS TO OUTCOMES FROM THE PROJECTS

In 2022, Sun International signed a R2.4bn sustainability linked loan that is to be used to meet key sustainability performance indicators (KPIs). Should these KPIs be missed, the group faces the risk of higher financing costs.

For instance, the group did not achieve the 2023 KPI of a 3% transition of total electricity to renewable energy or the kWh generated KPI. This was due to delays on projects awaiting approval, although the Sun City plant was responsible for transitioning 1% of electricity usage to renewables, which will increase once the plant’s output is calculated for a full financial year.

ACCELERATED JOURNEY TO EMBRACE ESG

The gaming and hospitality group has been on an accelerated journey over the past number of years that has seen it emerge as a champion of the spirit of sustainability and corporate citizenship.

As a significant player in the hospitality industry since the late 1960s, Sun International is acutely aware that it’s a “people business”. And with that comes enormous responsibility.

“We are a community-based business,” says Raveshni Naidoo, group ESG manager at Sun International, “and what ESG has done, especially globally for businesses, is set the scene and the framework in a more formalised way so we cannot only report but also analyse what we are doing. Whereas before, I think we didn’t have the tools to do that. [Sustainability] has always been in the business, but now there’s this formalised way that pushes it through to the surface. And with this proper understanding, with the research and analytics that have come through, we now understand the value of this on a different level, on a different scale. So that gives us more tools to work with.”

The emphasis on monitoring and analytics is central to the role that Naidoo and her team fulfil, because accurate metrics are needed not only to inform their ESG plans, but also for public reporting requirements.

A COMPREHENSIVE ESG STRATEGY

Sustaining Sun is the cornerstone of the group’s stated purpose of creating lasting memories for all key stakeholders while maintaining an operational and social licence to operate. This comprehensive framework is designed to integrate sustainability into every aspect of the business, ensuring long-term viability and enhancing customer experiences. Drawing on internationally recognised best practices, the Sustaining Sun framework aligns operations with global standards and provides a balanced focus on environmental, social and governance considerations.

At the heart of Sustaining Sun are the three ESG pillars, with each encompassing key focus areas identified through the benchmarking and assessment process.

Environmental pillar – initiatives within this pillar aim to:

• Position Sun International at the forefront of sustainable environmental management in the hospitality and gambling sectors

• Manage carbon emissions

• Transition to renewable energy

• Drive water efficiency

• Promote biodiversity conservation

Social pillar – initiatives aim to:

• Create shared value and support the communities where Sun International operates

• Implement socioeconomic development projects aligned with community needs, particularly in education

• Foster a culture of inclusivity and diversity

• Emphasise transformation through achieving employment equity and B-BBEE targets

• Focus on enterprise and supplier development

• Develop comprehensive talent management programmes

Governance pillar – initiatives aim to:

• Ensure robust risk management

• Promote ethical business conduct

• Maintain board diversity

• Support responsible gambling

• Integrate enterprise risk management across the business

• Dedicate to ethical transparency, customer welfare and long-term business sustainability

ENVIRONMENTAL INITIATIVES

The focus on reducing environmental harm is key to Sun International’s position in the hospitality sector. Many of its resorts are in remote and unspoiled locations, for which it bears a great deal of responsibility to minimise the impact on its natural surroundings.

Recognising the role it has to play, the group has identified several focus areas, including waste management, energy efficiency, water conservation, biodiversity protection and carbon emissions reduction. Renewable energy is an obvious intervention since the loosening of restrictions around self-generation, and Sun International has made significant investments over the past few years to produce or procure renewable energy. Notably, the group’s board has approved a R150m renewable energy strategy and alternate energy plan, which includes the 1.6MW renewable energy plant at the Sun Central Centre at Sun City, and a 1MW battery storage system at The Maslow in Johannesburg. The group reports that, thus far, it has reduced its total energy consumption by 5% and this is excluding the impact of solar PV systems plants planned for Carnival City and Sibaya.

The Sun City plant will produce the equivalent of 2,367,571kWh a year, with output on sunny days reducing demand from the Eskom grid by an estimated 14%. This lower load on the grid contributes to the security of the network and improves Eskom’s ability to minimise power cuts to surrounding communities.

“We started looking at renewable projects in about 2018 in terms of making the business case for renewable energy. But it’s been over the past two years that we’ve actively invested in renewable projects,” Naidoo says.

Water conservation is another critical focus area. Recognising the importance of this scarce resource, the group has implemented various water-saving technologies and practices at its properties. These include low-flow fixtures, rainwater harvesting systems and wastewater recycling processes, ensuring a sustainable water supply for its operations.

A notable water security intervention at its Boardwalk Casino and Entertainment World in Gqeberha was the installation of a reverse osmosis plant. Naidoo says this project came about when drought conditions in the city necessitated better use of resources. As luck would have it, the property has an

underground water source in its basement that had been diverted into the ocean via a stormwater drain. “We went on the path of testing the quality of the water, the amount that was there and started building up the technical feasibility for the project. I think one of the key drivers there was that they’re in a municipality where there’s going to be issues from a water supply and a quality perspective. And, being in hospitality, we need to ensure that we can give our customers a certain level of experience when they come to our property. One of the driving factors is how we ensure that we have a consistent quality and supply of water for that specific property.”

This plant has been in operation since 2023, supplying clean water for consumption in the hotel and casino, cooling towers and irrigation. In addition to improving the Boardwalk’s water security, reducing the load on the drought-hit local infrastructure helps the municipality meet its daily water demand.

SOCIAL RESPONSIBILITY

Recognising the people-focused nature of its business, Sun International’s social initiatives touch not only employees but also local communities, guests and other stakeholders. Not surprisingly, it prioritises employing from within local communities while also procuring goods and services from local suppliers. For instance, the group has partnered with local educational institutions to provide training and development programmes, equipping community members with the skills to prepare them for jobs in the hospitality industry. Employee wellness receives the same level of attention through comprehensive wellness programmes, continuous learning and development opportunities and talent management practices.

Naidoo says one way that industry can help improve the employment prospects of the country’s youngsters is to ensure their skills are aligned with what businesses need. “That’s the key thing. I think we cannot develop a workforce for the future without looking at what it is that we’re going to need and ensuring the curriculums are aligned with what those skills need to be. I think that’s the other thing that comes into play from a social perspective: you’ve got to create the right workforce with the right mindset as well,” she says.

MOVING FORWARD

Sun International’s ESG journey is far from over, with Naidoo eyeing ongoing improvements in line with their Sustaining Sun programme. This work will encompass internal improvements through training and education, optimising ESG data management and establishing a robust sustainable supply chain framework. Given the scope of its operations, this is a task that will require continuous attention and adaptation to new priorities and circumstances. Success will ultimately depend on the commitment of the business leaders to living the ESG values that have been adopted.

The move in recent years to link performance bonuses to achieving ESG targets, Naidoo says, is a positive step in the right direction. “We’ve seen the shift in thinking, the buy-in from the executives and the general managers because now it’s affecting their performance bonus. A few years back it was something that wasn’t on the cards for a lot of companies; however, now it is becoming something that’s being driven in lots of organisations. It’s something that’s probably going to become a norm going forward for most companies and has pushed us as an organisation to critically look at the targets that we’ve set, how ambitious our targets are and how we are going to actually achieve those targets that we set ourselves.”

