THE VALUE OF INVESTING ONE RAND: HOW ESG ADDITIONALITY CAN DRIVE SOCIO-ECONOMIC DEVELOPMENT

As listed companies, we are preoccupied with becoming the best performer in international and local ESG ratings and rankings. Many companies can attain excellent performance in these rankings and ratings. However, when one looks at the evidence on the ground, identifying the sustainable impact associated with such performance is a challenge. Why is this the case?

I contend that good ESG performance is never a race to the top. No two jurisdictions will have the same ESG challenges and benefit from the same impact investing strategy. The principle of partnership for impact must drive it. Companies should be measured on how they have leveraged collaboration and investment to deliver sustainable impact to the beneficiaries of socio-economic investment. The inaugural Sanlam ESG Barometer as an engagement platform provides an opportunity for companies to ventilate and clearly define what good ESG impact investment looks like from the perspective of the beneficiaries and in the context of their reality.

The Paris Financial Centre Impact Task force argues that impact finance is an investment that aims to accelerate the just and sustainable transformation of the real economy by providing evidence of its beneficial effects. For ESG impact investment to attain additionality status, it should allow the beneficiaries of the investment to increase the impact generated by their activities. This is not a simple aspect to determine as one must have a long-term view of their investment return and be open to allowing the partnership to stretch every rand that they invest. The challenge is that when ESG impact investment is to meet compliance requirements and receive accolades to increase company ratings and rankings, it becomes a challenge to embrace partnerships and assume a long-term view of working with beneficiaries. How do we stretch 1-Rand to ensure that it accelerates the just and sustainable transformation of the real economy by providing evidence of its beneficial effects? Firstly, identify the “Real Economy Need” and appropriate “Impact Investment” vehicle. This cannot be conceived in the boardroom with company ESG specialists discussing what beneficiaries require and how they will provide the solution. This should be a consultative process which starts with a blank slate and the desire to create impact. Recipients of ESG impact investment in the most will have a good sense of the need and possible solutions – as impact investors. We must approach this as a partnership from the onset.

Secondly, “Go beyond philanthropic mindset” – beneficiaries are not waiting to be rescued by a big corporate. This mindset does not result in “ESG additionality” because it is not intentional, and the measurement of long-term success for the beneficiaries is not essential. It can be seen as a handover to the need. Lastly, foster “Partnerships for Impact” to create a more significant impact in the real economy. Going it alone with the hope of creating ESG additionality will be like trying to boil the ocean. The Sanlam ESG Barometer seeks to engage with industry partners on the value of ESG additionality and identify opportunities to foster partnerships to create a more significant impact. The focus is to ascertain if companies actively seek ESG investment opportunities towards creating sustainable impact in the real economy.

It cannot be Business As Usual when it comes to ESG additionality. Yes, we acknowledge that companies are measured on their performance against ESG ratings and rankings. However, this cannot be at the expense of creating a real impact in the real economy for beneficiaries. The ESG initiatives and community beneficiaries we include in corporate glossy sustainability reports case studies should be the narrators of their success and partners to corporates. In conclusion, we should identify the “Real Economy Need”, “Go beyond the philanthropic mindset”, and foster “Partnerships for Impact”. Results are demanded of us collectively; there is no price to be won by those who arrive at the top of the mountain, leaving an unsustainable and untransformed economy.