Environmental, Social, and Governance (ESG) reporting should not be viewed merely as a compliance effort to satisfy investors or to meet the requirements of the Zimbabwe Stock Exchange (ZSE).
Instead of being seen as a bureaucratic roadblock, ESG needs to be seen as a strategic tool that can revolutionise companies.
The secret is to change the emphasis from compliance to impact, paying special attention to material issues that are actually important.
Benefits of ESG
It’s a misconception to view ESG as a burden. In reality, ESG offers clear benefits such as improved risk management in an increasingly unstable world, enhanced brand recognition and reputation, increased investment attraction, innovation stimulation, better stakeholder relationships, and ultimately, stronger financial performance.
Global investors are increasingly prioritising ESG factors in their investment decisions, understanding that companies with solid ESG credentials tend to be better managed and more sustainable over time.
Firms that show a true commitment to sustainability are more likely to attract funding, especially as international capital seeks out businesses with strong ESG records.
A strong ESG strategy can effectively identify and manage risks.
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By taking ESG factors into account, companies can foresee potential challenges and reduce the likelihood of financial losses and reputational harm, such as those related to climate change, supply chains, and governance issues.
In a nation grappling with climate challenges and economic instability, these benefits are crucial. Moreover, ESG fosters trust among stakeholders, including customers, employees, and regulators.
Companies that excel in ESG performance are often perceived as more trustworthy and responsible. A well-implemented ESG strategy can elevate a company’s brand and cultivate a loyal customer base.
Additionally, ESG can serve as a significant catalyst for innovation. By prioritising sustainability, companies can uncover new growth opportunities and create innovative products and services that align with changing consumer preferences.
For instance, a company that invests in renewable energy not only minimises its environmental impact but also positions itself to take advantage of the rising demand for clean energy solutions.
Power of material issues
Focusing on materiality is essential to unlock the value of ESG initiatives. Companies need to focus on detecting which ESG topics matter most for their business operations and stakeholder interests. Companies need to prioritise ESG issues that directly impact their operations and stakeholders, rather than attempting to tackle all sustainability challenges.
For example; A mining company should prioritise water management and community relations whereas a financial institution needs to focus on data privacy and cybersecurity but a retail business would concentrate on ethical sourcing and plastic waste reduction. When businesses focus their attention and resources on key material issues, they experience better allocation of resources and achieve quantifiable results while showing tangible advancement instead of diluting their efforts among unrelated projects.
The targeted approach enhances the relevance of ESG reporting while maintaining alignment with a company's strategic objectives. The integration of sustainability goals with business objectives transforms them from mere appendages into fundamental elements that fuel innovation and business expansion. Zimbabwe views economic diversification and environmental stewardship as national priorities which makes alignment between them essential now more than ever.
New Way of Thinking
Businesses must adopt a new mindset about Environmental, Social and Governance (ESG) priorities. Many businesses treat ESG reporting as a mere mandatory requirement, instead of recognizing it as a strategic advantage. A limited understanding of ESG’s full potential combined with a focus on short-term profits strengthens this perspective. Business leaders in Zimbabwe require both educational programs and incentive systems to change their perspective. Regulators, industry associations, and the ZSE can play a role by highlighting success stories of companies that have used ESG to reduce costs, improve efficiency, or gain market share. Training programs can help executives understand how to integrate ESG into their business models, while clear guidelines can ensure that reports focus on material issues.
The value of ESG lies not in its ability to check boxes but in its potential to create a more sustainable, equitable, and prosperous future. For Zimbabwean companies, embracing ESG as a strategic tool, rather than a regulatory burden, can unlock new opportunities, from attracting investment to building resilience against climate and social risks. By focusing on material issues, aligning ESG with their core strategies, and demonstrating tangible results, businesses can show that sustainability is not just good for the planet but also good for the bottom line. ESG must be seen as a pathway to value creation. Let’s move beyond the checklist but towards a future where sustainability drives success.
- Duduzile Nyirongo CA (Z) is a Partner (Management Consulting and Corporate Finance) at Baker Tilly