CASE STUDY SAFARICOM ADDRESSING ESG CHALLENGES THROUGH DIGITAL TRANSFORMATION

ESG principles have been integral to Safaricom’s business since its early stages. In 2006, it joined the UN Global Compact and committed to its Ten Principles which recommend operating in ways that, at a minimum, meet fundamental responsibilities in the areas of human rights, labour, the environment and anti-corruption. Climate action, particularly ensuring affordable renewable energy and mitigating emissions, remains a priority on the company’s ESG agenda.

BY AURELIA MBOKAZI-KASHE

SAFARICOM PLC: PROJECTS AND PROCESSES

CASE STUDY

Safaricom PLC, the largest mobile telecoms operator in Kenya, aims to become a purpose-led technology company by 2025. Its environmental focus includes converting 90% of its sites to solar energy, planting five-million trees as part of its carbon offset programme and cutting back on using diesel as backup energy. It plans to achieve net-zero emissions by 2050.

Already more than 1,400 of its 6,600 sites have been converted to solar power and 1.3-million trees have been planted in 1,300 hectares of degraded forests, affecting 2,000 livelihoods. The target is to plant five-million trees by 2025.

SDGS TARGETED

SDG 3 Good health: Leveraging technology to deliver healthcare solutions to more than 100,000 Kenyans through 60 healthcare providers and to connect health centres.

SDG 4 Quality education: Partnering with the government and various organisations on initiatives to modernise infrastructure, digitalise primary schools and make education accessible on mobile platforms.

SDG 7 Affordable and clean energy: Safaricom is transitioning to clean energy by leveraging technology to provide clean energy solutions across its sites, including payment options for local renewable energy. The company is committed to planting five-million trees and becoming net-zero by 2050.

SDG 8 Decent work and economic growth: The company provides jobs to more than 6,000 people including Safaricom Ethiopia staff (more than 900), of which 81% are local talent, achieving a 51% male and 49% female gender split.

SDG 9 Innovation and infrastructure: It aims to facilitate increased accessibility and data connectivity by making affordable smartphones available to everyone in the market.

SDG 10 Reduced inequalities: The company promotes financial inclusion across all sectors while also advancing digital and gender inclusion. Its focus is on reducing inequalities by providing equal access to opportunities, especially for vulnerable groups, using its leadership, network, solutions and technology.

SDG 12 Responsible consumption and production: The company increased the number of its regional retail outlets with segregated waste management bins from 18 to 72 facilities and 51 retail shops.

SDG 16 Peace, justice and strong institutions: Safaricom helps to build effective, accountable and inclusive institutions at all levels.

SDG 17 Partnerships for the goals: It will partner with licensed mini-grid providers in remote regions or grid-power-deficient areas where Safaricom is the anchor tenant.

ESTIMATED MEASURABLE OUTCOMES

It aims to be net-zero by 2050, with validation from the ScienceBased Targets initiative (SBTi). It also plans to achieve a 98% recycling rate on solid waste and eliminate single-use plastics.

Additionally, Safaricom aims to have 80% of its suppliers signed up to the Code of Ethics for Businesses in Kenya and comply with ESG regulations to improve data collection. It also plans to increase its procurement spend with local marginalised groups to healthy double digits.

RISKS TO OUTCOMES

Security: The majority of Safaricom’s sites are in remote areas and could be targeted by opportunists during periods of unrest, resulting in major setbacks. Threats to cybersecurity could leave the company vulnerable and lead to significant reputational damage.

Supply chain disruptions: Potential disruptions in the supply chain, whether due to global economic conditions or local factors, could affect the ability to meet solarisation targets.

Climate change impacts: Ongoing drought and other climaterelated factors could affect the success of environmental and sustainability initiatives, potentially reversing the impact the company hoped to be achieved through partnerships with the government.

Economic volatility: High interest rates and tightening monetary policies may affect consumer spending and demand for Safaricom’s products, leading to budget cuts that could hamper its ESG projects. Increased excise duty rates on telephone and internet data services could reduce customer spending, resulting in less revenue.

Regulatory changes: Changes in regulations related to mobile services, procurement and labour could affect Safaricom’s status as an operator of choice and harm its operational efficiency, costs and position.

ESG INTEGRATED INTO BUSINESS PRINCIPLES SINCE ITS EARLY STAGES

Pioneer of mobile money service M-PESA, which is now available in eight African markets, Safaricom celebrates its 24th anniversary with a flourish, having surpassed $1bn in revenue this year for the first time.

Number 24 is a magic number for Kenya’s Safaricom. In May 2024, it announced a milestone of surpassing the $1bn threshold in revenue and becoming the first company in the region to achieve this. Listed on the Nairobi Stock Exchange (NSE), the mobile company’s CEO Peter Ndegwa announced at the F23 results presentation that Safaricom recorded KShs139.9bn ($1.08bn) in its earnings before interest and tax.

This was achieved in the year in which Safaricom turned 24, having been established in 2000. Ndegwa said then that Safaricom’s vision as a purpose-led technology company drives its investments in new technologies, enhancing efficiency and improving customer engagement.

A month following the results presentation, violent protests erupted in Nairobi over proposed tax increases, among other things, in the Finance Bill 2024, resulting in at least 39 deaths. Safaricom had publicly opposed the bill well before the protests, arguing that it would harm the economy and increase living costs.

BACKGROUND

Safaricom is one of Kenya’s largest employers with more than 6,000 employees. It enjoys a 65.7% market share with more than two million customers using Safaricom’s brands daily, from mobile money service M-PESA to data and mobile products.

The company pioneered M-PESA in 2007 to promote financial inclusion for those without access to bank accounts. M-PESA’s innovation has influenced mobile financial services worldwide and is now available across eight markets in Africa.

Safaricom’s focus is to expand internet access by upgrading 40% of its customer base from 2G to 4G. This includes making smartphones easily accessible and educating older, rural customers on the benefits of using the internet and bringing them into the digital age. The telecoms company was the first in Kenya to launch 5G internet in 2023.

VISIONARY LEADERSHIP

Safaricom’s success has been driven by leaders who brought stability and innovation to the company. Since its inception, three CEOs have guided the organisation, each one credited for their strategic impact and innovation.

Ndegwa became Safaricom’s first Kenyan CEO in April 2020 when he joined the group amid the global uncertainty of the Covid-19 lockdowns. He succeeded Michael Joseph, who had returned as interim CEO after the passing of Bob Collymore in July 2019. Joseph, Safaricom’s founding CEO, is recognised for growing the subscriber base from less than 18,000 to more than 17-million and pioneering M-PESA. He retired in 2010. Collymore quickly gained popularity and led Safaricom to a decade of groundbreaking success, making it Kenya’s first Ksh1-trillion company by stock exchange valuation. He also transformed M-PESA from a payment platform into Kenya’s economic backbone.

ESG JOURNEY

Environmental, social and governance (ESG) principles have been integral to Safaricom’s business since its early stages. In 2006, the organisation joined the UN Global Compact and committed to its Ten Principles. Climate action, particularly ensuring affordable renewable energy and mitigating emissions, has been a top priority on Safaricom’s ESG agenda.

“We are committed to integrating ESG into our business strategy,” says Safaricom’s sustainability manager, Agnes Kariuki. “Sustainable investing is essential for ensuring the long-term sustainability of our company. We are guided by key frameworks such as the SDG framework and UN guiding principles as we continue to prioritise and invest in ESG across our business.”

