The sustainability dilemma: Is it worth it for firms?

It is not easy to measure how a company has contributed to a reduction in the amount of greenhouse gases released into the atmosphere. [iStockphoto]

Does investing in environmental, social and governance (ESG) practices pay for businesses?

And if it does, how do you know it is paying off?

These are some of the questions that many businesses, particularly in Africa battle with amid the hype about investing in ESG.

ESG investing refers to a set of standards for a company's behaviour used by socially conscious investors to screen potential investments.

It considers, for example, how a company safeguards the environment, including corporate policies addressing climate change.

Social criteria, on the other hand, examine how a business manages relationships with employees, suppliers, customers, and the communities where it operates.

Governance deals with a company's leadership, executive pay, audits, internal controls, and shareholder rights.

The debate came to the fore during the recent launch of the 2022 KPMG East Africa CEO Outlook Survey Report.

Sustainable practices range from simple acts like switching from plastic to paper water cups at the office to only doing business with companies or firms that share in your ESG agenda.

In Kenya, this is seen through financial institutions like banks, which give green loans to businesses involved in environment-friendly infrastructure projects.

Safaricom and Standard Chartered Bank have been at the forefront in seeking deliberate business partnerships with women, which falls in the social pillar of ESG, while KCB Group seeks to lend out Sh5 billion in green financing.

Whether such decisions have an impact on the business' bottom line is the dilemma for some chief executive.

East African Breweries Ltd Group Managing Director Jane Karuku, who was a panelist in the KPMG CEO Survey Report launch noted that investing in sustainable operations is a case of "what is good for the goose is good for the gander."

East African Breweries Ltd Group Managing Director Jane Karuku. [File, Standard]

She said consumers today care about the brand they are consuming.

"So if your brand has not been taking care of the environment, they will not value it, and will go to the next brand," she said.

Ms Karuku said investing in ESG also helps businesses to be in good books with the regulators and the government.

This is because most ESG practices require companies to do more than what the law requires of them.

For example, while the law advocates for the two-third gender principle, there are companies like Standard Chartered that are deliberately seeking 50-50 representation.

"I know there is a lot of conversation, but as I said, what is good for the people and the consumers, is good for business as well. And ESG is good for people and consumers."

Perhaps one of the reasons why ESG is being shunned by business leaders is the impracticability of some of the initiatives and possibly how abstract the goals may sound to the layperson.

An example is a push by companies to reduce their carbon footprint.

It is not easy to measure how a company has contributed to a reduction in the amount of greenhouse gases released into the atmosphere.

It is the same questions raised in the 2022 KPMG East Africa CEOs Outlook Survey, which notes that ESG requires articulation of practical and actionable steps.

This should answer some questions like how do you assess your current carbon footprint? Where are the opportunities for improvement?

"Since the above questions are impossible to answer without the right data, investing in the right tool or framework to facilitate the capture, storage, analysis and visualisation of ESG-related data is critical," says the report.

"In our local environment, we need to be prepared for a situation where having a solid ESG response becomes a competitive advantage."

Britam Group Managing Director Tom Gitogo said when it comes to adopting sustainable practices, for instance moving from fossil fuels to clean energy, it cannot be immediate.

Britam Group Managing Director Tom Gitogo. [Wilberforce Okwiri, Standard]

Mr Gitogo said for the gains made from adopting sustainable practices to be noticed at an organisation level, they have to be looked at qualitatively.

"It might be hazy when you look at it quantitatively. But when you look at it qualitatively, there is no doubt on the sustainability question," he said.

Mr Gitogo noted that 62 per cent of Britam staff said they would leave if they did not get involved in ESG. The same was the case with young investors.

"If you want to be in business 10 or 20 years from now, you have to do it. So you may not measure it quantitatively accurately, but qualitatively you can never go wrong," said Mr Gitogo.