Treasurers’ Conference – ESG in Real Life

Nicole Martens, director of Martens Impact Advisory, describes the systematic shift that the world is going through, moving towards a more inclusive and holistic way of thinking.

This is being driven both by popular movement and the undeniable environmental constraints that are emerging at an accelerating rate.

Global shift
The world as we know it is in a state of transition. There is a global shift from exploitation and extraction to sustainable and inclusive growth and development, which is why diversity and inclusion becomes so important at a leadership level. It’s about inclusive growth and not leaving anybody behind. We are moving to low carbon economies – we have no choice. Whether or not that transition is just, fair and inclusive depends on the decision we make now. This transition reflects an evolution in thinking by policymakers, regulators, industry and society. It’s a more holistic way of thinking. What we would have traditionally considered to be non-financial factors do have significant financial implications. We need every part of the system to work effectively for us to generate returns and grow in perpetuity.

What’s in the news right now
A lot of the conversations we have are academic and theoretical, but what does this mean in real life? I took a snapshot of some of the headlines in the Financial Times in the last week and unpack why these matter to us? The International Energy Agency (IEA) said there can be “no more oil and gas” investments if we are to reach net zero by 2050. The IEA is a global authority who sets the standard for the entire industry across the planet. This is relevant for South Africans and the nature of the market for energy in our context is that the proposal is an overhaul of energy supply and demand with coal demand reduced by 90%, gas demand down by 50% and oil demand down by 75% in the next few years. This presents a major risk to industries in our country and on the continent that depend on those sources of energy. There’s also an opportunity presented in the form of the need for clean energy investment of up to $5tn per year by 2030. The G7 recently said that they will not fund any new coal in developing markets. This is relevant because South Africa was a special invitee to the meeting even though we’re not part of the G7. That in itself is worth noting. The second part is that there’s now pressure from the G7 on countries like SA and available support for this transition, but there needs to be commitment from SA to do this properly.  Something that’s getting a lot of attention in the press is that a court in the Hague recently ordered Shell to decrease emissions by 45% by 2030. This sets a legal precedent for inadequate climate strategy as a human rights violation and there is potential liability for companies who do not have the appropriate strategies. This includes you and your clients.

Closer to home
Africa is particularly vulnerable to the negative impacts of climate change. We don’t have the infrastructure and the systems in place to bounce back from a severe shock. The world is watching SA as a proxy for African leadership to see how we adapt to the new normal mad our approach thus far has been underwhelming. There is a fixation on the old ways of doing things is limiting our potential to take advantage of opportunities that are presented in the new way and new normal. The domestic market is reaching the limit of its patience and we see this in terms of the shareholder resolutions tabled recently at Sasol and Standard Bank.

Questions to answer
You can ask yourself and your clients the following to get a sense of how far you need to go and what kind of work you should be doing.
What does the transition mean for your industry / business?
Where do you need to be? And by when?
Where are you starting (what is your baseline)?
How can you get to where you need to be by the time you need to get there?
How can you give investors / customers / regulators comfort that you understand the material ESG factors affecting and affected by your business?
What are pragmatic strategies for achieving your objectives?
How will you measure and communicate progress?
What can you do on your own and where will you need to collaborate with others?
What is the transition decision point?
Why haven’t you started yet?