Company milestones include developing a Sustainability Bureau and publishing its first ESG report in 2012. The company follows various environmental regulations, including those within the ESG regulatory space in Kenya and guidelines set by the NSE for listed companies. Safaricom also secured a sustainability-linked loan of KSh15bn in 2023, the largest in East Africa. “We view ESG from the perspective of both opportunities and risks, and consider environmental, social and governance factors to mitigate risks and enhance resilience. We also monitor how the ESG agenda is evolving locally, regionally and globally,” says Kariuki.

The company brought in KPMG to audit its annual sustainability efforts using scientific metrics such as ISO 14001 environmental and ISO 50001 energy management systems. Safaricom’s comprehensive strategy includes short-term goals like scaling tech solutions to become a purpose-led technology company and planting five-million trees by 2025. Its long-term goal is to be a net-zero company by 2050.

In 2016, Safaricom formally adopted nine of the 17 SDGs into its business strategy and began reporting its SDG impact in 2017. It also integrated sustainability into its strategy to align and advance both sustainability goals and business objectives. It set targets, guided by the SDG framework, to track and report its progress.

“Sustainability is an ongoing journey and not a destination. It’s a dynamic field that requires continuous effort and adaptation,” Kariuki says. “Setting clear targets and regularly measuring and reporting annually helps us track our progress and determine if we are moving closer to our goals. For example, our goal is to achieve net-zero emissions by 2050.” She says the company sets specific milestones every five years as a guide towards reaching this target. “Each year, we review our progress against targets and adjust our reporting to ensure alignment. Similarly, for our project to grow five-million trees, we have developed a platform to track and measure our progress, allowing us to monitor how far we are from reaching our goal.”

Support from all stakeholders has been crucial to Safaricom’s successful collaborative approach to ESG initiatives.

“The importance of gaining leadership buy-in for sustainability, which allows us to advance our strategic direction and ESG targets effectively, has been one of our biggest lessons. At the board level, we have an ESG board that ensures accountability and alignment with our business’s strategic direction regarding ESG initiatives. Our top leadership includes sustainability champions who advocate for sustainability within their divisions and departments. We have also fostered a culture of inclusivity, involving everyone in our journey towards sustainable development. Additionally, we have a dedicated sustainability team that oversees our overall sustainability initiatives,” says Kariuki, adding that employee buy-in is crucial since it is the staff who implement the ESG agenda.

Safaricom also conducts materiality assessments with stakeholders including customers, investors, regulators, media and local communities to prioritise ESG issues. It also assesses local, regional and global ESG trends. Since integrating sustainability, the company has conducted these assessments three times and they lead to careful infrastructure planning, including measures to mitigate climate-related events such as floods. Safaricom evaluates access routes to base stations and data centres to ensure they remain operational during floods, aiming to maintain continuity and minimise downtime.

Its efforts have paid off, as the telecom giant has been recognised as a leader in ESG, receiving accolades such as the Global Compact LEAD Award and ranking among Africa’s top 50 companies in sustainability. “In Africa, we play a pivotal role in sustainability, particularly in carbon disclosure and integrating sustainability and environmental practices across our business,” says Kariuki. “Our CEO co-chairs the African Business Leaders Coalition, a body focusing on key ESG issues across our continent. The coalition aims to address societal challenges while enhancing business effectiveness in Africa.”

Safaricom is setting an example with solar power installed at 1,500 out of its 6,000 sites. Its goal is to convert 90% of these sites to solar power by 2030, prioritising a reduction in diesel usage. The company achieved a 98% recycling rate on solid waste from facilities and 100% elimination of single-use plastics.

GENDER, TRANSFORMATION AND DIVERSITY

While gender parity in technology fields progresses slowly, Safaricom has made notable efforts to achieve equality throughout its business. A decade ago, having established that women often faced barriers in advancing to leadership roles and recognising the societal benefits of diversity, the company implemented initiatives to promote gender diversity and inclusion. It set a bold 50/50 gender target across the organisation as part of its ESG goals. Progress towards this target is tracked and reported annually in its sustainability report.

One of the initiatives is Safaricom’s Women in Technology Programme, which involves female staff members who inspire girls and women to pursue technology, science, and engineering

courses. Activities include introducing high school girls to technology, visiting universities to empower female engineers and tech students, and providing information about opportunities at Safaricom.

The company’s efforts seem to be paying off. Safaricom reflects good progress in gender diversity with a board split of 55% male and 45% female, and women make up 41.8% of leadership. Staff overall consists of 51% male and 49% female, with disabled people making up 3.4% of the workforce. Efforts include promoting women-owned businesses in the supply chain to enhance gender diversity.

Safaricom’s innovative HR policies and practices have been recognised – "it received the Top Employer for 2024 in Kenya and Africa from the Top Employers Institute for the third consecutive year.

EVOLUTION OF M-PESA

In 17 years, M-PESA has become integral to Kenyan life, helping to bank the unbanked. More than 60-million customers use M-PESA monthly, with daily transactions totalling $1bn. It has expanded its services to appeal to various sectors of society. Besides payments and money transfers, it now offers wealth management services such as a money market fund that enables customers to save and invest.

M-PESA Go promotes financial literacy for children under 18. Entrepreneurs can access overdrafts and loans, including the government’s Hustler Fund, which provides microloans of up to $400 for the informal economy, ensuring cash flow for small and medium enterprises.

Among the diverse uses of the platform, customers can also transfer funds from their M-PESA accounts to a cash account to earn interest or invest in stocks on the NSE.

SOCIAL PARTNERSHIPS

With a population of 51.5-million, as documented by Kenya’s National Bureau of Statistics in mid-2023, the country is ranked 18th in Africa and 146th globally in the Human Development Index. The IMF places Kenya’s GDP as the seventh-largest in Africa. However, recent riots against the Finance Bill 2024 highlight deep inequalities. Corporate leaders often assist the government with development efforts and, as the region’s largest company, Safaricom is expected to contribute significantly to the development of ordinary Kenyans. It has embraced this responsibility, using the co-funding model of its two foundations –

the Safaricom Foundation and the M-PESA Foundation – to make significant changes to people’s lives. In FY24, 3.5-million people have been assisted by the efforts of these foundations.

Safaricom’s social development efforts are strategically chosen to align with ESG principles and business goals. Leveraging its mobile technology, Safaricom collaborates with like-minded foundations to amplify social impact in health, education and economic empowerment. “We believe that when society is not thriving, we cannot thrive. Collaboration is essential at Safaricom and, through collaborations, we can collectively address the challenges facing our community,” says Kariuki. “Our organisational culture revolves around four core pillars: innovation, customer obsession, collaboration and purpose. We tackle global and societal challenges through collaboration, employing various effective models.” To streamline its efforts and measure impact, she says Safaricom partners with organisations that have expertise in their respective fields nationwide.

In 2014, it integrated child rights into its business and began limited external assurance of its sustainability data. The company collaborated with global leaders like UNICEF to advocate for children’s rights, using its mobile AI technologies to enhance these efforts. One life-changing initiative is the schools’ infrastructure modernisation programme. This partnership renovates dilapidated schools in impoverished regions, ensuring teaching and learning are conducted with modern technologies, so pupils are not left behind. In 2023, one of the beneficiaries was Ngaindeithia Primary School in Nyandarwa County, a modest school once attended by a young Peter Ndegwa.

“So much has changed. The guidance in this school was fantastic and that’s why I’ve always been rooted. I’m delighted that the Safaricom Foundation has partnered with the school to refurbish outdated classrooms. We’ve done washroom and ablution blocks which is very important. I remember the teachers telling us regardless of who you are always be yourself, always know where you come from,” a proud Ndegwa said during the handover of the newly refurbished school.

