Legislation
Over the past five years, compliance to legislation in Africa has been the primary driver to changing attitudes about sustainability and climate change within the private sector.
Most of the sample derived from the extractive sector. This trend is therefore unsurprising given the increasing legislation the extractive industry is facing across Africa. Most of this legislation has focused on shareholding ownership, and social and environmental issues, rather than legislation around corporate governance, ethics, supply chain management or employee rights.
Small-Medium sized Enterprises (SMEs) in particular explained that compliance to legislation has been the driving factor in changing mind-sets to sustainability issues. In fact, 78% of the SME sample is thinking more about how sustainability and climate change issues will affect their business compared to three years ago, and a majority explained that this was due to compliance to legislation. 67% of the sample stated that their sustainability initiatives were started by expanding upon existing discussions and relationship. Only one company stated that its sustainability initiatives were commenced by following international standards and frameworks for best practice.
Multinational Companies (MNCs) also confirmed that the government's main role in stimulating good business practice on sustainability and climate change issues is through improvements on policies and regulation. As a second option, MNCs explained that clearer communication and coordination on best practices and implementing frameworks should be another focus of governments. Creating financial incentives or having an open door policy on public-private partnerships are not priorities MNCs believe governments in Africa should be focusing on, reconfirming the role of legislation has in driving change.
Budget constraint is the principle obstacle facing the private sector, both SMEs and MNCs, when implementing sustainability initiatives. MNCs also stated a lack of expertise and human resourcing as an obstacle to implementing sustainability initiatives.
Latest sustainability survey of corporates in Africa confirms that legislation has been the primary driver of changing attitudes about sustainability and climate change, and that budget constraints remain the number one obstacle to implementing sustainability initiatives.
This may be due to the fact that many corporates in Africa, particularly SMEs, still think of sustainability or Corporate Social Responsibility (CSR) as community development projects and community investment. If a company defines sustainability initiatives as solely community investment projects, and does not consider the broader definition of, responsibility, improving internal efficiencies and reducing environmental footprints, sustainability issues will never be seen as business imperatives. Budget constraints are always going to be an obstacle if CSR is seen as an adjunct to business and not of strategic business importance.
It is understandable why community investment projects takes precedence over investing in internal efficiencies and improving corporate governance policies and ethics. The demand in Africa for community public services such as health clinics, schools, clean water and hygiene services is so high.
There is an immediate positive impact when investing in community development projects. In fact, an equal number of SMEs place more importance on community development investments than in reaching best practice in terms of corporate governance and environmental efficiency. SMEs explained that this is because "rural communities are potentially the biggest beneficiaries to conservation efforts and education", "Because it will have a greater long term impact", and "Because of the ripple effect it will have on people and national development".
In comparison, MNCs often prioritised following international best practice in terms of community investment, internal efficiencies, supply chain management, due to their global structure and requirements as a subsidiary.
Taking big brands such as Coca-Cola, Unilever, Diageo, and Rio Tinto into consideration, one can see the importance they place on creating a 'sustainable business model' for the continent, ensuring that profit maximisation is not at the expense of the environmental or communities in the long run.
Coca-Cola's 5by20 programme to empower female entrepreneurs down their supply chain by offering business training is one such example. And Unilever's CEO, Paul Polman has been quoted as saying "We believe that business must be part of the solution. But to be so, business will have to change. It will have to get off the treadmill of quarterly reporting and operate for the long term. It will have to recognise that the needs of citizens and communities carry the same weight as the demands of shareholders".
These companies have realised that in order to create sustainable profits and to continue to be operating in 20, 30 even 40 years' time, issues of ethics, the environment, society and government need to be addressed.
MNCs noted a number of things SMEs could do to increase their efforts in addressing sustainability. These included:
Keeping track of the value of a corporate sustainability programme or project, is an important element of justifying budget costs internally. Only half of the SME sample kept track of the value of their sustainability programme compared to 72% of the MNC sample. MNCs are putting in place data-capturing software and tools to understand the impact their programmes are having both from a cost reduction perspective, and from a social and environmental impact perspective. Monitoring the return on investment from sustainability projects is a fundamental first step to securing more budget for this type of work, and thus overcoming budget constraints.
The way of doing business and how businesses think about the sustainability of their operations in Africa has changed over the past five years. However, if we compare the overall level of CSR activities and sustainability across the board in Africa to companies in Europe of the US, there is still a long way to go.
One clear outcome of this survey is the need to better articulate the benefits that CSR and sustainability brings to a company's bottom line, both internally with the business and externally, particularly to government. Tools, frameworks and processes to help companies capture the impact of their sustainability initiatives and measure their return on investment (ROI) need to be developed and integrated into their operations. MNCs have begun this process and have realised more budget being allocated to their sustainability initiatives. SMEs however, still need their understanding and capacity built when it comes to these measurement and evaluation tools.
The role of business associations and sustainability consultancies should not be overlooked in assisting companies with these tools and frameworks. Many business associations have links to international business groups who have access to international best practice in this field. And sustainability consultancies have the time and resources to assist businesses in integrating these tools and processes into operations.
The role of government should not be overlooked either. The role of government broadly encompasses three main things: providing public goods such as infrastructure and education; providing the right policy environment to incentivise people to do the right thing; and providing a healthy and transparent business regulatory environment that also provides incentives to behave the right way.
It is the latter that governments across Africa have not prioritised and it has been noticed by both MNCs and SMEs. Opening up lines of communication between government and the private sector in regards to sustainability and environmental challenges will help the government create a conducive environment for businesses to operate in an ethically, socially and environmentally responsible way, contributing to the long term national and local development of the countries in which they operate.
Going forward, all SMEs and MNCs expected that there will a fundamental shift in the way companies do business in Africa over the next decade due to the impact of climate change and sustainable development. If companies can better measure and understand their sustainability footprint, and governments are better placed to create a pro-sustainability regulatory environment for business, then half the battle is won.
