Sustainability now the name of the game

Enthusiasm for more responsible business practices in Africa is beginning to take off. Corporate social responsibility (CSR), ethical investment and good governance have long hit the headlines, but sustainability is gaining credence, as companies seek to improve their reputations and host communities demand more from investors.

Broadly speaking, sustainable business practices are those that are economically, socially and environmentally responsible. They help to sustain viable communities, ecology and resources rather than eroding them for short term benefit.

Sustainable business practices and CSR must penetrate all strands of a company’s activities. They cannot be shoehorned into a dedicated, isolated department; nor can they be considered synonymous with charitable giving or community support.

Firms that consume a region’s resources cannot compensate for their activities with charitable giving and be considered sustainable businesses. The World Bank defines sustainable investment as “the integration of environmental, social, and corporate governance (ESG) factors into investment decisions and processes”.

There are numerous barriers to sustainable investment in Africa: the lack of access to information; entrenched investment practices that can be difficult to change; and the view that sustainable investment requires a negative view of investment.  

The last point is particularly important. As with corporate social responsibility, sustainable investment requires companies to avoid investing in projects or activities that are considered particularly damaging; but it can also be viewed as a positive strategy, in that it should include actively seeking out investment in particular beneficial areas, such as water recycling, renewable energy and training a local workforce.

Above all, there is a view that economic growth and employment of any kind are the main objectives in a continent with so much poverty, unemployment and unmet basic needs. Yet there is now a great acceptance that not all economic growth is equal and that the quality as well as quantity of investment must be judged.

At the same time, corporations realise that they are not just judged on their own, direct actions but on how well ESG sustainability is incorporated in their entire supply chain.

Multilaterals, such as the International Finance Corporation (IFC) of the World Bank, encourage companies to integrate ESG factors into their investment decisions. The IFC produces enhanced stock market indices that take ESG factors into account and help private equity funds to establish ESG analytical processes.

The organisation with the most assets by value in Africa, South Africa’s Government Employee Pension Fund (GEPF), and the asset manager of 92% of its assets, the Public Investment Commission (PIC), have both adopted ESG investment policies.

South Africa’s efforts to overcome Apartheid triggered an interest in responsible investment, which in turn has come to encompass sustainable investment. Elsewhere on the continent, government interest focuses far more closely on governance issues, supported by multilateral agreements, such as the Extractive Industries Transparency Initiative.

Pressure for sustainable practices is therefore created by a wide range of actors, including non-governmental organisations, foreign government, host communities and the business community itself.

When working on a sustainability white paper with Kellogg Innovation Network, Mark Cutifani, the chief executive of mining giant Anglo American, said: “Everybody is nervous and not sure why we are doing this. From my point of view, we’ve done a lot of work on safety, environment and community engagement. But in order for us to be successful and sustainable, we have to do things differently than in the past.

“The industry is constrained by conventional thinking. We need to do this outside of the normal industry structure by drawing ideas and experience from outside of the industry. We want to lead the industry and set the pace for change.”

The International Finance Corporation makes the following recommendations on sustainable investment:

•    Key influencers to drive messaging: The sustainable investment message should be presented in the language of investors; and the message must be driven by the end clients – the asset owners.
•    Streamline reporting: Reduce information gathering and execution costs by streamlining the ESG reporting approaches of – and increasing comparability of – ESG impacts through guidelines for private equity.
•    Leverage local knowledge: Leverage local and regional insights in sustainable investment to develop new global best practices.
•    Make the investment case: Presenting the sustainable investment case to make the proposition that sustainable investment has the potential to generate increased returns and/or reduced risks across all asset classes.
•    Keep score: Investors and investment stakeholders need to keep abreast of investment performance and ESG impact. Regular surveys of investment products, portfolios, and performance are required, along with benchmarking through a regional sustainability index.

Diageo targets
In December, British drinks giant Diageo unveiled 20 new sustainability and responsibility targets to be achieved by 2020. The firm manufactures products such as Guinness and Smirnoff at more than 130 plants around the world.

The 20 goals cover three main areas: reducing environmental impact, building thriving communities and “leadership in alcohol in society”. Given that the company relies on the sale of alcohol, the last of these may be the most difficult to achieve.

