The Sanlam ESG Barometer: Navigating ESG in Africa 

The 2024 Sanlam ESG Barometer Report examines how listed companies in South Africa and Kenya are navigating the environmental, social and governance (ESG) landscape, with a particular emphasis on ‘ESG additionality’. The additionality approach involves reallocating capital to not only enhance ESG compliance but also to achieve positive social and environmental outcomes. This strategy is crucial for making sectors such as energy, transport and agriculture more sustainable and resilient. 

The ESG Barometer findings show that company commitment to additionality remains strong, despite growing anti-ESG sentiment in the US. By contrast, there seems to be a growing recognition that ESG principles are not only advantageous in contemporary global markets but also essential for sustainable development and strengthening the continent’s climate resilience.  

Participants 

The findings presented in this year’s report are based on 69 listed companies, with 50 from South Africa and 19 from Kenya. The South African sample represents 19% of listed companies, and roughly 60% of domestic market capitalisation, on the Johannesburg Stock Exchange (JSE) while the Kenyan sample represents 31% of listed companies on the Nairobi Stock Exchange (NSE). The survey was sent to approximately 200 JSE-listed and 40 NSE-listed companies, targeting the top performers and sector leaders, including the JSE Top 40 and the NSE Top 20.  

The selection was strategically aimed at ensuring a broad representation across various sectors, particularly those known for their significant environmental impact or those showing substantial progress in ESG initiatives.  

Key findings: 

Prevalence of ESG strategies 

This year’s survey highlights the increasing importance of ESG considerations for African companies. Overall, 83% of companies report having an ESG strategy in place, reflecting widespread recognition of the importance of integrating ESG practices into business operations in both South Africa and Kenya. With 98% of South African companies and 100% of Kenyan companies either having or developing ESG strategies, ESG is becoming the new standard operating procedure rather than a niche or specialised approach. 

Motivations for ESG strategies 

In both South Africa and Kenya, attracting investors is the top priority for having an ESG strategy. This is closely followed by operational necessity, with the two factors being almost equally important due to their interconnected nature. However, the emphasis on attracting investment has slightly decreased this year compared to last, possibly because more than two-thirds of companies report that the cost of capital has remained largely unchanged since adopting ESG strategies. This suggests that investors view ESG integration as a baseline requirement rather than an added advantage.  

Conversely, regulation is cited by only about 5% of South African companies as a motivation for ESG integration, compared to around 20% of Kenyan companies. This likely reflects the more stringent climate policy environment in Kenya.  

While companies report that ESG strategies have enhanced their market reputation, which in turn positively influences their attractiveness to investors, few South African companies have reported losing investment due to ESG performance. This compares to about 40% of Kenyan companies who reported that they have experienced a loss in investment. This difference could reflect both the quality of ESG strategies and the standards of investors, although these aspects were not explicitly covered in the survey. It might be valuable to explore ESG strategies from an investor perspective in future surveys. 

Given the importance of ESG strategies in attracting investment, it is not surprising that companies in both markets rank investors as their most important stakeholder when designing an ESG strategy. Employees and customers are ranked as having relatively low influence on ESG decisions, despite last year’s survey finding that 30% of South African companies rated maintaining good employee relations as their most critical ESG risk. 

Purpose of strategies 

Companies report that their ESG strategies prioritise ‘purpose-driven impact’, reflecting a balanced focus on ethical responsibility, operational sustainability and risk management. The concept of ESG additionality is gaining momentum and companies are increasingly pursuing forward-looking investments that deliver significant environmental and social impacts essential for sustainable low-carbon transitions in regions like South Africa and Kenya. 

Most companies are adopting ‘transition strategies’ to enhance ESG performance, with a strong commitment to projects that offer positive social and environmental outcomes. This includes development additionality, governance additionality and financial additionality, all aimed at achieving tangible benefits. 

There is also a growing emphasis on collaboration within value chains to address interconnected social and environmental risks. The interconnected nature of ESG factors is reflected in the use of the 2030 Sustainable Development Goals (SDGs) framework in ESG strategy design. The majority (91%) of respondents align their ESG strategies with the SDGs and 87% report on their impacts related to SDGs. The findings also confirm how SDG priorities are shaped by local socioeconomic and environmental needs as well as regulations. For instance, in Kenya, ESG alignment emphasises climate action, followed by economic growth and employment. The focus on climate action is likely driven by the country’s vulnerability to climate change and extreme weather events such as droughts and floods that result in devastating economic losses. In South Africa, ESG alignment with SDGs focuses on economic growth and poverty reduction, reflecting persistent socioeconomic challenges such as a 32.9% unemployment rate, widespread poverty and stark income inequality.  

Challenges  

Companies globally are under increasing pressure to demonstrate their commitment to sustainability, but they face significant challenges in designing and implementing measurable and impactful ESG strategies. The most significant obstacle is related to data and measurement, particularly issues with the availability, accuracy and consistency of ESG data. Despite these challenges, many companies are confident in their ability to measure and report on the impact of their ESG efforts. However, this often leads to ESG strategies being shaped by what is easily quantifiable, potentially sidelining more ambitious or long-term initiatives like climate adaptation and resilience. 

To broaden their ESG efforts companies could benefit from collaborating with industry peers, regulatory bodies and NGOs. Such partnerships could provide the support and resources needed to pursue more ambitious and long-term ESG activities that go beyond the immediate returns and tackle critical sustainability challenges. 

Conclusion 

A missed opportunity for climate adaptation? 

The survey reveals that most companies plan to prioritise enhancing social development and community engagement in their future ESG efforts. Over two-thirds of these companies currently involve stakeholders in designing their strategies to make an impact in these areas and intend to continue doing so. This shift indicates a growing focus on the ‘S’ in ESG. Additionally, companies recognise the importance of improving disclosure practices to overcome challenges in accessing reliable ESG data, viewing better disclosure as essential for strategies that deliver both social impact and financial performance. 

While social development, resource management, and investments in renewable energy and green technology are seen as key future priorities, the survey highlights a concerning gap in attention to climate adaptation and resilience. Despite escalating climate risks in Kenya and South Africa, adaptation remains a low priority, likely due to the focus on mitigation in ESG frameworks and the long-term nature of adaptation investments. This oversight suggests a missed opportunity for companies to bolster long-term sustainability by addressing critical climate challenges. 

Barometer focus 

Going forward, we expect to further expand the geographic reach of the survey, eventually presenting a truly pan-African view on company approaches to ESG. Further, we plan to increase both the breadth and depth of the survey content, to enable even more robust analysis of what African companies are doing when it comes to ESG.  

The Sanlam ESG Barometer is a Sanlam-sponsored annual report produced by research and advisory firm Krutham in collaboration with Business Day. Krutham’s ESG team welcomes the opportunity to discuss this research and our broader ESG service offering with interested parties. For more detail, please email Krutham’s Head of Impact Investing Research & ESG, Nicole Martens at nmartens@krutham.com.