How organisations can harness value through ESG

This is according to the Managing Director of Absa Bank Botswana, Keabetswe Pheko-Moshagane, speaking at the Transport and Energy Summit held in Gaborone this week. If done at scale across the entire economy, she added, the benefits outweigh the costs. She cited an article in the McKinsey Quarterly of November 2019 titled “ESG Creates Values in at Least Five Ways” that she said clearly demonstrates how ESG creates value.

Stakeholder relations

In the report, the first value is top-line/revenue growth, according to which entities that have embedded ESG find it relatively easier to tap into new markets and grow existing ones.

Pheko-Moshagane explained that this is because they have good relations with various stakeholders owing to their good governance and how they manage their environmental issues and interact with society. “Some entities, particularly Business-to-Business Customers, prefer doing business with those entities that meet certain ESG thresholds,” she said.

Eliminating greenhouse gas emissions

The second one is cost reduction. Expounding on it, Pheko-Moshagane said it is common cause that organisations that invest in waste management, recycling and energy and water saving mechanisms reduce their costs in the medium to long-term. “Within the transport sector, initiatives such as electric or hybrid models in our fleets will go a long way in eliminating greenhouse gas emissions while reducing costs,” she asserted.

Punitive measures

Minimising regulatory and legal interventions is another way in which ESG creates value. Pheko-Moshagane said if governance is solid, regulatory censure is very minimum.

“Most of our industries are regulated,” she said. “Therefore, any non-compliance to regulations attracts fines and/or other punitive measures, including the loss of operating licences, in extreme cases. “This means that if governance is strong, such non-compliance is reduced, thus keeping regulators and shareholders satisfied.” The banker named the fourth value as employee productivity upliftment, noting that fair and transparent remuneration practices tend to correlate with employee productivity.

Equitable pay structures

“One of the requirements of sustainability reporting is equitable pay structures, that is to say fair reward for the job regardless of sex or race,” Pheko-Moshagane noted.

Last but not least is investment and asset optimisation about which she said a strong ESG framework and strategy help organisations allocate capital to areas that are more sustainable. “As banks, for example, we need to ensure that we allocate capital to fund projects or initiatives focusing on renewable energy, sustainable water use, and to businesses that have strong governance structures,” she said.

“One small step at a time”

However, Pheko-Moshagane noted that ESG is a broad area and cannot be implemented in its full totality all at once. “It is important that organisations choose elements that can deliver, taking one small step at a time, first and foremost, to meaningfully act on sustainability challenges and opportunities.”

Significantly, she added, ESG priorities should be aligned to an organisation’s purpose. “The purpose is what binds everything together,” she asserted. “For example, recently at Absa Group, we reflected on our purpose, involving all our employees across the continent.” Pheko-Moshagane said another key element in crafting an ESG strategy is identifying organisations’ stakeholders. “It is important to know their areas of interest in ESG – is it the E, the S, the G? Is it a combination or all the elements that I previously touched on?”

Governance

“We need to create opportunities for all our stakeholders to have a say in decisions that impact them.”

When it comes to ESG reporting, Pheko-Moshagane said this is largely covered by the G in the acronym – Governance. “It is a known fact that most organisations fail at governance,” she stated. “ESG demands clear protocols around board structures, management, policies, standards and procedures.” Disclosure, the Absa MD noted, is one important aspect of implementation of ESG.  “At Absa Bank Botswana, we will be releasing our second integrated report this year,” she revealed. “It gives our stakeholders details of how we run our business – from financial performance, strategic focus areas, the board and management structures.”