CONNECTING THE DOTS - JSE MAGAZINE

CONNECTING THE DOTS

The concept of sustainability and profitability complementing one another is entrenched in business. However, there’s a lot more to do to reach the perfect ‘triple bottom line’

CONNECTING THE DOTS

First the good news: SA has made big strides in corporate sustainability in recent years and is a leader in carbon disclosure and ‘integrated’ sustainability reporting globally. However – and this is the not-so-good news – we lag behind when it comes to actively addressing environmental issues.

Prof Arnold Smit, director of the Centre for Business in Society at the University of Stellenbosch Business School, explains why: ‘In South Africa, the sustainability agenda is much more pressing on the social side given inequality, education and health, and also the governance issues of service delivery, ethics and good-enough regulation.

‘Environmental issues are there, real and pressing in terms of water and low-carbon energy pressures and our regulations (such as the National Environmental Management Act and the Green Scorpions) compare to the best in the world, but as far as ESG [environmental, social and governance] goes, as these issues are called, the S and G are in the forefront here.’

Sustainability rests on the premise that everything is interconnected. The triple bottom line links economic goals with those of society and the environment. In SA, there’s a growing understanding that sustainability and profitability can indeed go hand in hand.

The strongest drivers of sustainability and corporate reporting in SA have been official regulatory requirements such as the UN Global Compact, the Millennium Development Goals, the King Report on Corporate Governance and the BBBBEE Code of Good Practice. There’s also the Global Reporting Initiative and, specifically, the JSE regulation that requires listed companies to integrate their sustainability report into their annual report.

Furthermore, in 2004 the JSE Socially Responsible Investment (SRI) Index became a modern pioneer in promoting sustainable and transparent business practices. Over the past 10 years, it has evolved significantly. The index measures listed companies against a suite of ESG and related sustainability concerns, as well as their response to climate change. Since last year, all FTSE/JSE All Share Index companies have been assessed automatically, based solely on the information in the public domain. The businesses can then review their profile and comment in order to submit additional, possibly yet unpublished, public information.

In the environmental category, companies that want to be included in the SRI Index are measured based on to their impact, strategy, management and reporting in five key areas (climate change, air pollution, water pollution, water consumption and waste).

According to Vanessa Otto-Mentz, an associate of Smit’s at the Centre for Business in Society: ‘We find that the business public’s literacy has steadily been increasing over the last few years from ignorance to stronger awareness to a desire to take theory into practice. Business people attending our management development programmes are much more attuned to the sustainability agenda than what was the case five years ago.

‘We [increasingly] hear stories of companies getting a holistic grip on sustainability concepts and practices, and these stories are stretching beyond projects such as the installation of LED lights, paper recycling, water saving and community outreach exercises.

‘In conversations, business people communicate that they now understand that it is first about the continued resilience and capacity of the economy, environment and society to provide for the continued existence of healthy, productive and profitable enterprises. So if you want to stay in business, you had better figure out how you take care of the resources and systems that make it possible for you to do so.

‘We are now seeing progress over a broad spectrum of things: the increase in green building designs, the increase in the renewable energy footprint, skills development in the green jobs domain, sustainability innovation in technology and mobility, town planning that favours pedestrians and cyclists, and so on.’

Progress is also being made in the bid to reduce CO2 and other greenhouse gas (GHG) emissions. SA intends to incentivise biofuels production and raise vehicle emission taxes, but the biggest change will be the introduction of a carbon tax. This was due to happen in January 2015 but has been postponed until 2016 ‘to allow for further consultation’, according to the National Treasury.

overview-Pull-Quote‘In South Africa, we are not certain the bulk of investors are giving water the attention it needs’

JOANNE YAWITCH, CEO, NATIONAL BUSINESS INITIATIVE

Its April 2014 Carbon Offsets Paper states: ‘To ensure a relatively smooth transition to a low-carbon economy, the carbon tax design incorporates … relief measures and a gradual phased-in approach to protect households and the international competitiveness of local businesses.’  

