May 26, 2024

Private sector’s collaboration with African governments on proactive ESG implementation critical to business growth – PWC’s 2023 perspective

 

Oredola Adeola

 

PricewaterhouseCoopers (PwC) has charged the private sector to collaborate with the African Governments on the proactive implementation of Environmental, Social, and Governance (ESG), and climate change mitigation to create social and political stability which is conducive to business growth.

This was highlighted in the PwC’s 26th Annual Global CEO Survey with the theme: ‘Winning today’s race while running tomorrow’s, released on Wednesday and reviewed by EnergyDay.

The Annual Global CEO Survey according to PwC is part of its 2023 Africa Business Agenda series, which reviews some of the survey results related to the ‘E’ and ‘S’ components of ESG; specifically, CEOs’ concerns and actions around climate and social risks and opportunities.

Based on the data released in the survey some 46% of sub-Saharan African business leaders surveyed expected their companies to face moderate, high or extremely high exposure to threats stemming from social inequality — including those stemming from income, gender, race, and ethnicity — over the next 12 months, compared to just 26% globally. This includes concern about social and political instability.

The survey emphasized the need for both the private and public sector to balance short-term economic challenges with long-term existential threats. Thinking just about the short term is a threat to sustainability.

The Survey showed that CEOs in Southern African Customs Union (SACU), comprising Botswana, Eswatini, Lesotho, Namibia, and South Africa are the most concerned about social risk, with two out of three (67%) seeing exposure to threats stemming from social inequality.

PwC noted that the consideration was a major factor in the region because it is the world’s most unequal region from an income and consumption per capita perspective.

The survey, however, established that African governments cannot fix the myriad of problems including the poor functioning of urban labour markets, large gender gaps in earnings, and inequality in land ownership, among other factors, alone.

It however suggested that the governments will need the private sector and other stakeholders to work together on addressing social challenges.

The survey noted that private organisations across sub-Saharan Africa are already doing their part to address inequalities and associated social risks through the implementation of fair pay policies that provide, for instance, a ‘living wage’ (as opposed to a minimum wage) that allows workers to maintain a frugal but dignified standard of living.

PwC in the Survey further suggested that the buy-in and support of all stakeholders — including investors and shareholders – is needed in the area of re-thinking how businesses operate, how success is measured, the definition of fiduciary duty, the regulatory environment, transparency, and how boards are remunerated.

The Survey recommended that private sector’s collaborative approach to working with entrepreneurs, start-ups, NGOs and government is critical factor in effort to addressing societal issues, especially in the area of playing an important role when it comes to interacting with people at street level.

PwC revealed that companies in West Africa are most likely to work with entrepreneurs and start-ups to address societal issues.

It said, “In Nigeria, for example, there are 443,000 social enterprises whose mission it is to make a social impact through their activities. By partnering with these enterprises, large corporations are making an impact on societal issues.

“According to research by the British Council, social enterprises in Nigeria benefit the poor (68% of enterprises), the youth (67%), and the long-term unemployed (51%).” the survey noted.

PwC however mentioned that the increasing prominence of ESG is helping companies and executives to pivot away from a sole focus on managing ESG-related activity through Corporate Social Investment (CSI) programmes and towards a more holistic, operational approach where concerns about social well-being and the environment are fully integrated with corporate strategies.

According to the survey, this reflects the cost implication associated with climate risk.

The survey said, “Some 52% of sub-Saharan African companies surveyed expect a moderate, large or very large impact from climate risk on their cost profile over the next 12 months, compared to 50% globally.

“These costs include insurance liabilities and financial outlays to comply with new regulations.

“On the insurance front, 2022 was an expensive year for insurance premiums and pay-outs linked to climate disasters in sub-Saharan Africa.

“Flooding in South Africa’s KwaZulu-Natal and Eastern Cape provinces were the third-most expensive climate disasters globally.

“Other major climate-related disasters included heavy rainfall and floods in West Africa as well as cyclones and other tropical storms threatening Mauritius, Seychelles and Réunion and, in some cases, landfall damage in Southern and East Africa.

