While encouraging initiatives exist, local businesses need to take bigger strides in addressing sustainability and the climate crisis.

Individuals have a role to play in mitigating climate change, but it's organisations that should make the biggest contribution. The reason? Because when they create negative impacts, these tend to be catastrophic. It’s industries and companies, rather than homes, that are on the list of the Dirtiest Dozen. This group, all in the oil and gas sector, collectively accounts for about $15 trillion in damages to the planet.

Other industries with high greenhouse gas emissions include iron and steel manufacturing, aviation, and agriculture. A report by the International Energy Association reveals that the biggest emissions come from high-income countries.

“The top 10% of emitters span all continents. Around 85% of them live in advanced economies – including Australia, Canada, the European Union, Japan, Korea, New Zealand, United States, and United Kingdom – and also in China. The rest are from the Middle East, Russia, and South Africa, in countries with relatively high income and wealth inequality and emissions-intensive fuel mixes.”

By contrast, the bottom 10% of global emissions come from Africa and Asia, where economies are developing, and citizens tend towards consumer purchases that are mostly basic goods and services.

The lay of the troubled land

In some ways, South Africa, with the highest inequality gap in the world, is an illustration of both these extremes. It’s listed as one of the countries with a concerning level of carbon emissions, but statistics from 2023 show that 18.2 million people in the country live in extreme poverty.

Extreme weather events such as hailstorms, tornadoes, heat waves, and snow over the past year have highlighted the climate crisis. According to the 2023 Deloitte CxO Sustainability Report, executives in the country are feeling the impact of climate change. The survey of 55 top leaders reveals that nearly all of them noted how climate change had negatively affected their organisations over the past year. Some of these effects included shareholder pressure, regulatory/political uncertainty, and increased employee activism. Respondents also shared that investors, board members, and civil society were putting them under pressure to act on climate change.

Factors linked to the environmental, social, and governance (ESG) spheres are one of the common frameworks used to guide and assess an organisation’s business practices and performance on various sustainability and ethical issues. For many companies, sustainability efforts around these three areas have had a positive effect on employee recruitment and retention as well as general morale and wellbeing.

Finances can limit the measures companies take, but there is a growing financial sector of ESG-linked funding. This type of intervention is ideal when the purpose to which the funding will be applied has an ESG-linked cause. Examples of this range from once-off expenses for the installation of solar-powered solutions to the construction of new offices that are more environmentally friendly.

According to Natasha Pather, a partner at Webber Wentzel, the funding landscape has changed over the years. “We initially saw a number of 'green bonds' or 'green loans', also known as sustainability-linked funding instruments, where the proceeds were used to fund an environmentally friendly or climate-based initiative. There has been a recent rise in the number of social funding instruments targeting, for example, housing or employment initiatives, 'blue' funding instruments targeting ocean-based initiatives, and sustainability funding instruments, which combine characteristics of green and social instruments.”

Another common practice is sustainable financing, where borrowers and lenders agree on a set of performance indicators to unlock funding. “Depending on the level of performance achieved against those KPIs,” explains Pather, “the borrower can obtain a financial benefit, such as a margin reduction or access to additional funding for which that borrower may otherwise not be eligible.”

This arrangement requires detailed and accurate information to be verified by funders, who must also ensure that the requirements don’t have a negative impact on the company. “Suitable KPIs are usually determined with reference to the nature and extent of the business of the borrower or its group, its operational requirements, and what is achievable and sustainable, without compromising on the business' product.”

Charting new pathways

Sustainable development has been in the news headlines since the 1980s, but implementation of it has been challenging for corporations and governments worldwide. A study by KPMG reveals that while the topic of ESG may be coming up in business conversations, South African CEOs are not making significant strides towards sustainability. The KPMG 2022 CEO Outlook Survey polled 50 local executives, most from listed companies. These top managers largely represented the  insurance, banking, infrastructure, and the consumer and retail industries.

Some of their challenges listed include pressing business matters that demand immediate attention and consequently draw focus away from ESG, a lack of budget to invest in ESG initiatives, and limitations on technology to adequately track and measure ESG activity. According to Ignatius Sehoole, Southern Africa CEO and Africa chairperson at KPMG, local CEOs also listed “identifying and measuring agreed metrics” as another of their biggest challenges. 

