In it for the long run As investors demand more transparency on issues that affect companies’ sustainability, there is increased focus on adopting Environmental, Social and Governance (ESG) policies. Here are some of the main trends for 2012.

Executive Pay

The King III governance code, implemented last year, advises companies to allow shareholders to vote on executive pay levels at their annual meetings.  Although these votes are non-binding, it gives companies an opportunity to meet with shareholders and discuss any concerns.  Companies will need to be able to justify high executive remuneration in relation to company growth, profits and future sustainability – or face a backlash from investors. 

Responsible Investing

Launched last year, the Code for Responsible Investing in South Africa (CRISA) came into effect in February this year.  It aims to encourage institutional investors such as pension funds and insurance companies, as well as their service provides (asset and fund managers and consultants) to consider ESG matters when they invest.  The code advocates a holistic approach that is both responsible and sustainable.  “It is not just about setting aside a portion of the portfolio for ethical investment whilst the balance is applied towards generating financial returns,” says CEO of the Institute of Directors of Southern Africa, Ansie Ramalho.

Water regulation

Many companies now report on their carbon footprint based on how much carbon they generate.  But there is also increasing focus on water as a resource that needs to be well managed and protected. Until now regulations have mainly been driven at a local level and focused on the quality of waste water produced by companies. In future however, companies are likely to have to account for their water usage as well as wastage and amount recycled.  International regulatory trends are likely to influence local firms’ behaviour. 

Stakeholder engagement

Gone are the days when companies could simply put out a sustainability report to demonstrate their commitment to sustainability.  There is renewed focus on engaging stakeholders regularly to get their feedback on sustainability issues.  By leveraging interactive technology, such as social media platforms, companies are better able to identify potential issues, set strategy accordingly and communicate more effectively with their stakeholders.

Identify, incorporate, report

Companies need to be able to integrate the reporting of ESG issues alongside financial information. With new areas relating to sustainability, such as transparency and anti-corruption initiatives, worker rights and green supply chains coming to the fore, companies need to be able to demonstrate that they’re not only serious about implementing sustainability initiatives, but disclosing information on their performance too. 

Sources:  IoDSA; Business Times; Deloitte report:  “Sustainability 2011: A difficult coming of age.”