Living on borrowed time, SA needs to emphasise the ‘S’ in ESG

First Published in Business Day on   August 25th, 2022   |   by   Isaah Mhlanga

Living on borrowed time, SA needs to emphasise the ‘S’ in ESG

Tackling climate change will be futile if the country plunges into chaotic social unrest

With the rise of environmental, social and governance (ESG) investing and sustainability, a common question is why in SA the focus on climate change appears to be greater than on social and governance issues. 

There are several reasons for this apparent trend. Scientists tell us that we have one habitable planet, Earth, which has been heating up because of carbon emissions generated by human activities. Global warming is causing disruptive climate change, resulting in more frequent and severe droughts, floods, heatwaves and wildfires that are causing loss of life, migration and economic devastation.

The World Economic Forum reports that Italy’s longest river, Po, which has been crucial for transport, is drying up because of severe drought. France is experiencing its worst drought since 1958. Portugal recorded its hottest temperature in July and 99% of the country is experiencing severe or extreme drought. About 75% of Romania is also experiencing drought conditions. Drought has been declared in parts of the UK. This is why the EU appears to have a climate change focus in its approach to ESG and less of a focus on social issues such as unemployment, inequality and poverty, which are not at alarming levels.

It is worth noting that the effects of climate change are ubiquitous. All countries are affected irrespective of their contribution to global warming. However, addressing climate change will require all countries to act in sync — just like the response to the pandemic was handled. SA’s nationally determined contribution commits to reducing domestic carbon emissions in line with the Paris Agreement in what is commonly known as the just transition.

The economic costs of climate change continue to mount, prompting policymakers to put in place regulations that will force financial institutions, especially asset managers, to explicitly address climate change in how they invest. SA tends to follow global policy direction, especially from Europe, regarding financial sector regulation. This implies that there is also an emerging climate change bias towards ESG in SA.

However, SA requires a different approach to ESG and the just transition. SA’s social issues are more urgent and critical than the environmental issues. With the official and expanded unemployment rates of 33.9% and 44% and nearly 8-million people out of work, and 16-million people not economically active, it’s a miracle we have not had our version of the Arab Spring. In Tunisia and Egypt, society revolted and unseated sitting governments with less than half of SA’s unemployment.

We are living on borrowed time, of which the July 2021 riots and social protests in Thembisa two weeks ago are warning signs. Thus, while we address climate change, social issues must take centre stage, failing which, addressing climate change will become futile when the country plunges into chaotic social unrest.

Looking at the need to address our social issues from a different perspective, it is not a trivial matter that we need to reduce unemployment, poverty and inequality beyond the need for social stability, which is a necessary condition for investment and economic and job growth. The 1% of high-income earners can buy one to three properties or cars; but who will buy the rest if more than 16-million people are not economically active and have no income?

Effectively, addressing the “S” in ESG for SA is self-serving for big business; it creates a sustainable market for its goods and services. It is self-serving for politicians, as they will be seen to be delivering to their voters. It follows that while we need to move with the rest of the world to address climate change by doing our fair share of decarbonisation, we must address social issues urgently for the sustainability of the country.

We must never neglect to deal with our triple challenges of high unemployment, inequality and poverty in the name of climate change. These two are not separate issues and need to be dealt with concurrently. This is what sustainability for SA must incorporate.

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Gerson Kadhikwa (08:08:47 - August 30th, 2022)

I am in agreement with the key message articulated in this article. Namibia should equally address the unemployment issue, particularly amongst the youth. Exploiting natural resources, especially the newly found oil reserves and also harnessing the benefits from green hydrogen and other emerging economic sectors could possibly go a long way towards creating much needed job opportunities and business ventures for the youth.