Mazars announces the South African release of its international report, ESG: where are you on the journey? This report takes a close look at the impact of environmental, social and governance (ESG) issues on the business agenda, while this article looks at the South African impact.
The report lays out a path for any company irrespective of size, business sector or geography, or even whether they are just embarking on their sustainability journey or aiming to accelerate the pace.
While the report provides a comprehensive overview of new EU regulations for corporate ESG reporting and the impact it will have, those regulations also have enormous applicability for South Africa. Local business leaders are provided information and thought leadership to broaden their understanding of ESG issues and the business opportunities likely to emerge, including:
- The challenges C-suite executives face in turning sustainability words into actions and the commitments they need to make
- Valuable lessons on how other geographies are addressing global and local ESG challenges
- Views from Mazars global experts on three sectors ahead of the curve on ESG issues
- Guidance on how to make a business case for ESG compliance and where to start
- Key advice for moving the ESG journey forward
Regulators in EU and North America are looking to introduce stringent new rules on reporting with new standardised international metrics to measure ESG. South African companies can no longer afford to pay lip service to sustainability issues given their international operations in countries where these regulations apply. In future, their reporting will need to provide tangible evidence that their companies have a coherent sustainability strategy which they are actively implementing, with each year’s progress achieved clearly demonstrated.
The report encourages senior executives to emphasise the business case of ESG as an investment in the future, to help shift mindsets away from treating it as a grudge compliance burden. There are significant benefits to be reaped from compliance with ESG rules, especially greater operating efficiency, lower overheads and cheaper finance where ESG has been integrated into the business model.
This is because even ahead of these rule changes, institutional investors have been ratcheting up the pressure on companies to become more sustainable in practice.
Learnings from across the global
The 2022 Mazars C-suite barometer found that he biggest barriers to investing in ESG issues were identified as funding (52%), complexity (51%) and risk of low return (49%). Notwithstanding these challenges, three-quarters of businesses planned to boost their investment in sustainability initiatives.
The barometer finds that 63% of respondents already produce a sustainability report, with 39% saying in this regard that data quality was their most challenging issue; 29% said it was prioritising what to include; and for 28% it was data tracking.
The issues companies face in meeting ESG requirements are ubiquitous across geographies. By discussing insights from across its global network, Mazars assists companies in other geographies on common topical issues such as which metrics to use to measure progress and how to navigate differing regional standards and regulations.
Commenting on the report, Mazars global head of sustainability, Chris Fuggle, said: “In our experience, doing ESG properly requires education, knowledge and a mindset shift: one that moves ESG from the periphery to the heart of a company. Senior leadership must understand that sustainability is not an end point but a journey, a path towards realigning the company’s purpose, strategy and business model in harmony with nature, people and communities. As the world changes, you need to keep moving. Sustainability strategy must become business strategy.”
A green tax at the border
These new regulations are where we always wanted to be, whereby we now have an influential body taking a strong lead on ESG. What is particularly promising is that the regulations will in practice not only be applicable to EU domiciled enterprises, but countries and businesses which want to export into Europe.
Consequently, in the context of South Africa, as a major exporter of goods and services into Europe, the regulations become a critical where non-compliance will directly impact their business performance.
Another penalty which is likely to arise from non-compliance is negative shareholder ratings. Mazars has over the past last few years surveyed external stakeholders such as shareholders, and eight out of 10 have expressly indicated that they are willing to accept less profit in the short term to ensure that sustainable business continuity is achieved. This is a new and ground-breaking shift in investor mindset which is a game changer when you present that information to the executive or board.
This addresses the biggest challenge with ESG, to gravitate the conversation to being one of integrating it into the business strategy of companies. It will otherwise forever lag behind. Therefore, these regulations represent where the ‘rubber meets the road’ – for as long as ESG remains an isolated ESG pillar outside normal business running, then it’s broken.
Up until now, in the South African context the bulk of legislation pertained to transparency of information for only listed enterprises, alongside the voluntary JSE guidelines for sustainability. The CSRD for the first time introduces verification of sustainability information. This will in turn eradicate much of the ‘greenwashing’ so prevalent.
There is a gap in maturity between African and EU companies approach to sustainability, and the gap has been widening. I would now expect to see a deeper conversation at executive and board levels to try to get to grips with the notion of sustainability, by actually asking the right questions concerning integrating ESG into what the business actually does, questions such as: How is my business going to be perceived in market? How will it affect our marketing if we don’t reposition towards this?
In conclusion, we hope this report assists South African businesses as much as those of other countries to gain a better insight into ESG-related issues. By offering practical guidance on turning words into actions and sharing knowledge on common challenges faced, we can help companies become more positive and confident in moving forward with their ESG journeys.
Bongiwe Mbunge is partner for sustainability services at Mazars in South Africa.
