Purpose-driven companies must leverage ESG strategies to create value and build trust

15 March 2023 PwC

How 282 African CEOs are feeling about climate change and social risks, and leveraging opportunities to bolster future sustainability

‘Business as usual’, with a sole focus on profitability, has become obsolete. Never before have companies been subject to as much scrutiny from society as they are now. In the context of global climate and societal challenges, businesses need to demonstrate their ability to create value, build trust and contribute to solving important problems.

A crucial way organisations can do this is through their commitment to addressing environmental, social and governance (ESG) matters. In PwC Africa’s newly released Africa Business Agenda: ESG Perspective 2023 publication, we reflect how sub-Saharan African companies are focusing on and implementing ESG strategies.

This publication is the first of six from our Africa Business Agenda series which focuses on the perspectives of 282 sub-Saharan African CEOs who participated in PwC’s 26th Annual Global CEO Survey. On 4 April 2023, PwC Africa CEO, Dion Shango, will lead a discussion on LinkedIn Live with Lullu Krugel, PwC Africa ESG Lead, to unpack this report in greater detail.

Our latest Global CEO Survey shows that companies across sub-Saharan Africa are taking action on climate and social risk issues. However, more needs to be done. The ESG Perspective 2023 report looks at 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.

Africa’s business leaders have told us that they are concerned about climate change and social instability — with some of them already taking action. However, we also take a look at what we have learned about how to develop successful strategies for making a meaningful, purpose-driven impact.

Key insights in the report include:

• Joining forces to tackle societal challenges

Some 46% of sub-Saharan African business leaders surveyed said they expect their companies to face moderate, high or extremely high exposure to threats stemming from social inequality over the next 12 months, compared to just 26% globally. This includes concern about social and political instability.

CEOs in Southern Africa are the most concerned about social risk, with two out of three (67%) seeing exposure to threats stemming from social inequality. In South Africa, for example, what has been termed the ‘July unrest’ in 2021 was a typical example of what can happen when aggrieved communities feel ignored about the inequality they experience.

Lullu Krugel, PwC Africa ESG Lead, says: “The wave of civil unrest in KwaZulu-Natal and parts of Gauteng occurred within a context of multiple socio-economic challenges facing the country, including high unemployment, poverty and inequality. However, governments, on their own, cannot fix the risks linked to social inequality. Private organisations have a role to play and we have seen that purpose-driven companies are reaping the benefits of focusing on the triple bottom line of people, the planet and profit, which positions them for sustainable success.”

• Taking action on climate risk

When it comes to acting on climate risk, survey results show that more organisations are taking a holistic, operational approach where concerns about social wellbeing and the environment are fully integrated with corporate strategies.

There is also a cost implication associated with climate risk. 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.

Sayuri Moodliar, PwC South Africa Purpose-Led Growth Director, says: “Companies have a key role to play in setting science-based targets to enable the transition to a net zero economy by 2050. This includes decarbonising how they operate, as well as engaging with their suppliers to help reduce climate impact. Investors and other stakeholders expect organisations to be building resilience and creating long-term sustainable value.”

• Data is invaluable in informing emissions-reducing strategies

Expectations in the market certainly influence the development and delivery of an ESG strategy. However, immediate concerns like affordable food, fuel and security tend to be top of mind among many stakeholders, despite being impacted by underlying environmental and social factors. Food security, for example, is highly influenced by climate change and geopolitical unrest. An effective ESG strategy takes into account these underlying immediate factors as well as future sustainability.

Despite this, 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. Concerningly, one in four (23%) CEOs in sub-Saharan Africa indicated that they do not plan to do this at all.

Julie Rosa, PwC South Africa Purpose-Led Growth Director, says: “We understand 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 lack thereof - on reporting ESG matters, and seeing risk mitigation as a cost and not an investment.”

However, she says that what remains clear is that by addressing social challenges and climate change, opportunities are presented for the public and private sectors to work together.

This is echoed by Krugel, who says: “Private sector organisations have the skills and capacity to positively influence a broader community of stakeholders, far beyond the financial bottom line. Their efforts can create value for customers, shareholders and the communities where they operate, as well as 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. This journey is not just a nice-to-have, it is a necessity. It is also just good business.

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