• Monday, December 23, 2024
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Forward thinking; How sustainability will shape Africa’s business climate

DCO membership to accelerate collaboration between African digital economy ministers

The phrase “business as usual”, according to some sources, became popular during the World War 1 period, when shops had to put on display, signposts to announce that they were always open to customers. While the phrase has largely retained its meaning connoting resilience, in Africa, it also refers to situations where operations and practices rarely improve. Historically, Africa has taken a backseat in the adoption and implementation of Environmental, Social, and Governance (ESG) frameworks, due to complex reasons including the economic exploitation of the resource-rich continent. However, recent sustainability trends and projections on the continent are clearly on one point: It will no longer be business as usual.

One mark that the pandemic has left on the world is the paradigm shift in how we think about our solutions. The World Bank in January 2022 noted that the pandemic has led to a resurgence in sustainable and ethical investing, with investors broadening their objectives to encompass both the security of their financial assets and financing solutions to pressing environmental and social issues. “These investments have become increasingly mainstream, and now account for more than $39 trillion in the five major global markets, a 34 percent increase over two years,” according to Fiona Stewart, a lead financial sector specialist, who cited research by the Global Sustainable Investment Alliance.

As the green market continues to boom, Africa is increasingly coming to the global focus. Asides from the ethical arguments, the case for Africa has been premised on its large and fast-growing consumer market of 1.3 billion, mostly young, people that would require significant capital and infrastructure investments to guarantee sustainable growth into the future amidst ongoing climate challenges. By 2050, it is estimated that the population in Africa would have doubled, mostly due to the swell in the urban population. The predicted demographic changes could worsen environmental and climatic conditions, especially without adequate investment in infrastructure as the continent faces an infrastructure spending gap of $68-$108 billion (as of 2018), implying that nearly two-thirds of the urban infrastructure requirement for 2050 has not been made.

Read also: UK offers £35m support for Africa free trade initiative

With the shift in perspective favouring sustainability, the gaps in Africa are considered not as mere stumbling blocks but as stepping stones that could create job opportunities for Africa and young Africans. Global capital owners are actively seeking to invest in African start-ups and mature businesses that are building innovative products to solve critical problems in the continent such as preventing food wastage, promoting plastic waste management, renewable energy, and so on. “New investors, including bondholders, non-traditional bilateral lending countries, and commercial banks, have also made efforts to incorporate sustainability into their investment strategies in Africa,” said Fitch in a 2021 report.

The implication is that there would be increased funding flow into Africa over the coming decades to position for the economic benefits of its growing market and to meet the ESG-investing benchmarks that are now an integral part of shareholders’ and stakeholders’ evaluation of investment success. A 2021 survey by the European Investment Bank (EIB) in partnership with Making Finance Work for Africa, found that close to 70% of banks in sub-Saharan Africa considered green finance to be an attractive lending opportunity. Although there is room for the development of more green financial products, this survey clearly shows that the future of financing in Africa would be closely linked to sustainability and impact.

An imminent development in the African business landscape, therefore, would be increased adoption of ESG standards, reporting, and accountability. In the near future, experts expect to see more business practices in Africa align with international ESG standards as incentives such as better access to the international financial markets grow. Currently, the United Nations Global Compact in Africa is promoting its strategies to ensure that African businesses adopt corporate sustainability and responsible business practices. By 2030, the Global Compact in Africa has a target to include an average of one-third of all African businesses with less than $25M in turnover and scale up its coverage of SMEs by 50%.

Why businesses must act now
Adopting a sustainable approach to doing business is in the best interest of all stakeholders, and cost-efficient in the long term. More so, the existence of any business depends largely on the health and well-being of its customers and the planet which ultimately supplies key inputs. As investors are becoming aware of the impact of their investment decisions, they are making necessary adjustments to invest in the products and people that they believe are making a positive difference in the world. With this, regulations, corporate laws, and operational guidelines are also being revised to support sustainable economic growth. Businesses that fail to act today by adopting values and frameworks that balance their growth or profit objective with socio-economic goals would be missing out on opportunities to tap into the wider pool of funds and growing markets driven by the need for responsible production, investing, and consumption. Consulting giant, PwC, argue that in Africa and beyond, organizations need to integrate ESG considerations into their corporate and investment initiatives and operations to build trust, long-term sustainability, agility, and competitiveness. The failure to act is evidence of the absence of foresight which would inevitably leave erring businesses not just on the wrong side of history but with outdated and archaic products like a typewriter that would be less useful in a digital age. The world is moving forward, and African businesses must be agile as it is indeed no longer business as usual.

Chukwuemeka Idam is social, Follow on Instagram @Mekkha and on Twitter @Mekkhanik

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