Sustainability is now an imperative, but what does it actually mean and how will it impact business and policy in Africa post COVID?
Three seismic shifts have occurred over the last year bringing the ‘social contract’ between society, governments and businesses into light: the climate emergency, Covid-19, and Black Lives Matter. These three elements have come together to push sustainability to the top of the agenda for governments, individuals, and businesses alike.
Simultaneously, investors in Africa are increasingly looking for businesses with long-term strategies that have a direct, positive impact on communities and the environment. In short, the discussion around sustainability has dramatically broadened in recent months so that it is now an entry level requirement when it comes to doing business.
Leading the ESG conversation
Sustainability and ESG go hand-in-hand, and many of Africa’s investment community are laser-focused on it. Alongside the ‘E’ of environment, are the social and governance practices of African companies. These three pillars cannot be considered separately. When measured and reported, ESG builds a picture of a company’s ethics, values, leadership and behaviours for the benefit of its trading partners and other stakeholders. The investor community looks at ESG as part of its due diligence and through the historical demands of development finance, African companies have traditionally led, not lagged in this regard.
Throughout the Covid-19 crisis, much has been made of ESG as an indicator that ethical business is more desirable and ultimately more competitive. The pandemic has highlighted all aspects of ESG as critical, for example, businesses with more localised supply chains, lower carbon footprints and high levels of social responsibility and governance (including diversity, leadership, succession and strong business continuity plans), are much more likely to survive the pandemic and emerge resilient.
Africa has earned a reputation as the leapfrog continent when it comes to tech innovation. Could the same level of leapfrogging be possible when it comes to sustainability?
There are certainly those who think so. Reading a case study on ‘green’ cement research, I was struck by the words of Dr. Wolfram Schmidt of BAM international the leader of an initiative to investigate innovative concrete and new construction methods in Africa.
He notes “In Europe, there are numerous standards and regulations. These have many advantages, but also prevent innovations coming quickly to the market. Things are different in Africa, as the concrete industry is still relatively young. There I can sense a great enthusiasm for innovation: businesses try to bring new insights straight to construction areas. Their creativity is unbelievable. ……….. our colleagues in Africa could in future be using better and longer-lasting concretes than we are in Europe.”
Is this a clue to what Build Back Better will look like for Africa? By the end of the century, Africa will host 13 of the world’s top 20 megacities, including the top three. The role of construction in this future cannot be overplayed.
Africa’s NetZero Commitments
The climate emergency has magnified importance around the ‘E’ in ESG, both amongst the public and private sectors. Twelve African cities pledged to limit warming to 1.5 degrees at COP25, including Nairobi, Accra and Dakar. At the country level, representation was thinner, with only Ethiopia as part of the ‘Under 2’ Coalition.
Quietly momentum is building to realise the continent’s NetZero ambitions. While there remain too many African economies reliant on high carbon extractives, they are increasingly absorbing renewables into their energy mix. Encouraging signs of policy implementation has whet the appetite of financiers and encouraged a shift in funding priorities to renewable energy.
However, the investor community can only move the dial so far. For environmental progress to occur at the speed needed, more work is to be done on government policy changes and incentives. In short, until it becomes cheaper to use renewables than higher carbon emitting sources of energy, we will not see the ‘leapfrog’ progress needed. The first step is a coordinated approach between government policy, investor incentives, local needs and capabilities.
Equality at the heart of social and governance
While the Black Lives Matter movement has highlighted systemic inequalities, it has also laid bare the distinct lack of black captains of industry. That rings true across the continent, where it’s difficult to point to a totem of African entrepreneurship beyond Aliko Dangote. The majority of large corporates are multi-national corporations (MNCs) or divisions of MNCs, meaning that profits are repatriated and more importantly, there is a lack of examples of genuine African success stories to inspire the next generation (by comparison, think of South Korea’s home grown MNCs, Kia, Samsung and LG).
Large, homegrown businesses create opportunities that cascade wealth, driving growth and development across generations. While these remain scarce, the racial wealth gap persists, failing to drive out external influence of foreign-owned entities and limiting capital directed to homegrown entrepreneurs, constraining their ability to scale up. This gap will continue to widen unless decisive action around access to growth finance and the cost of capital is taken.
To witness lasting progress across the continent, the young, well-qualified and aspirational workforce must be central to any development agenda. Home to the world’s youngest population, the future business landscape needs to be cast in their mould. One which suggests that younger people are more likely to work for businesses that put purpose before profit and have sustainability at the centre, rather than the periphery of its business model. Good leaders will recognise this opportunity and design their businesses accordingly, in turn demonstrating why leadership is so central to governance.
With Covid-19 turbocharging these trends and fundamental shifts in the ‘social contract’, Africa has the opportunity to leapfrog towards more sustainable business models attracting its share of the growing amount of impact investment capital available for businesses that are run with sustainability at their heart. What’s more, the sustainable development goals (SGDs) create a workable framework for the business community to sign up to and for government to prioritise in national development plans.
In order for Africa to truly Build Back Better, we need a dramatically more coordinated approach across international investors, local businesses, DFIs, and policy makers that recognises the interrelated nature of ESG, sustainability actions and outcomes. I believe our role at Invest in Africa is vital in helping African businesses leapfrog progress towards the sustainable development goals. Collectively we have an important role to play in highlighting and coordinating the necessary changes, whilst also adding a sense of urgency, particularly to government policy and existing businesses operations.
No one organisation should be expected to achieve this alone, so I encourage others who feel they have something to contribute to share your solutions with us.
I look forward to hearing from you!