According to EastAfrican.co.ke, many Kenyans still lack internet access despite efforts to make it cheaper and faster. Kenya is a leading destination for development finance and venture capital investments in connectivity. Safaricom has extensively invested in democratising access to online education. Through its partnership with Eneza Education, Longhorn Publishers and Viusasa, the Shupavu 291 platform provides primary and secondary students with revision materials to improve their academic performance.

ENVIRONMENTAL PARTNERSHIPS

Safaricom’s environmental initiatives are among its largest undertakings. It is collaborating with the Kenya Forest Service and Community Forest Associations to plant five-million trees in degraded public forests. To date, it has planted 1.5-million trees.

To monitor the progress of the five-million trees initiative, Safaricom has developed an in-house platform that includes a web portal and an application. Consultants use this app in the field to assist with planting information, monitoring tree growth and recording data on tree species, health and any losses. The application also tracks vendor information related to tree losses, enabling consultants to quickly address issues as they arise. After recording data on planted and lost trees using the app, Safaricom’s sustainability team can access the information via its web portal.

Safaricom’s social impact initiatives in decarbonising society include programmes like the school regreening initiative and M-Gas. M-Gas offers a pay-as-you-go option for clean energy, replacing kerosene with affordable gas options. This helps communities access cleaner energy, reduces carbon emissions, improves air quality, promotes sustainable energy use and enhances community wellbeing.

The company partners with the Waste Electrical and Electronic Equipment Centre to manage and recycle Safaricom’s e-waste, including network waste and electronic devices. At the community level, Safaricom partners with Mr Green, a local organisation, to encourage the recycling of plastic waste. Community members can earn points redeemable through M-PESA for their efforts.

Along with Vodafone and the World Wide Fund for Nature, Safaricom has also launched an innovative wildlife initiative using solar-powered AI technology to address human-wildlife conflicts in urban areas. The prototype was successfully piloted in March 2024 and the AI algorithm for global scaling is being finalised.

COLLABORATIONS WITH GOVERNMENT

Safaricom has partnered with government institutions on climate change and environmental initiatives and its CEO chairs a private sector-led committee to support government efforts against drought and develop better adaptation solutions.

Since 2021, Safaricom has been developing a virtual carbon trading tool on a digital platform to help farmers digitalise their projects and streamline carbon credit trading. This tool, ready for the market this year, will digitalise the entire carbon trading process, from issuing to buying credits, validation and verification. It aligns with Safaricom’s strategic goal of supporting society in decarbonising through products, practices and partnerships.

Additionally, the company highlights its successful collaborations with national regulators through the Universal Service Fund. Safaricom bids for tenders to connect remote areas, enhancing economic and social growth by providing connectivity to these regions.

RISKS AND CHALLENGES

Safaricom identifies the quality and quantity of data from its suppliers as a major risk to achieving its ESG goals as it affects the company’s ability to tailor initiatives and solutions effectively. Safaricom uses the GRI framework for reporting and also conducts a four-year comparison of its specific ESG targets across the business. Kariuki says the current focus is on enhancing capacity building and training for suppliers to improve their collection and reporting of environmental data, including climate change, water management, waste management and other environmental metrics.

Cybersecurity threats and external cyberattacks on suppliers could disrupt operations or result in the loss of confidential data. To mitigate this, Safaricom prioritises cybersecurity as a critical risk and it has implemented a privacy law with significant penalties for data breaches. It ensures all business partners comply with its code of conduct and guiding principles. However, the company occasionally encounters non-compliant partners and conducts audits to enforce adherence to its code.

To mitigate these issues, Safaricom has invested in capacity building and training initiatives. It partnered with the UN Global Compact on the Sustainable Supply Impact Programme to train its supply chain on integrating sustainability into their businesses. “We emphasise that what gets measured gets managed. Currently, we are enhancing our efforts by setting up more forums to engage with our suppliers, external partners, dealers and other key partners. Capacity building and training are key strategies we employ to mitigate risks in this area. We maintain an enterprise risk management framework and are ISO 31000 certified, which ensures we consistently identify, manage, assure and report on strategic operational risks,” Kariuki says.

SANLAM FOCUS

BY DR. PATRICK TUMBO GROUP CEO, SANLAM KENYA

SANLAM KENYA PLC WINS

ESG AWARD

Sanlam Kenya Plc was recently honoured with the inaugural Kenya ESG Award 2023-2024 in the category of Transparency and Accountability, organised by KENCTAD. This prestigious accolade recognises our unwavering commitment to integrating Sustainability (ESG) considerations into our business practices and decisions, as well as our dedication to transparent and accountable governance.

I am incredibly proud of this achievement. At Sanlam Kenya Plc, which encompasses our subsidiaries Sanlam Life Insurance Limited Kenya and Sanlam General Insurance Limited, we are dedicated to integrating sustainability considerations into the core of our operations and strategic decision-making. Sustained board oversight is a pivotal part of our deliberate commitment to our ESG strategy as part of our purpose-led approach.

We aspire to set a benchmark for excellence, within our industry and across the continent. As part of this, we have annual integrated reports on our sustainability progress and agenda. Frequent reporting creates positive feedback loops, identifying the step-changes needed to catalyse impact at scale.

The award underscores the confidence that stakeholders have in our approach to ESG. Our approach to transparency and accountability has been significantly enhanced through our ESG stakeholder engagement process, which provides invaluable insights that shape our sustainability journey.

This is a win for all of us as we continue to work towards a common purpose; to foster a more sustainable and confident future for our communities as we work together to protect our planet for generations to come.

We are extremely proud and happy that Kenya has been included in the 2024 Sanlam ESG Barometer. This allows us to share our learnings and grow through actionable insights into how our two countries are faring. We hope the inclusion fosters closer ties between South Africa and Kenya, to pave the way for enhanced knowledge sharing and collaboration, which will undoubtedly lead to even greater advancements in our continent-wide ESG initiatives.

Our commitment to ESG principles demonstrates that responsible business practices and profitability can go hand in hand. This award is a significant milestone in our sustainability journey, reinforcing our dedication to creating a positive impact on the environment and society, while maintaining strong financial performance.

Investing in people and the environment is essential for Africans' financial empowerment and confidence. We have a demographic dividend that distinguishes us; our young people are our most valuable asset. We must invest in sustainability to safeguard their future.

CASE STUDY THE FOSCHINI GROUP

BRINGING PRODUCTION BACK TO SOUTH AFRICA

The Foschini Group is a South African JSE-listed company with a diversified portfolio of retail assets across various product categories and consumer segments. The group has a portfolio of 34 retail brands, with more than 4,600 outlets in 26 countries on five continents, offering various products including fashion apparel, jewellery, cosmetics, sporting apparel, electronics, homeware and furniture.

In recent years, the company has challenged the idea that South Africa’s clothing industry cannot compete with China’s vast and highly specialised manufacturing sector by deciding to do just that: increasing its production of locally manufactured apparel.

BY CECILIA SCHULTZ

THE FOSCHINI GROUP: PROJECTS AND PROCESSES

BRIEF DESCRIPTION OF CASE STUDY

South Africa’s clothing manufacturing sector has slumped over the past few decades due to several factors but mainly because of cheap imports from China. This exacerbates the country’s weak economic growth and high unemployment rates, especially in a labour-intensive industry such as clothing. TFG has made the bold decision to do the inverse of “offshoring” which dominates the industry by localising production. To compete with China, TFG has adopted a Quick Response model, reducing the time from concept design to order production from months to days. This effort is supported by significant investments in worker training, local manufacturing capabilities and changes in material use to minimise water, chemical and energy consumption.

