The Henley Business School-Risk Insights comprehensive ESG survey aimed to provide a detailed overview of ESG adoption and integration in JSE-listed companies. As ESG performance becomes ever more a de facto competitive requirement for businesses to prosper, it is important to take stock of current practices and progress in South African companies. The hope is that the report can bring more awareness of the challenges posed by ESG, but also provide clarity on key aspects and opportunities for corporate South Africa.
Key learnings
| Large and very large JSE-listed companies exhibit relatively high ESG maturity, with 62% having embarked on an ESG journey six or more years ago. |
| High collaboration between boards and executive teams in strategy development is a condition to ensure better ESG strategic integration and strategic change. |
| Pressure for ESG adoption and integration still comes primarily from regulators and governments. Corporates feel relatively low pressure from marketplace stakeholders and the corresponding relatively low engagement and consideration of these stakeholders towards ESG strategy development. The pressure is still more for compliance than for performance. |
| The JSE Sustainability Disclosure Guidance materiality factors are considered, on average, very highly material by sample firms. This may reveal a lack of focus in the ESG strategy. Social factors are considered more material, on average. |
| Companies report significant changes in the ‘social’ category, including in diversity and inclusion, improvement of health and safety conditions, improvement in the engagement and investment in community development projects, and the development of an ESG-aware culture throughout the business. |
| Among the strategic initiatives that scored lower are those that include greater commitment and more structural strategic moves, such as acquiring other companies to improve the ability to handle ESG priorities, divesting assets negatively contributing to ESG performance and changed distribution channels. |
| Among the top five ESG implementation challenges are the ‘fight for resources among different business units’, the ‘pace of change in the regulatory environment’ and the ‘pressure on quarterly earnings, rather than long-term capital gains’. |
Methodology
The researchers developed a comprehensive survey divided into several sections, including demographics; motivations for ESG adoptions; stakeholder pressure and engagement; materiality approaches; board involvement and governance of ESG; ESG strategy implementation and barriers; and ESG reporting and frameworks. The survey was distributed to JSE-listed companies through several means, including through a market research agency. In total, there were 63 complete and valid responses which served as the basis of this report. Respondents completing the survey on behalf of their companies included chief operating officers (31), ESG/sustainability heads/senior management (21), company secretaries (four), chief executives (three), non-executive directors (three) and a chairperson (one).
Key company statistics
The company characteristics indicate some self-selection bias in favour of large and very large companies. It is possible the survey was completed by companies that have already made significant strides in ESG integration. Therefore, results need to be interpreted with this caveat, as they may not represent the full picture of all JSE-listed companies. The likelihood is that the emerging picture is more favourable than the reality if we are to consider all JSE companies. A detailed analysis of the data revealed the below key findings by section.
Research findings
| Section | Key findings |
ESG maturity and motivation The research reveals that ESG maturity among JSE-listed companies is relatively high, with a significant portion having adopted ESG practices over the past decade. The primary motivations for integrating ESG are linked to value creation, with risk mitigation, innovation and financial performance being the top drivers, while employee-related reasons and competitive advantages are less emphasised. | High ESG maturity: 27% of companies adopted ESG over 10 years ago and 35% in the past six to 10 years. • Primary motivations: – 46% cited risk mitigation and risk management improvement – 46% aimed to foster innovation within the business – Improving financial performance was also a significant motivator. • Less emphasised reasons: – Employee productivity, attracting and engaging employees, top-line growth, customer loyalty and competitive advantage were ranked lower. |
ESG governance and leadership It appears that many boards of JSE-listed companies are actively integrating ESG into corporate purposes and strategies. While most boards have overseen changes to reflect ESG, many have done so only recently. Boards are generally involved in ESG strategy development, with a significant portion working closely with CEOs. Execution responsibility often lies with a chief sustainability officer and a dedicated team, indicating a separation between business and ESG strategies. Boards believe they have the skills to oversee ESG, though formal performance reviews vary in frequency. | Corporate purpose changes: 76% of boards have overseen changes to corporate purpose to reflect ESG, with 47% doing so in the past five years. • • Active role in strategy development: – 47.6% of boards co-develop strategy with CEOs/executive teams – 38% create a strategic framework for CEOs/executive teams to develop immediate strategy – 14% of boards have little to no role in strategy development. • Execution responsibility: 57% of companies allocate ESG execution to a chief sustainability officer and a dedicated team. • Board skills and capabilities: Boards believe they are well equipped to oversee ESG, with 75% formally reviewing performance against a plan, mostly every six months or annually. |
