DRESS REHEARSAL - JSE MAGAZINE

DRESS REHEARSAL

The global pandemic has taught the world many lessons and highlighted that business needs to pay much more attention to the impending climate crisis

DRESS REHEARSAL

The only positive that emerged from the current COVID-19 meltdown and its ‘coronanomics’ is that it demonstrated the possibility of turning back ‘climanomics’, says Owen Skae, director of Rhodes Business School. Like everywhere else in the world, SA business is still getting to grips with ‘coronanomics’ (the devastating economic implications and the recovery from the pandemic and its restrictive lockdown) while at the same time being acutely sensitised to ‘climanomics’ (the potentially catastrophic economic impact and massive material risk of climate change).

COVID-19 has exposed fault lines in the way companies conduct their business, and although the current situation differs from the climate crisis as a disaster, it’s been regarded as a dress rehearsal for the looming global climate catastrophe. Importantly, it has sharpened corporate SA’s awareness of systemic ESG (environmental, social and governance) risks – with the E standing for any environmental issue from plastic pollution, air quality and carbon emissions, from water scarcity, mine rehabilitation and renewable energy to the overarching climate emergency.

‘Although “E” issues are potentially pushed to the back of our collective attention due to the immediacy and scale of the “S” and “G” issues in the South African context, as well as the comparatively small space it is given in the media, we must remember that this is not the case in the real world,’ says Vanessa Otto-Mentz, sustainability strategist and change practitioner. In the ‘real’ world, the environmental risk is a real, material threat that has already warned businesses of things to come. ‘Cape Town’s Day Zero was an even closer dress rehearsal for climate change than COVID-19, as were the Knysna fires and the extreme droughts of the last few years. This kind of event will be common in South Africa if we fail to keep global warming well below 2˚C in alignment with the Paris Climate Agreement,’ she says.

‘Perhaps COVID-19 is a dress rehearsal, as a lesson that we humans are indeed vulnerable and part of, not separate from, the world we inhabit, and in fact very dependent on a healthy society and a healthy natural environment, given that pandemics and viruses are linked to deforestation and factory farming, and the treatment of wild animals.’

It is, therefore, crucial for business and industry to focus on environmental issues if we want to build long-term resilience and address the increasingly interconnected global challenges that affect people, planet and profit.

As the ongoing pandemic has shown, it is the marginalised and poor who are the most adversely affected when an environmental threat is not addressed with real urgency and intent, says Skae, who argues that structural constraints are preventing a transition to a more socially and environmentally resilient future. However, how should SA tackle the big issues such as the climate emergency and biodiversity collapse when there are burning issues (such as COVID-19 infections, economic recession and growing poverty) that demand immediate intervention?

The thing to remember is that environmental risks are almost always social (and often governance) risks as well, and as such should be addressed holistically. ‘The best-case scenario is the marrying of business opportunities that come with mitigating, preventing and pre-empting what is likely to become more pronounced, volatile and cyclical,’ says Skae. Pointing out the moral dimension of ESG issues, he adds that ‘we shouldn’t waste water, for example, but combine that with the business case and you have a situation that says what’s good for business is good for the environment. Then consider the financial risks of stranded assets. Overnight, your balance sheet can go from a healthy situation to one that has no cure, however you try to spin it’.

To this end, SA’s corporate COVID-19 response (notably the switch to remote working, online meetings and a low-contact economy) may in the long run not only be good for the balance sheet but also for the environment and the workforce. Companies such as Dimen sion Data, Rand Merchant Bank and Shoprite, among others, are considering a blended HR model where staff split their work time between home and the office.

This, together with a reduction in domestic and international business travel, will save employers huge costs in travel expenses and running their offices while allowing employees a better work-life balance. Obviously the savings in greenhouse gas emissions (from less commuting, flying and reduced office utilities such as electricity and water) will significantly shrink the overall carbon footprint. However, this improved environmental sustainability is an unintended consequence of the emergency response, not the key objective. For a more systematic approach, companies should assess all environmental issues as part of their ESG strategy and embed them into their business plan.

Companies that come across as genuinely trying to embed sustainability across their operations and decision-making, and that communicate their progress transparently, can turn this into a competitive advantage, as shown, for example, by Woolworths, Sappi, AngloAmerican and Old Mutual.

‘Material ESG risk is no different from any other risk, such as political, technological or economic risk,’ says Otto-Mentz. ‘All of these risks, if they are material and relevant to an organisation, ultimately result in financial or reputational risk to a company. A board has a fiduciary duty to address significant and material risks. If they fail to do so, they fail in their duties to the company. So the King Code on Corporate Governance recommends, as well as the Task Force on Climate-related Financial Disclosures for a specific climate example, that the company board consider the adequacy of a company’s responses to these risks,’ she says.

Companies are already being evaluated in terms of their broader ESG strategy and behaviour, not just by their shareholders but increasingly also by stakeholders and consumer activists using social media to challenge and ‘cancel’ those organisations that they perceive as misbehaving.

In a trend towards more transparency and accountability, COVID-19 is changing the nature of corporate reporting. ‘This is long overdue, and hopefully companies will embrace this. As Norton and Kaplan said, “you can’t manage what you can’t measure, and you can’t measure what you can’t describe”,’ says Skae, referring to a global movement towards streamlined, comprehensive corporate reporting by five leading organisations (the Carbon Disclosure Project, Climate Disclosure Standards Board, Global Reporting Initiative, International Integrated Reporting Council, and Sustainability Accounting Standards Board).

In September 2020, the collective noted in a statement of intent that ‘today, sustainability disclosure (also called ESG disclosure – environmental, social and governance – or non-financial reporting) is more relevant than ever for a wide range of audiences including policymakers, consumers, employees, investors and civil-society organisations. Sustainability topics that a company once considered immaterial for disclosure can become material, based on evidence of an organisation’s impacts on the economy, environment and/or people. Likewise, some of these sustainability topics can also become material for enterprise value creation, either gradually or rapidly – as with human capital topics such as racial equity and, more recently, the COVID-19 pandemic’.

The movement advocates for sustainability-related data to be structured for sharing and comparison, as well as the importance of a publicly available data platform to democratise the access to this information as ‘a public good’.

While all this may seem daunting at a time of great uncertainty and pressure, SA business organisations are using their leadership to steer towards a greener post-COVID recovery. In July 2020, the National Business Initiative (NBI) and Business Unity SA launched the Just Transition Pathways project to develop a low-carbon economy. The aim is to accelerate green stimulus, mobilise cross-industry collaboration and create a unified voice for SA business at COP26, the UN climate change conference in November 2021.

‘We are poised at a unique moment to attract investment and financial relief packages that can stimulate a just transition towards a net zero carbon, socially equal, climate-resilient, thriving and sustainable economy,’ says the NBI, inviting business leaders to join the Alliances for Climate Action South Africa (ACA SA), convened by itself, C40 Cities and the WWF.

In line with global initiatives to ‘build back better’ and what the WEF has termed ‘the Great Reset’, ACA SA states that any post-COVID recovery plan needs to be climate-smart to ensure the nation’s economic well-being. It urges the private sector to collaborate at sector level and with local government to unlock climate-resilient opportunities for partnerships and investment.

‘We will overcome COVID-19, as humankind has shown itself to be resilient in dealing with pandemics and plagues,’ says Skae. But the question is whether we’ve learnt enough from ‘coronanomics’ to turn back ‘climanomics’. SA business still has a narrow window of opportunity to help create the kind of economy that will prosper even when faced with new pandemics, environmental threat and climate change, striving to build a sustainable future.

By Silke Colquhoun
Images: Gareth van Nelson/Highbury Media