TARGETED SDGS

SDG 8 - Decent work and economic growth: TFG’s expansion and the growth of both manufacturing capacity, as well as its extensive store footprint, support direct job creation. In addition, the provision of learnerships, apprenticeships and internships supports further employment opportunities.

SDG 9 - Industry, innovation and infrastructure: The group is increasing the proportion and volumes of locally manufactured products through direct investment in factories and equipment. TFG’s responsible provision of credit often represents the first line of credit for consumers to access formal financial services.

SDG12 - Responsible consumption and production: Through TFG’s product stewardship working groups and commitments to specific sustainable sourcing targets for commodities, it is working towards more sustainable use of resources. The group has established waste programmes for manufacturing and business waste and aims to send zero waste to landfill. All territories are on track to meet their FY2026 sustainable cotton sourcing goals.

ESTIMATED MEASURABLE ESG OUTCOMES

Jobs created: The plan to double local garment production and establish new manufacturing units is projected to increase employment from within its owned facilities and strategic, non-owned partners from 5,200 in 2021 to 11,200 by March 2025.1 In 2023, TFG Africa provided more than 8,000 jobs and workplace opportunities.

Increase in locally manufactured garments: Local production of garments is expected to double by 2026, increasing from 15.4-million garments in 2021. In 2023, 49% of TFG Africa’s apparel was sourced from South Africa with 72% of all apparel sourced from the SADC region.

Waste reduction: Working towards sending zero waste to landfill and the implementation of waste programmes for manufacturing and business waste, TFG aims for significant waste reduction, contributing to SDG 12.

Support for local capacity: TFG’s collaboration with small manufacturers and integration of lean manufacturing techniques has enhanced local capacity, contributing to SDG 9 (industry, innovation and infrastructure). In 2023, TFG Africa invested R360m in manufacturing capacity and R405m in distribution centre expansion, contributing to South Africa’s industrial infrastructure and assets.

RISKS TO OUTCOMES

Supply chain disruptions: Potential disruptions in the supply chain, either due to global economic conditions or local factors, could affect the ability to meet production targets.

Economic volatility: Fluctuations in the local and global economy may affect consumer spending and, consequently, the demand for TFG’s products.

Regulatory changes: Changes in regulations related to labour, manufacturing and trade could affect operational efficiency and costs.

Skill gaps: The need for skilled labour to meet increased production demands may pose a challenge. Continuous training and development programmes are essential to mitigate this risk.

THE INVERSE OF OFFSHORING

TFG has made the bold decision to do the inverse of “offshoring” which dominates the clothing industry by localising production. To compete with international imports, TFG has adopted a Quick Response model, reducing the time from concept design to order production from months to days.

SOUTH AFRICA’S CLOTHING INDUSTRY: A BRIEF HISTORY

For much of the 20th century, South Africa’s clothing industry was a significant source of employment, especially for women, and made substantial contributions to the country’s total manufacturing output. Until the mid-1990s, the industry benefited from protectionist policies via import quotas and high tariffs aimed at promoting import substitution industrialisation, which shields local firms from international competition. With the transition to democracy in 1994, trade liberalisation policies reduced tariffs, eliminated import quotas and moved towards a uniform tariff structure. By 2001, tariffs on textiles were reduced to 28% and garments to 40%, significantly lower than the previous rates of over 100%.2

In March 2001, the US Africa Growth and Opportunity Act granted South African manufacturers duty and quota-free access to the US market. Coupled with the rapid depreciation of the rand from a yearly average of R6.94 to the US dollar in 2000 to R11.61 in January 2002, there was a surge in export orders to US retailers. Apparel exports rose from R471m in 1995 to R2.59bn in 2002.3

However, local apparel manufacturers soon faced capacity constraints, struggled to meet both export and domestic demand and began reneging on domestic orders, prompting South African retailers to source from China. By November 2004, the rand had strengthened to R5.73/dollar, making imports more accessible and undermining the competitiveness of local manufacturers. The rand’s appreciation alongside other factors led to a collapse in apparel exports by 2006. Exports to the US plummeted from $231.8m in 2003 to $6m in 2012.4 As local manufacturers attempted to return to supplying South African retailers, they found that the domestic market had radically restructured.

Between 2003 and 2009, approximately 69,000 jobs were lost in the sector due to a combination of factors: the appreciating exchange rate and an economic boom, combined with an influx of Chinese imports (which grew from 16.5% of total imports in

1995 to 74% in 2005 while overall apparel imports rose from $192m in 2000 to $1.5bn in 2011).5 These job losses affected approximately 345,000 people indirectly, as at least five people are dependent on each breadwinner in the industry.6

LOCAL PRODUCTION AGAINST THE ODDS

The government’s response to the decimation of the clothing industry included tariff increases, funding to modernise production and the implementation of the Retail, Clothing, Textiles, Footwear and Leather (R-CTFL) masterplan in 2019. This plan aims to encourage structural changes in the clothing value chain, grow the domestic market, increase purchases from local suppliers and enhance the sector’s competitiveness. This further supported TFG’s decision to localise manufacturing and, as a signatory to the R-CTFL masterplan, the company expanded its in-house production capacity, which started in 2012 with the acquisition of the Prestige Clothing Factory in Epping, Cape Town.

Central to TFG’s localisation strategy is the adoption of a Quick Response model, which enables it to compete in terms of speed with Chinese manufacturers. This model cuts the time from concept design to order production from months to a matter of weeks. Since then, TFG has gradually increased its local production while shortening its production time, first from 56 days to 28 and then from 28 to 14.7

The Quick Response model requires investment in stock control systems and in some cases, such as Coricraft, only producing as requested. Stock control systems utilise real-time data to determine what is selling and what is not, enabling adjustments to production accordingly. These systems require technologies that monitor inventory levels in real time, such as radio frequency identification (RFID) technologies. RFID technology involves using radio frequency identification to keep track of inventory in real time. RFID tags are attached to items, enabling the company to monitor the location and status of products throughout the supply chain. TFG leverages this data to swiftly process orders as it has insight into what items are available and where they are available. This reduces the waiting time for customers, risks of overstocking or stockouts and minimises waste. Additionally, this real-time inventory insight allows for optimal routing of items, thereby minimising transportation costs and environmental impact by choosing the most efficient paths from warehouses to outlets or directly to customers.8

SCALING LOCALISATION

Adjusting production on a short lead time can be achieved only through localisation. The acquisition of Prestige enabled TFG to cater to changing fashion and consumer tastes within a very short timeframe. Initially operating from two factories in Caledon and Maitland, Prestige set up a factory in Epping by incorporating the House of Monatic and the manufacturing assets of TCI Apparel (formerly part of the Seardel Group). Prestige also acquired TCI Mobeni in KwaZulu-Natal and opened a smaller facility in Johannesburg that employs only deaf youth. Today, TFG’s Prestige factories employ more than 4,000 people, while the group’s Quick Response supply chain supports six independent strategic factories employing another 2,000 people. Together, Prestige Clothing and TFG’s non-owned strategic partners and auxiliary support businesses are expected to employ more than 9,000 people by 2026.