Chief executive Ivan Menezes said: “Our targets are stretching and ambitious. We are determined to focus our resources and creativity to really make a difference; and we are committing to better understand and report on the efficacy of our programmes, to achieve the greatest positive impact.”

The targets include reducing the greenhouse gas emissions that it produces itself by 50%; and those produced by its supply chain, including farmers and agricultural communities, by 30%.

It also plans to make all of its packaging recyclable; boost the proportion of its renewable packaging content to 45%; and reduce the amount of packaging it uses by 15%.

This is in line with the reuse, reduce and recycle message of the environmental movement. More specifically, the company aims to locally source 80% of the raw materials it uses in Africa.

The company conceded: “Diageo understands that the role of alcohol and its impact on society must be our primary focus, and over the last decade we have concentrated our efforts on advocating responsible drinking through hundreds of programmes across the world.

“We will continue these efforts, with a focus on delivering the alcohol industry’s five global commitments to reduce harmful drinking. We will apply a rigour and focus to the measurement, evaluation and public reporting of our responsible drinking programmes with the aim of continually learning and improving our efforts to make a tangible difference.”

Alcohol profits do not have to go hand-in-hand with alcohol-related ill health and violence. Indeed, the industry could promote the advantages of factory-made alcoholic products over more traditional homemade brews. The danger of the latter was recently highlighted by the death of more than 50 people at a funeral in Mozambique.

In addition, as primarily a drinks company, there is obviously also a great deal that Diageo can do to manage its water consumption. It produces 6.5bn litres of its products a year and has pledged to increase water efficiency across the entire company by 50%; as well as ensuring that all wastewater is treated before it is returned to the environment.

Sustainable agriculture
Many companies now produce annual sustainability reports. To take one example, in its 2014 Corporate Responsibility and Sustainability report, Olam International looks at how its activities affect seven different areas: livelihoods, labour, water, climate change, land, food safety and food security.

The company has set itself a target of making its entire supply chain sustainable by 2020, although it will obviously set its own definition of ‘sustainable’. During 2014, Olam cut the volume of carbon emitted on its own plantations by 18% and the total volume of water consumed by 5%. 

The report also highlights that it spent $40m on 190 community initiatives in 2014, including HIV/AIDS and malaria awareness campaigns in Africa
Founded in 1986 as a Nigerian cotton producer, Olam is now based in Singapore and is 58.4% owned by Singapore’s state owned firm Temasek. It is active across many parts of the agribusiness sector, from flour and sugar mills to owning its own forests and farms.

Some analysts have criticised its agribusiness vertical investment strategy but the company argues that this is the best way to control its environmental footprint.

The firm is expanding from cocoa and coffee growing into processing both commodities. In December, the company announced a $1.3bn deal to buy the cocoa operations of Archer Daniels Midland, which makes Olam one of the three biggest cocoa processors in the world. Gerard Manley, global head of cocoa for Olam, said: “We believe that cocoa and chocolate are on the up, and that there will be a shortfall of processing capacity because of the demand that we’re seeing.” It will be interesting to see how the company integrates its sustainable strategy in its new acquisition.”

Sustainable fuel use
There is a great deal of potential for greater linkages between sustainable agriculture and industry in Africa. For example, South African Airways and Boeing are working together in South Africa’s Limpopo Province to produce a more sustainable alternative to jet fuel.

They are trialling the seeds from a nicotine-free tobacco plant called Solaris as a bio-jet fuel. Ian Cruickshank, an environmental affairs specialist for SAA Group, said: “The impact that the biofuel programme will have on South Africans is astounding: thousands of jobs mostly in rural areas, new skills and technology, energy security and stability, and macro-economic benefits to South Africa, and of course, a massive reduction in the amount of carbon dioxide that is emitted into our atmosphere.”

Although renewable, the use of biofuels is far from uncontroversial as it can result in land being used for fuel production instead of food cultivation.

Some initiatives are also attempting to incorporate sustainable technology in new infrastructure from the very start, rather than inserting it at a later stage. This approach has much in common with other African efforts to leapfrog stages of technological development, such as concentrating investment on mobile telecommunications rather than landline infrastructure. 

One example is US firm Mesocore, which is promoting its new hybrid homes as 100% sustainable. They are manufactured off-site with integrated rainwater collection and solar panels, and delivered to off-grid locations where they can be completed according to the customers’ needs.