Investing in a future we all need: highlights of the 2024 Sanlam ESG Barometer report

Environment, social and governance (ESG) initiatives have become strategically more important for most businesses — sustainability is no longer a nice-to-have, but rather a competitive necessity and a driver of operational efficiency and innovation. That's according to the second annual Sanlam ESG Barometer report.

Researched by Krutham and presented in collaboration with Business Day, this report examines how ESG dynamics are evolving and examines how local companies are actively enhancing environmental and social outcomes through their operations. 

For the 2024 edition, the Sanlam ESG Barometer broadened its scope to include insights from listed companies in Kenya as well as JSE-listed companies in SA, marking a significant step towards providing a comprehensive assessment of ESG practices across Africa.

Speaking at the recent Sanlam ESG Barometer conference, Sanlam's chief sustainability officer Abel Sakhau said that other countries will be included in future reports. He called on companies across the continent to collaborate to help produce a truly pan-African body of research.

This conference, hosted by MC Andile Khumalo, CEO of KhumaloCo and co-founder of the Sanlam ESG Barometer, delved into the findings of this year's report, highlighting the similarities and differences between South African and Kenyan companies’ approach to ESG and the key considerations for ESG implementation in hard-to-abate sectors.

The 2024 Sanlam ESG Barometer found companies that operate sustainably tend to be more profitable and resilient, generate better brand value, have greater access to capital and are more responsive to employees, customers and society.

However, the ESG space is a complex one, complicated by political backlash, particularly in the US. The challenge is how to navigate around this pushback.

Encouragingly, there is clear evidence of the benefits and opportunities in sustainability strategies. Indeed, the Sanlam ESG Barometer revealed that most South African and Kenyan companies are less concerned about the backlash against ESG.

Dr Achieng Ojwang, executive director of the UN Global Compact Network SA — an organisation that works to enable the UN’s sustainable development goals (SDGs) by helping companies achieve their sustainability objectives and accelerate their impact — said that initiatives such as the Sanlam ESG Barometer are important as they play an crucial role in addressing one of the biggest challenges in the ESG space: a lack of data. 

During a conversation with Khumalo, Ojwang said: “Data enables action and the ability to identify gaps. The world is not on track to meet the objectives of the UN’s SDGs. In SA, though some companies are making inroads into certain ESG areas, on aggregate, the country is not progressing as fast as it should be.”

SA first reported on its collective performance in this regard in 2019. Local businesses believe they are advancing SDG 8: Decent Work and Economic Growth most successfully.

Nicole Martens, head of Impact Investing Research at Krutham, and Dr Stuart Theobald, the company's executive chair, revealed the main findings of the 2024 Sanlam ESG Barometer. 

These include:

• More than 80% of respondents have an explicit ESG strategy, primarily to attract investors and for operational necessities. While companies in basic material prioritise operational necessity, Kenyan companies focus on regulatory compliance. 
  
  
• Investors and shareholders are the most influential when it comes to the design of ESG strategy, followed by customers in SA and employees in Kenya. The lower priority given to employees and customers — proxies for broader society — contrasts with the concept that companies take an outward, ESG-additionality view.
  
  
• Purpose-driven impact and sustainability are top priorities for two-thirds of respondents. 
  
  
• There is significant alignment between the UN’s SDGs and ESG strategies in both SA and Kenya. South African companies typically align their ESG strategies to economic growth (SDGs 8 and 11) to address systemic challenges including unemployment, while Kenyan companies target climate action-related SDGs (SDG 13).

• Data and measurement are the biggest challenges for ESG implementation, followed by supply chain and external partnerships in SA and operational constraints in Kenya. Despite these challenges, most companies said they're comfortable about their ability to measure and attribute the impact of their ESG interventions, suggesting that such interventions have been designed based on what's possible rather than stretching their goals. 
  
  
• Most respondents agreed that implementing the International Sustainability Standards Board's (ISSB) standards, which aims to create global baseline of investor-focused sustainability disclosures, would have a positive impact, with 46% of Kenyan companies planning to adopt them compared to 16% in SA. Interestingly, South African investors show fewer expectations for ISSB adoption, while Kenyan investors expect partial adoption. 
  
  
• Additionality — the idea that some additional ESG benefits can accrue to society as an outcome of investing or operating activities — came through very strongly in this year’s research. The majority of companies look for projects with positive societal and environmental outcomes with a strong commitment to development additionality. South African companies expect higher returns on their ESG investments, while Kenyan companies expect returns in line with their cost of capital. 
  
  
• In Kenya, 75% of companies actively track financial expenditure on ESG compared with 38% in SA.
  
  
• The research revealed that social development and community engagement are the highest priority areas for improvement, followed by renewable energy investments in SA, and ethics and compliance in Kenya. Climate change adaptation, however, ranked low in both countries, highlighting a dominant focus on mitigation in ESG investments and reporting frameworks. 

Two panel discussions followed.

The first discussion focused on understanding the importance of ESG with perspectives from both SA and Kenya. Panellists included Frank Mwiti, CEO of the Nairobi Securities Exchange; Heather Jackson, chair of the Responsible Steering Committee at the Association for Savings and Investment SA; Sylvester Sebico, ESG specialist at the Public Investment Corporation; and Lilian Mwikali, portfolio manager at Sanlam Investments East Africa. 

The second panel discussion put the spotlight on ESG implementation in hard-to-abate sectors such as mining and just energy. Panellists included James Mackay, CEO of the Energy Council of SA; Tsheko Ratsheko, general manager of Integrated Environmental Management, Sustainable Impact Division at Exxaro Resources; Prof Michael Solomon, chair of the ESGS Committee at the African Institute of Mining and Metallurgy; and Carl Roothman, CEO of Sanlam Investments. 

Click here to watch a recording of the 2024 Sanlam ESG Barometer Conference.

Click here to download the 2024 Sanlam ESG Barometer report.

This article was sponsored by Sanlam.