Additionally, the company partners with small manufacturers, assisting them to integrate into TFG’s supply chain to strengthen local capacity. This includes deploying assets to non-owned suppliers to support their growth, development and introduction to lean manufacturing. In 2023, local manufacturing created 658 jobs through non-owned cut, make and trim (CMT) factories.

The COVID-19 pandemic further catalysed TFG’s localisation efforts, prompting the company’s management to authorise significant expansion of its manufacturing capabilities. During this period of decline in South Africa’s clothing manufacturing industry, TFG acquired the ex-Seardel companies Monviso, Bibette and Bonwit in April 2021 to form Prestige (Epping), which now produces TFG’s formalwear. Additionally, 200 employees from the House of Monatic were integrated into this unit, preserving their valuable skills and preventing job losses. That same year, TFG launched Prestige (Durban) after acquiring TCI Mobeni from the SA Clothing and Textile Workers’ Union, establishing it as the hub for intimate wear and active sportswear.

Alongside existing hubs in Caledon and Maitland, TFG also set up a unique facility in Hillbrow, Johannesburg, in collaboration with St Vincent School for the Deaf and the Fibre Processing and Manufacturing Seta, employing 125 deaf workers to make T-shirts for Exact. These factories are strategically placed in high-unemployment and rural areas, with some located near safe houses for domestic abuse and violence victims, showcasing TFG’s commitment to social impact and community development.

SKILLS AND SOCIAL INITIATIVES TO SUPPORT LOCALISATION

As TFG advances its automation and digitalisation efforts, the need for highly skilled machinists remains crucial, with a particular emphasis on digital skills to handle automated machinery and connectivity. This requires the recruitment of tech-savvy young employees who can adapt to new technologies. To meet these evolving needs, TFG has implemented extensive upskilling programmes, especially for workers operating new machines. By identifying employees with soft skills such as problem-solving and ethics, TFG has transitioned many workers, including ironers, to operate fully automated machines. This strategy preserves the expertise of older machinists who mentor younger workers while building a pipeline of skilled operators.

TFG’s commitment to developing a skilled workforce extends to creating opportunities for multiskilling and cross-skilling. Machine operators are encouraged to work across various machines, enhancing flexibility and efficiency. This approach has enabled general workers to operate automated cutting machines, supported by strong relationships with machine suppliers who provide training. Additionally, TFG has launched several initiatives, including the TFG Prestige and TVET machinist programme, which trains 120 young people in new technologies, absorbing 70%-80% into full-time employment.

These efforts also align with the TFG’s social initiatives that aim to empower South African youth and contribute to financial inclusion by providing financial and non-financial support to enterprises that can be integrated into its supply chain. To address youth unemployment, TFG has been participating in the Youth Employment Service (YES) programme since 2021. Since joining, the company has provided more than 2,300 young participants with work experience in its outlets, contact centres and offices. A dedicated YES team supports these participants in gaining new skills and connecting them to economic opportunities.

Another initiative is the TFG Sustainable Design Incubator , launched last year. This programme supports four emerging designers through a six-month intensive immersion. The goal is to create self-sufficient suppliers capable of filling the order pipeline for TFG. The young designers receive access to industry knowledge, training and mentorship in sustainable design, technical drawings, pattern making, cutting, production processes and costings. Structured with the SDGs in mind, this programme

aims to provide tangible experience and future networks for the designers, fostering a new generation of skilled, sustainable fashion entrepreneurs who can contribute to TFG’s local supply chain and broader economic development.

COMMITMENT TO SUSTAINABILITY

Fashion retail depends on a complex supply chain that requires water, materials, chemicals and energy from its point of origin in agriculture to petrochemical production, manufacturing, logistics and retail. Globally the fashion industry is a big polluter due to the challenges of using chemical dyes and microplastics, as well as producing greenhouse gas emissions or textile waste.

TFG aims to exercise responsible product stewardship in its design, manufacture, sale and disposal of products to minimise negative effects on the environment. It is committed to working towards a zero-waste business and value chain, to reduce emissions and increase customer awareness of environmental issues through transparency and by inspiring customers through its brand initiatives.

The group acknowledges that while its direct environmental impacts are low, more significant impacts occur upstream in the supply chain (cotton cultivation, dyeing, printing and manufacturing) and downstream in customer washing, drying and disposal of garments. TFG focuses on improving energy efficiency within its operations and continues its efforts to recycling textile waste. Recent deliverables include initiatives to address e-waste and emissions through standardised device supply and engagement with main suppliers regarding value chain aspects such as raw material traceability, ethical sourcing and child labour. TFG Africa devices contain 30% recyclable materials, with a goal of reaching 100% recyclability by 2030.

Supporting the circular economy, TFG Africa launched a project to meet the requirements of the South African National Environmental Management Act and Waste Act, aiming for

50% post-consumer waste recyclate in bags from January 2023, 75% from January 2025 and 100% from January 2027. This project aligns with the SA Plastics Pact, which requires 100% of plastic packaging to be reusable, recyclable or compostable by 2025, with 70% effectively recycled and featuring 30% average recycled content across all plastic packaging. In 2023, 100% of TFG’s plastic bags were made from post-consumer recycled materials, reducing reliance on virgin materials.9

FINANCIAL REWARDS OF LOCALISATION

TFG’s localisation effort has been accompanied by significant financial rewards. The group delivered a set of solid results for the year ended 31 March 2024 despite tough trading conditions and significant headwinds. Revenue was up 8.9% to a record R60.1bn, retail turnover increased 8.6% to R56.2bn supported by the expansion of the group’s footprint and brand portfolio, as well as further growth in online retail turnover in South Africa via TFG’s Bash platform.

TFG Africa’s retail turnover growth of 10.4% was driven largely by clothing, with a particularly strong performance in sport and womenswear as well as in homeware. Trading densities in TFG Africa also grew by 10.0%. While port delays impacted imports, TFG’s local manufacturing capability mitigated the worst impact.

TFG’s localisation strategy, firmly integrated into its ESG efforts, represents a benchmark for others in the industry. By focusing on local production, TFG not only enhances supply chain efficiency and responsiveness but also fosters economic growth and job creation within South Africa. This commitment to responsible product stewardship, waste reduction and resource efficiency aligns with global sustainability goals and sets a powerful example of how businesses can operate profitably while making a positive impact on their communities and the environment. TFG’s success demonstrates that prioritising sustainability and social responsibility can lead to significant financial rewards, offering a compelling model for other retailers.

1 Planting, S. (2022). “The Foschini Group, South Africa’s clothing industry success story”. Daily Maverick, 19 Jun. https://www.dailymaverick.co.za/article/2022-06-19-the-foschini-group-south-africas-clothing-industry-success-story/

2 Clarke, M. & Godfrey, S. (2011). Skirting regulation? Trade liberalisation, retailers and the informalisation of South Africa’s clothing industry. Work Organisation, Labour & Globalisation, 5(1):76-94.

3 Morris, M. & Barnes, J. (2014). The challenges to reversing the decline of the apparel sector in South Africa. the_challenges_to_reversing_the_decline_of_the_apparel_sector_in_ south_africa_-_morris_and_barnes.pdf (tips.org.za)

4 Ibid, p.10.

5 Ibid, p.10.

6 Biacuana, G. (2009). “SA’s Clothing and Textile Sector post ’Chinese Quotas’”. SAIIA, 21 Aug. https://saiia.org.za/research/sas-clothing-and-textile-sector-post-chinese-quotas/#:~:text=China’s%20share%20of%20South%20Africa’s,a%20drop%20of%2039%20percent.