| ESG stakeholder pressure and stakeholder engagement JSE-listed companies face the most pressure for ESG adoption from industry regulators, followed by environmental and social pressure groups, and large shareholders. However, engagement with these stakeholders varies, with regulators having the lowest engagement despite high pressure. Environmental and social groups are engaged indirectly, while large shareholders receive infrequent but direct engagement. Marketplace stakeholders exert relatively low pressure, which aligns with the finding that ESG motivations are not primarily competitive. | • Pressure sources: – Highest pressure from industry regulators – Significant pressure from environmental and social pressure groups – Large shareholders exert pressure but are engaged infrequently. • Stakeholder engagement: – Regulators have the lowest engagement score – Environmental and social groups are engaged indirectly • Large shareholders receive direct but infrequent engagement. • Marketplace stakeholders: – Low pressure from suppliers, customers and competitors – – Correspondingly low engagement and consideration in ESG strategy development. |
| Financial materiality and materiality approaches Most of the respondents follow a triple/contextual materiality assessment approach, integrating single and double materiality within local and global contexts. A smaller portion adopts double or single materiality, with a few lacking systematic assessments. Companies generally consider all 15 factors in the JSE sustainability disclosure guidance as financially material, with health and safety, and tax transparency being the most material. Social factors are also highly material, reflecting South Africa’s social challenges. | • Materiality assessment approaches: – 65% use a triple/contextual materiality approach – 22% use a double materiality approach – 6.3% use a single materiality approach – Four companies lack systematic materiality assessments. • Financial materiality: – All 15 JSE sustainability factors are considered financially material – Health and safety, and tax transparency are the most material (average score of 4.97 out of 6) – Social factors are highly material (average score of 4.73). |
ESG and strategic change The research shows that the respondents have significantly integrated ESG, with notable improvements in diversity, health and safety, community engagement and fostering an ESG-aware culture. However, more substantial strategic initiatives like acquisitions and partnerships for ESG priorities are less common. Despite progress, companies face barriers such as resource competition, regulatory changes, pressure on quarterly earnings, lack of transformation resources, and poor integration of business and sustainability strategies. | • Significant ESG-induced changes: – Improvements in diversity and inclusion – Enhanced health and safety conditions Increased engagement and investment in community development – Development of an ESG-aware culture. • Lower-scoring strategic initiatives: – Acquisitions to handle ESG priorities – Significant partnerships/joint ventures for ESG implementation – Divesting assets negatively impacting ESG performance – • Changes in distribution channels. – Barriers to ESG execution: – 73% face resource competition among business units – Over 70% struggle with regulatory changes – More than half feel pressure from quarterly earnings over long-term gains – 47.6% lack resources for business transformation – 46% experience poor integration of business and sustainability strategies. |
Conclusion
The Henley-Risk Insights survey revealed that corporate South Africa has made significant efforts towards the adoption and integration of ESG factors in their businesses. Nevertheless, there is still much to be done. Companies need to continue to work on the purpose and rationale for sustainability that make ESG an integral part of the corporate strategy. Competitive motives and marketplace stakeholders remain low in terms of motivations, pressure and engagement for ESG adoption and integration. Significant ESG-driven strategic moves, such as asset divestment, mergers and acquisitions, change of distribution channels and joint ventures are not so common. Until ESG becomes an integral part of the competitive game, the progress will be incremental at best and often illusive.
Most barriers to ESG strategic execution remain internal and within corporate control, depicting significant tensions between business and ESG rationales. There is a clear prioritisation of social factors vis-à-vis environmental and even governance factors. However, corporates must recognise that social and environmental factors are often intertwined and failure to keep up on the environmental side may cost companies and South Africa the ability to create jobs that are desperately needed.
Find out more
- Link to report: https://content.henleysa.ac.za/the-state-of-esg-strategic-integration-in-jse-listed-companies
- Contact information: Prof. Danie Petzer – daniep@henleysa.ac.za (Henley) | andrey@riskinsights.co.za (Risk Insights)
Source: This article was originally published in the Trialogue Business in Society Handbook 2024.
