To prosper in the 21st Century, businesses need to look at ESG holistically
Insights shared by Dr Jess Schulschenk, co-director of the Sustainability Institute and Dr Odirilwe Selomane, research associate at the Sustainability Institute
The World Economic Forum estimates that more than half of global GDP—or $44 trillion of value— depends on a healthy natural environment. Frame that as a risk, and it’s no surprise that sustainability has become an important item on board and exco agendas. It has also become an integral part of leading governance codes like the King Report on Corporate Governance. But while it’s critically important both as a way to change perceptions and provide a framework for accountability, regulation is something of a blunt instrument.
As the Institute of Directors in South Africa has frequently observed, if compliance is reduced to a tick-box exercise, organisations simply won’t realise genuine benefits. The most recent iteration of the King Report, King IV, has moved to an outcomes-based approach as a way of encouraging organisations to move from blindly implementing recommended practices to applying their minds about which practices to implement, and how, in order to achieve identified outcomes.
A similar shift in thinking needs to take place in the world of sustainability strategy. Concerns about “greenwashing” have been rife for years, and many companies take a very blinkered view of what needs to be done. As concerns about climate change in particular have mounted, we are starting to see a shift towards considering biodiversity, or perhaps more helpfully Nature, when looking at the specifically “environmental” part of ESG. In essence, this means recognising that the environment is a series of interlocking systems that need to be looked at holistically, taking multiple dependencies into account.
Such systems thinking is well established in business, particularly in manufacturing environments, so it should not be too much of a leap to apply the same basic approach to the environment.
Natural systems provide a host of benefits to humankind, from water storage and purification to the regulation of key elements like carbon, nitrogen and oxygen. The health of these systems is thus a prime consideration for humanity, and also the businesses on which human society depends.
The shift to systems thinking is critical because it is guiding business to confront the fact that their dependence on Nature is multi-faceted, and that simplistic amelioration initiatives ultimately do not make a significant impact, and may even cause long-term damage.
For example, some well-meaning projects to introduce beehives, which are vital for crop pollination, have had the unintended consequence of upsetting ecosystems which include native bees and other pollinators.
The notion of the Six Capitals that underpins King IV talks to this approach, as does the concept of stakeholder (as opposed to shareholder) capitalism. However, while stakeholder capitalism represents an advance, it falls short of what is needed for many reasons, not the least of which being that stakeholders are as likely to take a self-oriented view of a company’s activities as shareholders. Switching to systems thinking acknowledges that our collective wellbeing is inextricable from the health and resilience of the systems we depend on for life.
This move towards a systems-based approach to the environment is in its infancy but already we are starting to see the emergence of guidelines to help companies come to terms with it. Established in 2021, the Taskforce on Nature-related Financial Disclosures is busy developing a disclosure framework that will include both reporting and acting on Nature-related risks and opportunities.
Adopting a systemic approach will be challenging. Here are some issues that companies should consider:
1. Get the right skills. Understanding how natural systems work and how to repair them is specialist work, and it, therefore, makes sense to identify and work with, reputable experts in the field. It also makes sense to ensure that some of that specialist expertise exists in the company itself to avoid over-reliance on third parties.
2. Integrate Nature into core strategy. A related point is that a systemic approach will only work if it is integrated into the company’s core strategy—a long-term perspective is critical. Isolated projects with easily identified and reachable goals can, as noted, have unintended consequences. Once Nature-related risks and impacts have been identified, it is important to address their underlying causes in order to safeguard the business’s continuity and take accountability for the company’s impact on Nature. Outcomes or impacts need to be an integral part of this approach; disclosure is not sufficient.
3. Move to a regenerative approach. As noted, systems, especially natural systems, are extremely complex, with many interlocking parts. The aim should be to protect and help the system itself recover before it is irreparably damaged. Multi-stakeholder collaboration will be necessary, and this, in turn, needs a special set of skills, one of which is the willingness to reflect and consult. The idea is to find ways of working in concert with Nature, not against it, in order to ensure the business’s long-term sustainability and, of course, profitability.
4. Understand the financing options. Companies have limited resources and so need to invest their money wisely in order to maximise impact, within the context of the systemic, collaborative approach sketched. At the same time, companies need to create maximum leverage by using the emerging finance options to bridge the shortfall in governments’ pledges to invest in biodiversity as against what is actually needed.
In conclusion, it’s worth making the point that business, and businesspeople, are essentially optimistic—they are investors, after all. They are also action-oriented. While the media has done a good job of highlighting growing concerns about issues like climate change, it could be argued that the relentless doomsday emphasis risks alienating companies and employees.
While recognising the severity of the ecological crisis is critical, perhaps more emphasis needs to be given to the practical steps that businesses can take to address the crisis while bringing their operations into a more fruitful interrelationship with Nature. This approach aligns well with the outcomes-based slant of King IV. There is a growing body of success stories that show the benefits of taking action—for example, successful reforestation in Indonesia and Malaysia or progress in rehabilitating the Great Barrier Reef. These can be used to inspire companies and their employees to rethink the way they do business.
Business is all about making an impact, after all—let’s help ensure it’s a positive one.
Dr Jess Schulschenk is a Co-Director of the Sustainability Institute. Jess is also Partnerships Director for Africa and the Middle East for the Embedding Project, a global public-benefit research project that helps companies embed sustainability across their operations and decision-making. She further lectures for a number of business schools and higher education institutions. Jess holds a Ph.D. in Business Administration with the Graduate School of Business at the University of Cape Town, holds an MPhil in Sustainable Development from Stellenbosch University and a BSc in Ocean and Environmental Sciences from UCT. Previously, she has led teaching and consulting programmes in corporate governance, sustainability and community development for the public and private sectors.
Dr Odirilwe Selomane is a sustainability researcher working at the interface of science and policy. His research looks at quantifying and monitoring interactions between human activity and nature in a bidirectional way (flows from nature to people, and from people to nature). He has backgrounds in Agricultural Economics (BSc), Environmental Economics (MSc) and Conservation Ecology (PhD).