7 Planting, Daily Maverick (19 June).

8 Grawitzky, R. (2023). Prestige clothing TFG. TIPS case study series: Profiling technological change in industry. https://www.tips.org.za/component/phocadownload/category/1-prof iles?download=8:technological-change-case-study-prestige-clothing-tfg-company-profile-1

SANLAM FOCUS

BY TODD MICKLETHWAITE EXECUTIVE HEAD: STRATEGIC INITIATIVES & PARTNERSHIPS, SANLAM ALTERNATIVE INVESTMENTS

THE INTERSECTION BETWEEN NATURE AND INVESTMENT: A NEW PARADIGM

What are we investing in, if not our future nor the planet we inhabit? In an era where the urgency of environmental sustainability is paramount, the intersection between nature considerations and investment strategies has emerged as a critical focus for forward-thinking companies. This burgeoning field is exemplified by the pioneering efforts of the Sanlam Group, a prominent South African financial services business. Sanlam’s adoption of the Taskforce on Nature-related Financial Disclosures (TNFD) framework marks a significant milestone, positioning the company as a leader in sustainable finance within Africa.

TNFD: A new benchmark for environmental accountability

The TNFD framework represents a transformative approach to integrating nature-related risks and opportunities into financial decision-making. By adopting TNFD, Sanlam has committed to greater transparency and accountability in how environmental factors impact their financial performance and overall risk management. This commitment is not only a reflection of Sanlam's dedication to sustainability but also sets a benchmark for other African companies to follow. As the first and only adopter of TNFD from South Africa, Sanlam is at the forefront of a movement that seeks to harmonise financial success with ecological stewardship.

Innovative financing for nature conservation

One of the most compelling aspects of this intersection between nature and investment is the development of innovative financing mechanisms that do not rely solely on income streams from nature.

A prime example is the Ocean Finance Company’s landmark debt-for-nature transaction in the Galapagos Islands, the largest of its kind in history. This innovative approach involved restructuring the national debt of Ecuador in exchange for commitments to fund conservation projects, thereby creating a sustainable financing model that benefits both nature and the economy.

This transaction underscores the potential for financial instruments to drive significant conservation outcomes without depleting natural resources. By leveraging financial tools to support environmental goals, companies and governments can create a positive feedback loop that promotes ecological health and economic stability.

Sanlam’s vision for Africa

Sanlam's ambition to create long-lasting impact in Africa is deeply intertwined with its investment strategies. The company envisions fostering the growth of the “blue economy”—an economic system that sustainably uses ocean resources for economic growth, improved livelihoods, and job creation through the preservation of the health of ocean ecosystems.

The focus on the “blue economy” is particularly relevant in the African context, where coastal communities and marine ecosystems play a vital role in economic and social well-being. Sanlam's commitment to these areas not only helps preserve the environment but also supports the resilience and prosperity of the communities that depend on these natural resources.

A prime example is the Ocean Finance Company’s landmark debt-for-nature transaction in the Galapagos Islands, the largest of its kind in history. This innovative approach involved restructuring the national debt of Ecuador in exchange for commitments to fund conservation projects, thereby creating a sustainable financing model that benefits both nature and the economy.

A holistic approach to sustainability

Sanlam’s holistic approach to sustainability is reflected in its comprehensive strategies that encompass environmental, social, and governance (ESG) factors. By integrating ESG considerations into their investment processes, Sanlam ensures that their financial decisions align with broader societal goals. This approach not only mitigates risks but also opens up new opportunities for value creation.

In conclusion, the intersection between nature consideration and investment is a dynamic and evolving field that holds immense potential for creating a sustainable future. Sanlam’s leadership in adopting the TNFD framework and its ambition to drive innovative approaches to financing nature conservation demonstrate how financial institutions can play a pivotal role in this transition. As more companies follow Sanlam’s example, the integration of nature-related considerations into financial strategies will become increasingly mainstream, driving positive change for the environment and the economy alike.

STUDY BAMBURI CEMENT

MOVING TOWARDS A CLEANER, SUSTAINABLE FOOTPRINT

Bamburi Cement Plc, a subsidiary of the Holcim Group, is a Kenyan company specialising in the production of clinker, cement and concrete. With headquarters in Nairobi, it has operations in Athi River, a town near the Kenyan capital, and in Bamburi, a suburb of Mombasa.

In an initiative aimed at providing clean and cost-effective energy, Bamburi Cement has signed agreements to construct two solar photovoltaic power plants at its Mombasa and Athi River locations that will contribute up to 30% of the company’s total power supply.

BY CECILIA SCHULTZ AND JANICE ROBERTS

BAMBURI CEMENT: PROJECTS AND PROCESSES

BRIEF DESCRIPTION OF BAMBURI’S ESG APPROACH AND PROJECTS

Dust emissions reduction: It has implemented dust control measures to reduce particulate emissions from production facilities, ensuring cleaner air quality for surrounding communities.

Circular economy initiatives: Substituting fossil fuels with waste and biomass, managing water use through rainwater harvesting and recycling and implementing robust rehabilitation and biodiversity management, meeting local communities’ needs by providing water and creating jobs.

Geocycle waste management: In 2016, Bamburi launched Geocycle Kenya, a waste management organisation under then LafargeHolcim, aiming for a zero-waste future by recycling waste into energy or raw material for cement plants. Geocycle employs globally accepted waste management systems and uses Bamburi Cement kilns for co-processing waste, which involves high temperatures, excess oxygen and long residence times to completely destroy waste materials without residue. This method reduces greenhouse gas emissions by replacing fossil fuels with waste-derived energy.

SDGS TARGETED

SDG 3: Good health and well-being – by focusing on child-mother health, non-communicable diseases, road safety, occupational health and environmental health.

SDG 6: Clean water and sanitation – by improving water quality and managing freshwater resources.

SDG 9: Industry, innovation and infrastructure – by providing green and low-carbon products for the construction sector.

SDGs 12 and 13: Responsible consumption, production and climate action – by promoting sustainable procurement, enhancing resource circularity, emission monitoring and increasing energy efficiency.

SDG 15: Life on land – through quarry rehabilitation, ecosystem restoration and biodiversity protection.

SDG 17: Partnerships for the goals – by fostering strategic partnerships and stakeholder engagement for sustainability progress.

ESTIMATED MEASURABLE OUTCOMES OF KEY PROJECTS

Reduction in dust emissions: Implementation of dust control measures has led to a significant decrease in particulate emissions, contributing to improved air quality for surrounding communities, thus supporting SDG 3 (good health and well-being).

Increased circular economy practices: Substituting fossil fuels with waste and biomass, reducing dependency on non-renewable energy sources.

Robust rehabilitation and biodiversity management create jobs and meet local community needs, contributing to SDG 15 (life on land).

Provision of green products: Offering a green and low-carbon portfolio of products for the construction sector, supporting SDG 9 (industry, innovation and infrastructure).

Quarry rehabilitation and ecosystem restoration: Active quarry rehabilitation and ecosystem restoration projects protect biodiversity and restore ecosystems, supporting SDG 15 (life on land).

Strategic partnerships: Effective partnerships and stakeholder engagements encourage knowledge sharing, cooperation and implementation of best practices in sustainability, supporting SDG 17 (partnerships for the goals).

Sustainable procurement practices: Improved circularity of resources and comprehensive sustainability reporting contribute to responsible consumption and production, supporting SDG 12 (responsible consumption and production).