“While we know there is a lack of an accepted global framework for measuring and disclosing ESG performance, the KPMG survey revealed that 65% of stakeholders (institutional investors and employees) are demanding greater ESG transparency and reporting.”

A common thread among South African and international respondents is the uncertainty about which standards and metrics should be followed. There are dozens of bodies in the field of sustainability, with offerings ranging from voluntary disclosure frameworks, guidelines and suggested standards, mandatory practices for admission or certification, as well as third-party aggregators who assess publicly available data and then issue ESG scores and rating to companies. Then there are the industry-specific charters and the guidelines as designated by government. In South Africa some industries that have charters with ESG frameworks include miningpetroleum and responsible tourism.

KPMG’s survey noted that even though some foundations have been laid down, and demand for more robust ESG reporting and transparency is growing among investors and customers, ESG has still fallen down the boardroom agenda as a top operational priority for nearly 70% of global executives.

“However," notes KPMG’s Sehoole, “what is encouraging to see is that confidence in the resiliency of the global economy over the next six months is optimistic, with 64% of local CEOs – compared to 73% of global executives – indicating that they are still cautiously focused on future opportunities during the current uncertainty.”

Time magazine presented the inaugural Climate100 List in 2023, naming its selection of the globe’s most influential climate leaders. It included a category called Catalysts, which credited filmmaker James Cameron, some musicians, a fashion designer, and an architect. Other groupings were Innovators, which featured mostly entrepreneurs such as Kidus Asfaw, who is the founder of an Africa-based start-up that transforms plastic waste into low-carbon construction materials, and Defenders, which hailed a few political leaders from countries such as Kenya, Barbados, Sierra Leone, Brazil, and Denmark for their various sustainability initiatives. For the sake of the planet and its inhabitants, organisations and governments not mentioned in this limited list should steadfastly continue with their ESG projects. An additional incentive might also be to ensure that if they make it onto a list, it’s never as part of the Dirty Dozen. 

Five to know

These are some of the most commonly used standards, guidance and directives used for sustainability reporting. 

International Sustainability Standards Board (ISSB): It provides a global baseline for sustainability-related financial disclosures to meet the needs of investors. The board sets out two requirements: one that is general and one that specifies climate-related financial disclosures.

Global Reporting Initiative (GRI) standards: These standards enable organisations to report their impacts on the economy, people, and natural environment. It is a modular system, with a set of universal standards and topic and sector standards.

Sustainability Accounting Standards Board (SASB) standards: The standards cover pertinent topics and industry sustainability disclosure guidance for 77 industries on risks and opportunities to meet the needs of investors. SASB was absorbed into the IFRS Foundation in 2022.

The Johannesburg Stock Exchange (JSE) sustainability and climate disclosure guidance: It aims to clarify current global best practices in climate-related disclosure and provides a step-by-step guide for starting the journey. Adherence is voluntary and both listed and non-listed companies are eligible for participation.

European Sustainability Reporting Standards (ESRS): This is a comprehensive suite of standards to address general principles and disclosures, and topics such as biodiversity, business conduct, and circular economies.

First steps in sustainability reporting

For companies wanting to start documenting their sustainability journey, the Integrated Reporting Committee of South Africa outlines the following steps of the global comprehensive reporting system:

  • Step 1: The first step is to obtain awareness of the main sustainability matters over the short, medium and long term, and then to determine what resources and relationships the organisation uses or relies on. 
  • Step 2: What are the impacts on these resources and relationships arising from the organisation’s activities, products, services, and waste? Referred to as the six capitals, areas to assess are financial, intellectual, human, environment, manufactured, social, and relationships.
  • Step 3: What risks and opportunities does the organisation pick up from these inputs and impacts? These would include stakeholders’ needs and expectations and key external environment factors such as regulatory, legal, commercial, social, environmental, political, consumer sentiment, tax, and so on?
  • Step 4: Adopt sustainability reporting standards, guidance, and directives considering the needs of the organisation, stakeholders, regulators, customers, and suppliers.
  • Step 5: Set up internal systems and controls for governance and collecting, measuring, aggregating, and validating the required sustainability data and information.
  • Step 6: External reporting to stakeholders. Options here are either the umbrella or single report approach. The umbrella report is a holistic view of the organisation rather than only having separate financial and sustainability reports. Conventionally, the single report contains detailed reporting on sustainability topics as well as governance and remuneration reporting, and financial statements. 

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