PwC however noted that it is becoming clear that climate change has increased the severity of many of these storms and their frequency.

PwC in the survey observed that some companies are now required by regulations to report certain ESG-related information in their annual reports but cautioned that for reporting to be impactful and efficient, organisations need to create internal capacity to collect and verify information on the E, the S and the G components of this holistic approach.

The survey noted that there are significant implications for organisations that trade with the bloc, others that are in the bloc’s value chain of listed companies, or those that are subsidiaries of its companies.

“The wide ripple effect of regulatory compliance, direct and indirect, could compel sub-Saharan African companies exporting to the EU to comply with its expectations of environmental stewardship.

“The EU’s evolving climate change rules could drastically affect what organisations can and cannot export to the region. While this might be a risk, it might also be an opportunity to get ahead of the curve and strengthen ties with trading partners.

Speaking about the role of a data-driven strategy in emissions reduction, PwC disclosed that expectations in the market — from regulators, shareholders and customers — can influence the development and delivery of an ESG strategy.

PwC noted that an effective ESG strategy addresses underlying issues including affordable food, fuel, security, and other immediate factors as well as future sustainability.

According to the survey, only half (50%) of sub-Saharan African companies surveyed are working on or have implemented a data-driven, enterprise-level strategy for reducing emissions and mitigating climate risks, compared to 65% globally.

“That means the other half are not in this process of strategy development. One in four (23%) CEOs in sub-Saharan Africa indicate that they do not plan to do this at all.

“We understand that there are many reasons why African companies seem to be behind the curve in adopting ESG-related strategies to reduce emissions and mitigate climate risks.

“These factors include human resource constraints, the need for a sustainability champion at the top of the corporate ladder, diversity in regulatory requirements (or the lack thereof) on reporting ESG matters and seeing risk mitigation as a cost and not an investment.

“Our discussions with CEOs suggest that the need for data is interlinked with these factors, ” the PwC survey showed.

PwC survey emphasised that digital transformation (ESG-focussed data analytics) to ensure that an organisation can focus on analysing material data — rather than just gathering and verifying data — seems a prudent strategic choice and worth taking on the challenges of adjusting organisational structures, systems, and processes, and finding new talent to stay ahead of the curve to grow the bottom line.

In his comment on the survey, Edward Kerich – PwC’s ESG East Africa Lead revealed that an ESG narrative that tells the story of a company’s values and purpose is not enough anymore.

According to him, the narrative must be backed with credible data to provide a holistic picture of its performance throughout its value chain.

He said, “By determining, gathering and analysing material data points, an organisation is empowered to manage its stakeholders through its reporting and any other formal interaction. With this data, companies can also react swiftly and aptly to changes in the socio-economic landscape due to real-time data transparency.

Highlighting measures required for obtaining reliable data that can serve the company’s individual needs, PwC charged company leaders to – among other considerations – establish a sustainable, repeatable process and internal controls to collect and aggregate data and remediate data quality issues in an efficient and effective manner that facilitates reporting and decision-making.

It suggested to business leaders, the need to understand and optimise existing and available IT systems in order to automate processes to facilitate real-time data visibility and reduce human error is recommended.

PwC also charged them to maintain and store ESG data in accordance with regulatory requirements and company policies.

The survey however emphasised that private sector organisations have the skills and capacity to positively influence a broader community of stakeholders, far beyond the financial bottom line, by collaborating with the public sector.

It said, “Their efforts can create value for customers, shareholders and the communities where they operate, and deliver improved sustainability for their businesses and suppliers.

“Transforming from a reactive, compliance-driven organisation to a pro-active, purpose-led organisation that makes a real impact on societal challenges and climate change is not simple. It is a journey along a maturity path.

PwC however noted that it is more desirable and sound business practice for private sectors to start assessing current maturity, baselines, risks, and readiness in addressing social challenges and climate change in order to deliver commercially integrated perspectives on ESG opportunities.