ESG is the TLC South Africa Desperately Needs

As acronyms go, ESG (Environmental, Social, and Governance) has become a buzzword in business circles. It’s also a topic that stirs passion in me and something I will do my utmost to promote amongst South African companies, big and small. 

But what is it? And what does it mean to the person in the street? 

The concept of ESG was formed in the early 2000s when the investment sector realised that when evaluating companies to invest in, assessing the environmental, social and governance policies, processes, and practices was just as prudent as inspecting the books. 

Since then, ESG has become inextricably linked with sustainability and the ethical impact of investments as they affect societal concerns such as climate change, social inequality, and corporate responsibility.

Today, ESG is increasingly essential in many countries, and none more so than South Africa. The country’s tragic history notwithstanding, current economic, political, and social instability is such that ESG issues are especially pertinent to the country’s future.

And urgent initiatives must be implemented to overcome South Africa’s current challenges.

Environmental.

Let’s begin with the first letter, “E” for Environmental. Currently, climate change, water scarcity, air pollution, and deforestation present serious environmental challenges that will have severe economic, social, and ecological consequences for South Africa.

For instance, our nation has always been naturally water-scarce. However, as widely reported from a government draft National Water and Sanitation Master Plan, water demand is expected to outstrip supply by 17% in 2030! (Think of the Eskom situation that led to load-shedding and quadruple the trauma.)

Further exacerbating the issue is that droughts are becoming more frequent throughout southern Africa. And right now, in 2023, we’re facing a protracted El Niño weather pattern, which promises drier conditions than average. 

Reduced rainfall and increased evaporation rates due to higher temperatures will inevitably lead to further water shortages, translating into crop failures and food insecurity.

In 2021, the Western Cape, Northern Cape, and Eastern Cape were declared national disaster areas due to what Agri SA described as the worst drought in a century.

Kwa-Zulu-Natal, Mpumalanga, North-West, Limpopo and Free State – the nation’s predominant maize growing areas - have all been severely affected by drought, with some regions declared disaster-stricken.

And as we all remember, 2017 also saw strict water restrictions being implemented in the Western Cape, the second-largest provincial contributor to our GDP, when dam levels fell below 20%,

Reduced crop yields are also the result of severe heat waves, which have a considerable impact on people’s health, and increase the risk of veld fires.

How can we ever forget the devastation of the Knysna forest in 2017? Over 12 harrowing days, the runaway conflagration devastated more than 20 000 hectares of forest, destroyed 1 200 homes, displaced 8 000 residents, and tragically took seven lives.

Another environmental issue caused by global warming are rising sea levels. Shoreline erosion, flooding, and saltwater intrusion into freshwater infrastructure can all cause substantial economic and social damage to certain locations along South Africa’s coastline.

Rising sea levels of 3mm annually may sound minuscule. But, by the end of this century, sea levels across coastal locations in SA are projected to increase by half a meter (relative to 1986-2005 sea level figures).

Climate change is also impacting biodiversity. South Africa is blessed with one of the world’s most diverse ranges of plant and animal species that attracts millions of tourists annually. It’s the sector that boosted our (pre-Covid) 2019 GDP by R177.7 billion.

As things stand, much of this paradise is threatened by habitat loss, altering ecosystems, and reducing habitat quality.

Regardless of what conspiracy theorists spout, the climate change threats to South Africa are significant and require urgent action to mitigate their impact. And this demands that every single organisation – big and small – must embrace ESG with utmost urgency if our country can achieve a resilient, stable, and sustainable future. 

Social.

 “S” for Social. Regarding societal issues affecting South Africa, the legacy of apartheid, with its racial and spatial segregation, chronic poverty levels, unemployment, and low education levels, continue to damage social cohesion and long-term growth severely.

The fact that we are the most unequal society in the world is a frightening testament to the current state of the nation in which 10% of the population owns over 80% of the wealth.

Equally alarming are our dire unemployment figures, which see the rate stubbornly sitting at 36.5% - one of the worse unemployment rates in the world. For the youth of this country, the figures are even more alarming, reaching an all-time high of 66.5%.

Once again, South African organisations in the private or public sectors can no longer sit on the fence. Massive skills training programmes need to be established. Employment opportunities need to be created.

As has been proposed repeatedly by various pundits, a Franklin D. Roosevelt-type “New Deal” needs to be formulated and implemented to build badly needed infrastructure projects and provide employment at substantial levels. Financial reforms and regulations also need to be implemented along with public works programmes.

South Africa desperately needs what historians called the 3Rs – relief for the unemployed and the poor, recovery of the economy, and reform of the financial system to prevent further economic decline.

Governance.

Finally, the elephant in the room - “G” for Governance. Over the last few years, all aspects of governance have taken an extreme nosedive in South Africa, which presents considerable threats to the country’s future. It seems that corruption is deeply rooted in all strata of society.

Corruption, political instability, and weak institutions are all significant challenges impacting the country’s economic and social progress. Addressing these challenges will require strong governance, transparency, and accountability.

The bottom line is that for the private and public sectors to fully embrace ESG is crucial for the future of South Africa. Moreover, addressing governance issues will be essential for the country’s long-term stability, growth, and prosperity.

Moody’s, Fitch, and S&P have all downgraded our national credit rating to sub-investment grades - the polite euphemism for junk status.

Further adding to our woes was the nation’s greylisting by the international financial crime watchdog, Financial Action Task Force (FATF), for not fully complying with international norms concerning money laundering, terrorist financing and weapons proliferation financing.

All of these conspire to make South Africa a pariah destination for direct foreign investment and significantly increase the cost of doing business in South Africa.

To fully meet these challenges and to begin building a more robust, sustainable future, all aspects of ESG need to be addressed by every organisation with a colossal sense of urgency. By consolidating resources, skills, experience, and that stop-at-nothing South African resilience that defines our national psyche, we will extract our nation from the mess we currently find ourselves in.