RISKS TO ESG PROJECTS OUTCOMES

Economic factors: Economic downturns or financial constraints often limit the company’s ability to invest in sustainable initiatives.

Community engagement: Potential resistance from local communities or stakeholders towards certain projects.

Climate change impacts: Extreme weather events and other climate-related factors could affect the success of environmental and sustainability initiatives.

CASE STUDY

PROGRESSIVE ESG STRATEGY IN HARD-TO-ABATE SECTOR

Bamburi operates in a hard-to-abate carbon emissions sector. The cement industry significantly contributes to global carbon emissions, accounting for 7%-8% of the world’s total CO² emissions.1 This is primarily due to the calcination process, where heating limestone (calcium carbonate) to produce lime (calcium oxide) releases CO², contributing to 60% of the construction industry’s emissions. Producing cement is energyintensive, requiring substantial amounts of fossil fuels to achieve the high temperatures necessary for clinker production, a key component of cement. Despite these challenges, manufacturing is a major employer in Kenya, contributing to about 16% of total employment in 2022.2

BAMBURI’S LONG ESG HISTORY

Bamburi Cement has implemented various initiatives to enhance its sustainability and improve the livelihoods of the communities in which it operates. These efforts date back to before ESG disclosure reports were common. Notably, the company began rehabilitating quarries in the 1970s, transforming them into habitats for flora and fauna. This initiative started when agronomist René Haller was hired to produce food for employees and plant trees on quarry reserve land. His efforts led to the creation of Mombasa’s Bamburi Haller Park, now home to various plant, bird and animal species. In June this year, Bamburi Cement celebrated World Environment Day by partnering with document storage provider E-Manage Africa and biodiversity tech firm Seed Balls Kenya to plant 13,000 trees in the park.

DESIGNING PROJECTS THAT TARGET ENVIRONMENTAL AND SOCIAL OUTCOMES

The focus on quarry restoration forms part of the “nature and water” pillar of Bamburi’s sustainability framework. The seven pillars are:

• Climate and energy

• Nature and water

• Circular economy

• People and human rights

• Sustainable procurement

• Customer, product and innovation

• Governance

Projects under these pillars are interconnected. What stands out in Bamburi’s ESG strategy is how its environmental projects are designed to also improve the quality of life for the communities in which it operates. For instance, to address dust emissions from cement production, the company installed dust filters in 1975 and has recently started planting trees along roads and open spaces at its sites to reduce dust.

This commitment is also evident in initiatives within the circular economy pillar. Over the past decade, Bamburi has helped advance Kenya’s circular economy by converting waste into energy. The Safe Waste Oil Disposal (SWOD) initiative, in collaboration with oil marketers, addresses the disposal of waste oil, which can pose significant economic and environmental risks if mismanaged. Under SWOD, used oil is co-processed in Bamburi Cement’s kilns, eliminating environmental hazards and recovering energy value, thereby reducing the need for fossil fuels in cement production.

Additionally, the company has begun using alternative fuels like biomass, including rice husks, collaborating with communities such as rice farmers in the Mwea irrigation scheme to collect rice husks, a byproduct of rice production. These husks are used as an alternative fuel in Bamburi’s Nairobi grinding plant at Athiriver, substituting up to 60% of the fossil fuels traditionally used in cement-making, significantly reducing carbon emissions. This initiative not only offers a sustainable solution for agricultural waste management but also supports local farmers by creating an additional revenue stream from the sale of rice husks.

ESG EFFORTS FIRMLY INTEGRATED INTO TARGETED SDG COMMITMENTS

Bamburi’s ESG efforts are closely aligned with its strategic SDG commitments. The company does not retroactively integrate and report on its ESG outcomes. Instead, it integrates selected SDGs into its forward-looking ESG initiatives. This ensures that its SDGs are central to its strategy and operations. This is corroborated in the Sanlam ESG Barometer Survey, where the company indicated that it actively tracks its financial expenditure on SDG initiatives and in the past year has invested KES50m (R7.2m) in initiatives directly related to these goals. Additionally, Bamburi’s

1 Skinner, B. & Lalit, R. (2023). “Concrete: 8% of global emissions and rising. Which innovations can achieve net zero by 2050?” Energy Post EU, 24 Jan. https://energypost.eu/concrete-8-of-global-emissions-and-rising-which-innovations-can-achieve-net-zero-by-2050/?utm_campaign=shareaholic&utm_medium=copy_link&utm_ source=bookmark

2 World Bank. (2022). Employment in industry, Kenya. https://data.worldbank.org/indicator/SL.IND.EMPL.ZS?locations=KE

top ESG objectives include creating purpose-driven impact, maintaining a competitive advantage and proactively managing potential ESG risks to its operations, all of which underscore the company’s commitment to significant and measurable long-term sustainability.

ESG STRATEGY, DESIGN AND MONITORING

The board provides stewardship of the company’s long-term sustainability strategy. Bamburi’s latest sustainability report states that “in its fiduciary responsibility, representation and accountability to the stakeholders, the board holds management responsible, reviews and approves the sustainability strategy”. Kenya’s Companies Act Section 655 (4) requires company directors to review environmental matters and social and community issues that may affect the future development, performance and position of a company. In addition, the Code of Corporate Governance Practices for Issuers of Securities to the Public, 2015 requires the board to put in place ESG frameworks and proposes public disclosure of ESG performance in annual reports.

Through the ESG committee, the board can monitor sustainability integration and performance within the company. The ESG committee has overall responsibility for the effective operation of the company’s ESG policy and is responsible for all information relating to ESG disclosures. The Audit and Risk Committee is responsible for reviewing ESG performance reports covering the company’s sustainability initiatives and key performance metrics, as well as a review of the company’s annual sustainability report.

FUTURE ESG INVESTMENTS

Based on its survey responses, Bamburi Cement identified the following key areas where it can enhance its ESG performance, providing specific opportunities for improvement:

• New markets and technologies: This area falls under the “customer, product and innovation” pillar of the company’s sustainability framework. It entails opportunities to expand into other countries in the global South, adopt new technologies and improve efficiency and sustainability. For instance, Bamburi

Cement, through its parent firm Holcim and in partnership with UK development financier CDC Group via their joint venture, 14 Trees, has successfully printed the first 10 of 52 planned houses in Africa’s first 3D-printed residential housing project. Located in Kilifi County, the two-bedroom Mvule Gardens homes demonstrate low-carbon construction methods, addressing the housing crisis and paving the way for affordable housing. 3D printing in construction significantly reduces CO ² emissions by up to 80%, material use by up to 50% and construction costs by nearly 20% compared with conventional methods.

• Partnering with suppliers on cleaner production methods: Recognising the importance of the supply chain in its ESG strategy, Bamburi plans to collaborate with suppliers to adopt cleaner production methods. The company engages regularly with entities in its supply chain on ESG issues and its sustainable procurement pillar aims to achieve 100% integration, both for sourcing and supplier relationship management. The company’s responsible sourcing framework is aligned with the UN Global Compact, OECD guidelines as well as the International Labour Organisation’s Declaration on Fundamental Principles and Rights at Work. The company’s procurement activities adhere to high legal, ethical and moral standards, emphasised through a robust supplier code of conduct that mandates compliance with social, human rights, environmental, health, safety and security standards. The supplier pre-qualification process includes ESG and health and safety impact assessments.

• Bamburi’s Responsible Sourcing Framework enabled it to exceed its 2025 emissions target by using a scope 3 emission tool, optimising transportation strategies and consistently monitoring performance.