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Adoption and Practice of Environmental, Social and Governance Factors in South African Listed Companies: A Board Perspective

The COVID-19 pandemic has brought sustainability, in particular ESG factors, into a sharp focus internationally. With additional factors in play, such as US President Biden reinstating the Paris Agreement and the EU's ambitious Green Deal launched by the European Commission in 2021, the sustainability imperative has significant momentum.

In 2019 the ESG investment market was estimated at $560 billion by the International Monetary Fund and earlier estimates by the Global Sustainable Investment Alliance have set this at $30.7 trillion, with Bloomberg projecting that ESG assets under management (AuM) are projected to hit $52 trillion, over a third of the projected total global AuM, by 2025.

However, from announcement to action there is a huge gap among the world's largest investors and firms. For instance, the much-celebrated 2019 Business Roundtable announcement about redefining the purpose of business and committing to a more stakeholder-centric governance model has been heavily criticised as empty rhetoric and investment giant BlackRock have been accused of over-inflating the impact of its current ESG practice. With finances increasingly being invested in private markets which are largely escaping the sustainability agenda, significant research focus has been devoted to creating investment instruments, standards, frameworks and rating systems for ESG.

Within South Africa, the regulatory and legal infrastructure is still progressing, with the listed companies required since 2009 to publish integrated reports and the government creating its own South African Green Taxonomy. There is a pressing need and many opportunities springing from investing and company practice, but how boards and board members perceive and exercise their responsibilities with regards to ESG is little understood. What are the tensions and trade-offs? What are the constraints in ESG adoption and practice? Who is accountable for ESG execution and how does the board provide oversight? How do boards engage with their management teams for determining the corporate purpose, integrating ESG in long-term strategy and business models and structuring executive compensation? How do boards satisfy themselves that leadership across the company is fit for the task? How do they set the tone from the top for the necessary cultural change on how the firm behaves, not least how the firm engages with stakeholders?

The research project aims are as follows:

- To conduct a review of existing literature on corporate sustainability and ESG

- To examine the mind-set and approach of boards to sustainability and ESG adoption

- To identify the dilemmas, choices and constraints faced by board members in discharging their ESG responsibilities

- To examine the current level of ESG adoption and practice

- To investigate the relationship between ESG practice and corporate reputation

- To identify good practice through the development of case-studies in critical sectors

To achieve the above general objectives the research will develop and apply a 3-staged research methodology process, starting by conducting a review of existing literature on corporate sustainability or ESG to identify avenues of inquiry within the aim and objectives of the research programme, with a focus on the South African context in terms of legal, regulatory, investment and corporate practice. This will be followed by 25-30 interviews with a sample of boards members from a variety of companies to understand contextual nuances of the corporate practice with regards to ESG and the research will conclude with a survey to be distributed to a sample of JSE listed companies. The deliverable outcomes of the research project will be a co-branded global report on the state of ESG adoption and practice of JSE listed companies, guidance for corporates, practitioner articles on specific ESG topics and academic papers

A joint steering group, formed by the Henley Business School faculty and Risk Insights members, was created to oversee and steer the research programme by review progress and the quality of outputs. Their responsibilities also include ensuring that the programme is context-sensitive to South Africa, acting as ambassadors to facilitate access to companies, directors and other stakeholders and facilitating and promoting the dissemination of the research results via conferences, workshops, and the media.

In addition to Dr Morais, the members of the steering group are as follows:

Dr Anushka Bogdanov, founder and Managing Director of Risk Insights (Pty) Ltd

After many years of solid risk management experience in investment, corporate and retail banking, Dr Anushka Bogdanov established Risk Insights (Pty) Ltd to provide risk consulting to various institutions in Southern Africa and worldwide. Anushka has more than 25 years of international risk management experience and has worked in various senior risk management positions in the banking sector, development financial institutions and rating agencies.

She has covered credit assessment of large corporates, banks, development financial institutions, multinationals and municipalities, along with setting credit strategy and risk appetite, rating banks and various financial instruments and building Basel compliance models. Anushka also conceptualised and developed the Risk Insights ESG model for their ESG GPS product. The model enables the contribution towards SDG goals to be more transparent, thereby influencing policy makers and capital markets, and it assists regulators with an ongoing understanding of crucial ESG factors that drive responsible governance and systemic risk. The ESG GPS rates all companies on the Johannesburg Stock Exchange, providing an ESG rating on a score of 1-4, and is aimed principally at asset managers, development finance institutions, banks and listed companies, all of whom need to augment ongoing valuations and expected losses.

