The starting point is to remember that ESG has three components: Environment, Social and Governance – so any comprehensive discussion has to take a comprehensive view on the benefits of these three pillars.
EY’s surveys show sustainability as the single largest business risk in the Mining and Metals Sector in Africa. And, we have seen enough corporate scandal on the continent to ensure that all investors now appreciate the value of the “G” in maintaining shareholder value.
The theory underlying ESG is that – over the long term – companies doing the right thing will be more resilient to the threats occasioned by doing the wrong thing - like the poor corporate governance mentioned above. And they will actually deliver better results for the same reasons. Better results mean more money, more profitability, and an observably better bottom line.
Unfortunately, some companies still view ESG as a compliance issue – and therefore view the costs associated with it as a compliance cost. This short termism: foregoing better long-term results for the sake of doing things as they always have, or for cutting corners.
Sustainability should, hypothetically, make a company more resilient – but it is a fair question to ask if it really does.
In the energy and natural resources sector, there is absolutely no question. If we take a look at the items that have caused major crises for major companies in the sector over the last few years one can argue that the controllable factors that have had disastrous impact have been ESG issues.
Recent failings at the Jagersfontein dam disaster in the Free State mine killed three with four people critically injured is a recent example. Twenty-eight others were injured while nine houses were swept away. Rehabilitation costs are expected to run into the tens of millions. This is a clear example of why environment and governance matters, and why shareholders need to take a more active role in holding companies in which they have invested accountable.
The environmental pillar in ESG has been an issue for a long time and is well-regulated and understood. Companies need to comply by prescribed rules and via permit applications.
But these are inching changes.
The shift to net zero carbon must be the goal and, encouragingly, we can finally see momentum building.