Why ESG Has Never Been More Important

Environmental, social and governance is a measurement framework that the market expects from companies and their products and services. ESG measures the impact a company has on the environment within society, while and after providing its products/services.

According to Minnette Le Roux, an environmental specialist at NSDV, it is required of JSE-listed companies to disclose their ESG impact. When it comes to mining, just ticking the environmental compliance boxes can prove a few jabs shy of boxing clever. The initial saving is real enough, but there are equally real, and significantly greater, rewards to be had further down the line, by taking a more holistic and forward-looking approach.

“Environmental management is a multidisciplinary activity in which the competing interests of the economy, the environment, and people’s quality of life need to be balanced, to satisfy the needs and aspirations of all people and future generations,” she says.

Environmental law is infused with notions of equity, transformation, redress and justice. These notions play a critical role in current environmental management and will play a critical role in future environmental management. In the first place, these laws provide a safety net should developments fail to address an environmental problem. Secondly, environmental law can act as a brake on any development that harms the environment. Finally, environmental law provides a right to people to participate in the environmental decision process.

“There are consequences to not having environmental law. For example, it will result in developments taking place without securing an ecological sustainable development and use of the natural resources, hindering justifiable sustainable economic and social development,” says Le Roux.

Her colleague Nicolas Marsay, NSDV’s ESG and circular economy specialist, says civil society’s opposition to large businesses infringing on their rights and environmental laws are only as strong as the legislation of that country allows for. A weak environmental legislative framework will pose less of a “safety net” for people to oppose an environmental problem or prevent a development from harming the environment.

“For African countries to strengthen their environmental laws and provide civil society with a stronger voice, they should actively participate in the negotiations and ratification of multilateral environmental agreements (MEAs),” he says.

By participating in MEAs, African countries would be encouraged to formulate environmental laws that encourage the establishment of environmental policy goals to for example:

• Protect and improve the health, environment and livelihoods of the people of Africa with priority to the poor majority.
• Preserve the natural heritage, biodiversity and life-supporting ecosystems in Africa.
• Support regional economic development on an equitable and sustainable basis for the benefit of present and future generations.

“Our advice is to adopt the holistic approach now by partnering with an environmental, social and corporate governance team of specialists, to co-create a sustainable and profitable ecosystem for your venture – a model that lends itself to doing good while also making good business sense, and that’ll prove truly transformative in more ways than one,” says Marsay.

Net zero and the role of carbon tax

Nirvasha Singh, partner, Carryn Alexander, partner and Amanda Nkwanyana, associate at Webber Wentzel, note that a reduction in carbon emissions is integral to South Africa’s global commitment to achieve net zero.

The South African government strategically introduced carbon tax to combat global warming by encouraging a low carbon economy. The structure of the carbon tax legislation incentivises compliance to convert to green sooner rather than later – particularly those sectors that are typically heavy carbon emitters.

Carbon tax was introduced in a phased manner, starting with a relatively modest rate, together with transitional support and exemptions. Currently, companies are entitled to carbon tax allowances of up to 95% to assist financially in transitioning their operations to low carbon and cleaner technologies. However, these allowances will not remain for all three phases.

In the 2022 Budget, government announced its intention to ramp up the carbon price and strengthen the price signals to promote behaviour changes over the short, medium and long term. It proposed increases in the carbon tax rate for the 2023 to 2025 tax periods by a minimum of US$1, increasing gradually to US$20 in 2026 and at least US$30/tCO₂e in 2030.

Additional short-term tax relief was introduced by government through the energy-efficiency savings tax incentive, which provides a tax deduction equivalent to the monetary value of actual energy-efficiency savings (kWh) achieved, subject to a certificate of approval issued by the South African National Energy Development Institute.

It is proposed that this incentive be available until 1 January 2026, for relief from the proposed higher carbon tax margin, to encourage companies to reduce greenhouse gas emissions and help stimulate new energy-efficient practices and industries during this period. Companies must rapidly take advantage of this temporary relief by transforming their activities through investments in energy efficiency, renewables, and other low-carbon measures with the aim of reducing their carbon footprint.

Investing in low-carbon energy sources will help to fulfil any business’s ESG obligations. Commitment to ESG principles is important for many reasons – including attracting investors and talent. ESG-focused investments can also importantly reduce your carbon tax liability – and the savings are greater for early adopters.

While paying extra tax is inevitably resented, monitoring and controlling carbon emissions is more than just a tax obligation. It is fundamental to everyone’s commitment to achieving South Africa’s sustainability through a low-carbon and circular economy.

It is also worth noting that the new global clean energy economy has made way for industrial opportunities in strategic alternative minerals such as platinum, vanadium, titanium, cobalt, copper, manganese, chromium and lithium. The exploration of these alternatives will lead to a reduction in emissions and pollution levels, which will also lead to a reduction in carbon footprint, and thus a reduction in a business’s carbon tax liability.