Sustainability and Environmental, Social, and Governance (ESG) disclosures in Africa have been gradually evolving and accelerating in recent years, closing the gap with countries of Global North. Yet there are still social-economical, regulatory, and resources challenges, writes Andrey Bogdanov.

Global sustainability

The biophysical systems upon which human beings are totally dependent have not been challenged by human activities at the global scale before. Our impacts upon those planetary systems, as well as upon our social systems, cannot be adequately addressed by ad hoc solutions.

ESG and sustainability have become popular words in the today’s global business language. Yet much of that focus is usually on the Global North. There is not much attention on a continent of 1.2 billion people and one of the most critical for green transition resource rich part of the planet – Africa.

For a longtime success or failure of a commercial entity was considered in a very narrow and simplified manner of make money and act within the laws. The maximisation of shareholders’ value with minimum risk was key objective of any commercial entity. Society and government were assumed to be the primarily caretakers of the social, environmental, and other sustainability aspects via morality or rules and regulations. Today, that emphasis has shifted. Shareholders, and consumers, expect a more balanced approach where government, business, and individuals collaborate on ESG issues.

Some of the critical issues of ESG transition were originated outside of African continent.  For instance, above-mentioned existential for human race CO2 emissions are the lowest per head on African continent.  It is critical that Africa as part of global community committed to assist in addressing those and shall receive support for its just green transition ensuring sustainable future for Africa while keeping critical environmental issues under control.

With growing awareness of the importance of sustainable development and responsible business practices, governments, investors, and civil society organisations in emerging economies are increasingly demanding ESG disclosures from companies. It is leading to the development of new regulations, standards, and guidelines for ESG disclosure across the Globe. Yet, there are very specific challenges faced by countries in the Global South in their transition to a sustainable economy.

Africa transitional challenges

Challenges and opportunities for ESG transformation vary from country to country. But there some similarities in common across Africa.

• Economic: poverty, unemployment, and poor infrastructure. These issues are competing for the prioritisation by African governments with investments in sustainable infrastructure and development projects that can generate long-term sustainable economic growth. These issues require significant capital investment, but at the same time represent a unique opportunity as “new” infrastructure project can consider sustainability as its core unlike in other parts of the world where sustainability of the existing infrastructure is in question. Understanding of Africa advantages (for instance, African has over 50 per cent of the mineral resources required by the world for the green transition) and appropriate disclosures shall assist African countries in the dialogue with Global North in climate talks, allowing Africa to demand its appropriate seat as green transition powerhouse and ensure that its priorities have been taken into account. Similar much smaller leapfrogging opportunity was realised when Africa built its 21^st century telecom industry instead of copy/paste of developed countries fixed telecom lines.
• Governance: quality of governance in some emerging countries may be an issue, especially when it comes to corruption. However, there are examples like Chile that have made significant progress in improving governance and implementing required reforms. Empowering African leadership, ensuring transparency and building capacity for making decisions based on the best global practices while considering local realities and priorities will help reduce corruption including those that have been used by some of the global actors to continue with their dominant positions in developing countries. Building its own internal capacity in fighting corruption across Africa and ensuring appropriate level of sovereign independence will drive better governance practices. More open transparent disclosure on its governance practices by Global North players will assist in preventing corrupt practices originated outside of Africa.
• Environmental: For years, as result of geopolitics, trade arrangements, and the dominance of primary industries, emerging economies in Africa became synonymous with deforestation, air, and water pollution. South Africa, which has more sunny days than most other countries, produces over 75 per cent of its electricity from coal and experiences regular electricity supply interruptions. Weak regulations and environmental standards, and monopolistic practices need to be eliminated to ensure better environmental and economic outcomes.
• Social challenges: With a few exceptions, emerging economies face huge social issues, including poverty, inequality, and housing crisis. These challenges can be addressed through sustainable investment in areas such as education, healthcare, and affordable housing. Africa will become a priority on the investment map with its young population and rich natural resources. Africa can become home for happily living people or source of non-stop immigration crisis across the Globe. South Africa is one of the best disclosing countries when it comes to social disclosure, and it can certainly leverage this advantage by lifting environmental disclosure to the same level.

ESG disclosure

Disclosure and data are becoming key drivers of the just transition in Africa as investors, governments and civil society organisations are recognising the financial risks and opportunities associated ESG issues. Despite the challenges, companies operating in Africa can benefit from ESG disclosure by improving their reputation and financial performance. In doing so, they will be contributing to sustainable development via better transparency, good risk management, legal and regulatory compliance, stakeholder engagement and communication. They will be able to leverage ESG as a competitive advantage by showing strong ESG performance and lower long-term ESG risk through better disclosure that can attract and retain investors, clients, consumers, talented employees who share value of ethical and sustainable companies and, for investors, searching for “sustainable Alpha”.