‘Anti-ESG sentiment’ does not deter sustainable investment by SA firms, says report

Aug 2, 2024

ESG Barometer shows companies see environment, social and governance issues as crucial for operational stability

​ESG Barometer shows companies see environment, social and governance issues as crucial for operational stability   

Mounting opposition in the US to new requirements for firms to implement and report on environment, social and governance (ESG) initiatives appear not to have had an effect yet on the work being done by companies in SA to integrate ESG as part of their broader business sustainability plans.

That is one of the findings in the 2024 Sanlam ESG Barometer, published in partnership with Business Day, which was launched on Thursday.

“While momentum builds for strengthened sustainability disclosures and regulations in various regions, a countervailing anti-ESG sentiment persists, particularly in the US,” the report reads.

Moreover, climate change and ESG-related policies are expected to be highly contested issues in the 2024 US elections, which could further “worsen the divide”.

According to the report, this “political tug-of-war” has contributed to some major financial institutions backtracking on climate-related pledges. However, the report, which surveyed 69 listed companies across SA and Kenya (with respondents from SA representing 60% of the domestic JSE-listed companies’ market value)  found that “the anti-ESG sentiment has not yet shaken the commitment of participating companies to sustainable investment”.

Speaking at the launch event in Johannesburg, Nicole Martens, head of impact investing research at Krutham (formerly Intellidex), the organisation that conducted the research, said Kenyan companies expressed more concern than their SA counterparts about the long-term effects of political debates on ESG commitment, despite the US being a more significant foreign investor in SA.

“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,” Martens said.

“The bulk of the companies [we surveyed] do not anticipate this backlash is going to impact their approach to ESG. There was, however, some concern that it might affect the approach of their investors.”

Stuart Theobald, Krutham’s executive chair, said ESG was part of a “fundamentally important conversation about how we get financial markets in our economies to deliver better social outcomes in our societies.

“The ESG conversation is at times a very tense and fractious one, but it is working its way towards finding answers to directing our economic activities as investors and companies into delivering more positive social outcomes. It is going to profoundly affect the way we do business.”

Now in its second year, the 2024 edition of the report included Kenyan-listed companies in the survey (the 2023 edition covered SA companies only).

The study found that 83% of firms already integrate ESG into their strategy, and the majority of those that do not already do so are working towards such integration.

One of the emerging themes of this year’s survey was the realisation by companies that ESG was crucial for their operational stability and not only important as a requirement for attracting capital.

Companies surveyed said the most important reason for having an ESG strategy in place was to attract investors.

“What was surprising was that an almost equal number of respondents said they have an ESG strategy in place because it is necessary for their business operations,” said Martens.

About two-thirds of respondents said having an ESG strategy in place did not substantially affect their cost of capital.  That seemed to suggest investors “were not looking at having an ESG strategy as a bonus feature but rather as a bare minimum requirement to attract that capital”, she added.

Companies overwhelmingly said their purpose for having an ESG strategy was to deliver purpose-driven impact, Martens said. “Companies are looking to go above and beyond the minimum requirements placed on them by policy and regulation, and by their investors.”

erasmusd@businesslive.co.za

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