ESG compliance tops investor checklist

Economic, Social and Governance (ESG) factors have become imperative for corporates, as activists, government and the private sector grapple with ensuring a sustainable future.

ESG considerations are increasingly becoming crucial in the business world as investors and financiers increasingly look to sustainability criteria when making investing and underwriting decisions.

Waseem Thokman, Head of ESG research at Peresec Research Institution, said companies and investors need to adhere not only to regulatory requirements and standards but also go beyond compliance and stakeholder relations to look at the implications of their business models or companies they invest in.

“Companies and investors alike need to focus on ensuring sustainable livelihoods, especially after the realisation that bad business ethics have the ability to destabilise society and sustainable livelihoods,” said Thokman.

Despite the increased popularity of ESG and growing collection of proposed ESG standards, there is only partial consensus over what constitutes positive environmental behaviour for a business or how heavily to weigh the costs of a business’ environmental damages compared to its potential benefits to the economy and society. The definition of sustainability in ESG has largely been left to the discretion of individual investors.

Speaking of this fragmentation, Thokman is of the view that it is imperative to first establish the impact each organisation has on the environment and society, and then develop comprehensive criteria for each industry.

“The first step is to understand the historical context of companies and society’s impact on them. “This will create a basis for formulation of views and forward-looking strategies to generate additionality,” said Thokman.

Speaking at the AlexForbes Botswana AGM recently, the firm’s performance analyst, Basego Makoko, said ESG considerations are also gaining traction in the local market.

He said as a fund manager they are also keen on ensuring that their peers working with them invest in corporations that are ESG compliant. “We are continually making sure that fund managers working with us like BIFM take into considerations issues of green energy, socio-economic development and vivid corporate management structures,” he said.

Makoko further urged corporations to develop company institutions and abide by proper budget management to ensure readiness for investment opportunities.