Kuben Naidoo, Deputy Governor of the South African Reserve Bank and CEO of the Prudential Authority

Kuben is an activist and a public servant in South Africa committed to the achievement of a socially just world. He has an MBA from the University of Birmingham, UK and a Bachelor of Science degree and a Postgraduate Diploma in Public Management from Wits University, South Africa. He joined the South Africa national treasury in 1988, headed the budget office from 2006-2010 and completed a two year stint at the UK Treasury, working in their budget division. He then headed the Secretariat of the National Planning Commission between 2010 and 2013.

After serving as an Adviser to the Governor in the South African Reserve Bank for two years, in 2015 he was appointed to serve as Deputy Governor of the bank, where he was responsible for overseeing the establishment of the Prudential Authority. He was appointed as the CEO of the Prudential Authority in 2018 and is also a member of the Monetary Policy Committee.

Jayne Mammatt, Partner and ESG Lead for Africa at PwC

Jayne is the Partner in charge of PwC South Africa's Sustainability and Climate Change department and ESG Lead for Africa. Her role focuses on developing and delivering services in sustainable development strategy, framework, practices, reporting and assurance, sustainable development goals, integrated reporting and management, the measurement of social and environment impact and outcomes, safety, health and environment risk, performance and compliance and climate change risk and resilience.

Jayne is a Chartered Accountant by profession but has been working in the broad areas of corporate governance, sustainable development and climate change since 2002. During this time, she has worked across a variety of industries, including mining, oil and gas, banking, insurance, telecommunications, technology, construction, real estate and state-owned entities.

As part of her work she has also written various 'thought leadership' articles for publication in the press and presented at numerous conferences. She is the co-author of The Company Director’s Handbook and contributed a chapter to SAICA’s Green II. She was also a member of the Institute of Directors' Sustainable Development Forum, the Integrated Reporting Committee of South Africa (IRCSA) Working Group and the National Business Initiative's Advisory Committee on Environment and Sustainability. Currently she is a board member of the IRCSA and a member of the King sub-committee on climate change.

Professor Daniel Petzer, Head of Research at Henley Business School Africa

Professor Daniel Petzer is the Head of Research at Henley Business School Africa. He has experience lecturing at certificate, diploma, degree and postgraduate levels. His areas of expertise are marketing research, B2B marketing, customer centricity, international marketing, international business, consumer behaviour and services marketing. His current research focus is uncovering consumer responses to organisational efforts to build, maintain and restore relationships with customers in a services context.

He regularly presents SPSS training courses he has developed to audiences of academics, postgraduate students and industry and holds a PhD in Marketing Management.

A National Research Foundation rated researcher, Daniel has authored and co-authored several journal articles, most notably published in the Journal of Services Marketing, the Journal of Business and Industrial Marketing, the Service Industries Journal, the European Business Review, the International Journal of Bank Marketing, the International Journal of Quality and Reliability Management and the Journal of Internet Commerce. His research has also been featured in local journals such as the South African Journal of Business Management, Southern African Business Review, the Retail and Marketing Review and Management Dynamics.

Daniel made numerous contributions to textbooks and regularly presents papers at national and international conferences. He is an associate editor for the European Business Review and editorial board member of the Southern African Business Review. He has supervised several masters and doctoral students to completion in the field of marketing.

Itumeleng Monale, Chief Operating Officer at the Johannesburg Stock Exchange

Itumeleng Monale joined the JSE in January 2021. She is responsible for the development and execution of the JSE's strategy, encompassing client experience, the sustainability portfolio and the exchange's Public Policy and Regulatory Advisory. She also oversees the JSE's business operations, which are made up of trading operations and the Client Service Centre.

She holds a BSc from Wits University, South Africa, and a Global Management certificate from the Thunderbird School of Management (USA). She is currently concluding her TRIUM global executive MBA programme with the London School of Economics. In 2020 Itumeleng was recognised as one of IBM's Women Leaders in AI and named one of the top 100 Global Data Visionaries of 2020 by Truata.

Dr Aboubayda Shabat, Head of DataLab at Risk Insights

Dr Abuobayda Shabat is the head of Data Lab at Risk Insights, a company that integrates various sources of data and machine learning into calculating an ESG rating. He holds a PhD in computer engineering from the University of KwaZulu-Natal, South Africa, and his PhD research focused on computer vision and improving the accuracy of object characteristics algorithms. Having combined academic and industry experience, he practices scholarly and commissioned research in the fields of data science, computer vision, 4IR, information systems, and informatics.