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ESG perspective change urgently required to ensure sustainability

25th October 2022

By: Donna Slater

Features Deputy Editor and Chief Photographer

     

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South African companies need to change how they view the factors of the environment, social impact and corporate governance, otherwise known as ESG, from that of a toxic external threat and to a measure that will contribute towards a business’s long-term sustainability, nonprofit shareholder activism organisation Just Share executive director Tracey Davies said on October 25.

Speaking at the ESG Africa Conference, she said that, in her experience, South African corporate boards perceived ESG as an external threat, mostly manifested by “irritating activists and pesky investors”.

As a result, such corporate boards held ESG as a part of their business that needed to be defended against and something external to the business, rather than something that should be an integral part of strategic discussions, said Davies.

Local corporate boards’ hesitance and defensiveness towards building sound ESG credentials is most clearly demonstrated by their refusal or reluctance to table shareholder resolutions, she noted.

“[Being open to shareholder resolutions] is an opportunity for boards to demonstrate their commitment to interaction with their shareholders [and] to hearing the views of their shareholders,” said Davies.

Instead, she said, many local businesses become “incredibly defensive” and adopt a “very legalised, weaponised” response to the tabling of shareholder resolutions.

A shareholder resolution, Davies pointed out, is an opportunity for every shareholder to have a say on a particular issue.

“If I were [managing] a company, [on] a board, [or the] CEO of a company, and there was a hugely contentious issue that we were trying to grapple with, then it would be extremely useful to get the view of all of my shareholders on that issue.

“And I think that that's the point at which you've kind of gone awry. These are not threatening attacks on a company, they are an opportunity for wider [engagement with the] investor body.

“If you understand what ESG is . . . what [the] biggest sustainability threats are . . . that corporate entities are part of society, not separate, unaccountable creatures that stand outside of society, then it should be impossible for board[s] to think of ESG as something coming from the outside, or to think of it as something you need to defend against,” Davies stated.

In addition, she said ESG should not be something to be added to all the regular activities a business conducts.

ESG issues, once grasped, are integral to every corporate strategy, said Davies.

In this regard, she advised corporate boards to find and empower people with expertise in the areas of ESG and the integration thereof.

“You cannot just tack on the word ‘climate change’ to your CV and hope for the best. [Corporate boards] actually need to have people on the board who genuinely understand [ESG] issues, not just someone with a finance degree who has done two courses in ESG issues,” said Davies.

“The biggest issue at the moment is that boards do not have information, the capabilities, and the ability to interrogate management on ESG issues being presented by management, executives and others,” she stated.

Alternatively, not having the expertise to challenge and interrogate ESG-related information means boards and executives are not going to be able to incorporate sound ESG factors into the corporate strategy.

Engaging with shareholders should be seen as an information-gathering exercise – an opportunity to demonstrate being open to engagement on sometimes difficult issues and to soliciting the views of the people who, to some degree, own businesses they have invested in.

Shareholder engagement also has a role to play in terms of showing that ESG issues are being taken seriously by a business and as a means towards preventing future attacks as a result of taking into account a wider viewpoint.

“The boards of directors have a fiduciary duty to ensure the long-term success of a company . . . which is exactly what ESG is about. So there should be absolutely no reason why these engagements are viewed as threats or attacks on the company.

“[ESG] should be embraced as opportunities to demonstrate that you are engaging with the most crucial issues of the day,” she concluded.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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