Business should not get lost in noise around governance

The challenges of climate change and economic inclusion are front of mind for many stakeholders and businesses. The focus for many businesses right now is to find ways to continue the business of business in a way that is focused on protecting people and planet, while creating long-term value in a more sustainable manner.

Businesses must now navigate their way around a rapidly evolving landscape of environmental, social and governance (ESG) factors and integrate ESG and sustainability into day-to-day business practices.

In practical terms, this means grappling with a complex web of ESG requirements, including a growing body of industry guidance and regulatory scrutiny that requires the management of legal and reputational risk, while addressing calls for a greater focus on ESG.

Thinking and acting on ESG in a proactive manner has, in the recent past, become even more pressing with an increased emphasis on the “S” and “G”, in addition to the “E”. To navigate this rapidly evolving ESG landscape it is important to understand the individual elements of ESG, being:

The “E”, considers the impact a business has on the planet today and in the future. Extreme weather events, like those seen recently in KwaZulu-Natal, can disrupt business and weaken an economy, impacting on the businesses ability to operate and leading to increased costs and lost time. Increased environmental regulation may also require businesses to make changes to their products and operations.

Reputationally – and for brand protection – it has become increasingly important for businesses to take action to reduce the output of waste and emissions to minimise the impact to the environment. It should be noted that consumers are increasingly aware of the impact businesses they support have on the natural environment. In navigating the “E”, businesses must identify and implement environmental improvement solutions, so as to operate in a manner that reduces waste and emissions and meet environmental compliance requirements.

The “S”, considers the impact a company has on people and the communities in which it operates. Noncompliance with occupational health and safety legislation, including Covid-related occupational health requirements and failure to protect employees, customers and other stakeholders, could undermine the businesses reputation and negatively impact productivity.

Not promoting diversity and inclusion, a failure to be seen to provide equal opportunities and development opportunities and a failure to meet transformation targets may affect a business’s competitiveness and sustainability.

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Navigating the “S” includes implementing robust transformation strategies that drive employment equity and making career development opportunities available, along with training and support programmes. Achieving the “S” also includes ensuring that the working environment, products or operations of the business are safe for employees, customers and other stakeholders. The possibilities are endless in the “S”.

The “G”, which considers the internal system of practices, controls and procedures for how companies are run and how boards of directors should make decisions “in the best interest of the company”. When assessing what is in the best interest of the company, however, the “G” continues to evolve as more and more stakeholders need to be considered beyond just the shareholders.

A company’s impact is wider than a boardroom. Business should not get lost in the noise around governance but should strive to develop and implement appropriate internal controls and promote high levels of ethical and compliant business conduct.

Kortjaas is a director in the finance and banking practice at commercial law firm Cliffe Dekker Hofmeyr