The country has committed to cutting down its GHG emissions over the next decade by 34% (by 2020) and eventually by 42% (by 2025). It has been suggested that the JSE should provide the backbone of the carbon offset trading system through its commodities trading platform.

A handful of large carbon emitters will be most affected. The CDP (formerly Carbon Disclosure Project) South Africa 100 Climate Change Report 2013 conducted its annual survey among the top JSE-listed companies according to market capitalisation and found: ‘Taken together with Eskom, the responding companies in the JSE 100 account for 60% of the country’s total estimated GHG emissions of approximately 559.65 million metric tons CO2e.’

Electricity parastatal Eskom is responsible for nearly half of this figure: 227.9 million metric tons CO2e for the year ending in March 2013, which is a decrease from the previous year (231.9 million metric tons CO2e).

Other large emitters, due to the nature of their businesses, include Sasol, ArcelorMittal SA, PPC Cement, BHP Billiton and Sappi.

In 2013, eight companies qualified for the SA Carbon Performance Leadership Index, which recognises companies that have responded fully and disclosed their GHG emissions in detail. However, the actual emission amount is not relevant to this score. The companies are Growthpoint Properties, Anglo American, Barloworld, FirstRand, Harmony Gold Mining, Nampak, Pick n Pay and Remgro.

Joanne Yawitch, CEO of the National Business Initiative that partnered to compile the SA Report, says: ‘The fact that the private sector invested R80 billion in renewable energy projects in the last few years illustrates the potential that is unleashed when the enabling framework is correct.’

However, she adds that the report also identifies areas of concern. ‘Emissions reductions are largely being achieved in one sector; businesses are not reporting their most material emissions across their value chains; and targets are still hugely variable in terms of ambition and timelines.’

According to the CDP, energy efficiency for building services and processes is still the core focus for company emissions-reductions initiatives. In its separate SA Water Annual Report 2013, the organisation identified water scarcity as the most significant water-related risk for the surveyed JSE-listed companies.

‘The CDP is an investor-driven initiative but in South Africa we are not certain the bulk of investors are giving water the attention it needs,’ says Yawitch.

The country has committed to cutting down its GHG emissions over the next decade by 34%

The survey shows that some big businesses are responding to the challenge. For example, Woolworths states: ‘A new range of water-efficient products or products from water-efficient suppliers in foods (such as Farming for the Future), home and clothing will create new sales opportunities.’

Retailer Pick n Pay is mapping suppliers according to water scarcity and cost while looking for ways to mentor smaller suppliers.

SABMiller has launched internal processes to reduce water consumption in its breweries and is now able to evaluate the full cost benefits of each cubic metre of water saved.

Sugar producer Illovo has invested R84 million in upgrading its irrigation system to improve water and energy efficiency, while Sasol has established three water conservation partnerships with municipalities to save water to the benefit of all Vaal catchment users.

overview-infographic

Another way of boosting environmental sustainability is recycling. There are numerous glass, aluminium and paper recycling initiatives in SA. The national recycling of polyolefin plastics packaging alone is worth about R1.4 billion.

Mandy Naudé, CEO of industry body POLYCO, says: ‘We have a vision of creating a united plastics industry that works together to achieve a growing and dynamic packaging sector committed to recycling and achieving our zero plastic to landfill target by 2030.’

Widely used polyolefin plastics include: LL/LDPE (as found in pallet wrap, irrigation pipes, frozen food bags); HDPE (crates, carrier bags, drink and detergent bottles; and PP (dairy tubs, crisp packets and nappies). A major end-use for recycled mixed packaging waste is outdoor plastic furniture.

‘Since 2013, POLYCO has funded polyolefin collection projects to the value of R9 million,’ says Naudé. ‘This will generate an additional 25 000 tons of new feedstock for the recyclers over the next three years and create approximately 450 new employment opportunities.’

These are all vital steps towards making the economic value chains more sustainable, minimising waste, increasing energy and water efficiencies and reducing carbon emissions. If SA continues to grow its effort in the environmental aspect of sustainability, the country may one day be able to make the E in ESG stand its ground next to social and governance.

By Silke Colquhoun
Image: Andreas Eiselen/HSMimages