The other day I saw someone ask the question, “Why are companies wasting so much money on ESG consultants?” This person clearly did not understand the complexity of the impending CIPC mandated requirement for public and state-owned companies to report on their environmental impact.

1. Understanding ESG:
2. ESG Reporting in South Africa:
3. Why is ESG Reporting Important?
4. Preparing for ESG Reporting:
5. ESG Reporting is a Global Challenge
6. The Importance of Quality Data
7. Conclusion:

Understanding ESG:

• Environmental: This aspect focuses on a company’s impact on the environment. It considers factors like energy consumption, waste management, pollution control, and climate change initiatives.
• Social: This pillar examines a company’s relationship with its employees, stakeholders, and the community. It includes aspects like labor practices, diversity and inclusion, health and safety standards, and community engagement.
• Governance: This dimension assesses a company’s leadership and internal structures. It focuses on aspects like board composition, executive compensation, risk management, and ethical business practices.

ESG Reporting in South Africa:

The Companies and Intellectual Property Commission (CIPC) introduced mandatory ESG reporting in Q4 of 2023, alongside XBRL filing. This initially applies to public companies and state-owned companies, with voluntary filing currently open. However, from the financial year 2025-26, disclosure of ESG data will be compulsory for these entities, with a requirement for more detailed reporting using specific tagging formats.

Why is ESG Reporting Important?

There are several compelling reasons why ESG reporting is gaining traction:

• Investor Interest: Investors are increasingly seeking responsible investment opportunities. Companies with strong ESG practices are seen as more sustainable and less risky, attracting greater investor confidence.
• Regulatory Landscape: Global regulations like the EU’s Corporate Sustainability Reporting Directive (CSRD) highlight the growing importance of ESG reporting. While not directly mandated in South Africa yet, these regulations could influence future legislation.
• Reputation Management: Consumers are more environmentally and socially conscious, and they choose to support companies with responsible practices. Strong ESG performance enhances a company’s reputation and brand image.

Preparing for ESG Reporting:

Companies can start preparing for mandatory ESG reporting by:

• Understanding their ESG impact: Assess the environmental and social footprint of their operations.
• Developing data collection and reporting systems: Establish processes to gather and document relevant ESG data. This may involve integrating ESG data collection into existing systems or implementing new ones. Data governance, data quality and consistency will be crucial for accurate reporting.
• Building internal capacity: Train employees on ESG principles and reporting requirements.
• Staying informed: Keep up-to-date on evolving ESG frameworks and regulations.

ESG Reporting is a Global Challenge

The lack of a single, mandatory global standard adds complexity as global businesses must comply with differing regulations for each jurisdiction where they hope to compete.

Many global organisations are now taking steps to ensure parity between financial reporting and the non-financial metrics embodied by ESG standards such as the Global Reporting Initiative (GRI) Standards, the Carbon Disclosure Project, and the International Integrated Reporting Council (IIRC), International Integrated Reporting (<IR>) Framework.

“The notion that non-financial data should be subject to different treatment than financial data is changing fast.

Many of the companies we work with are asking themselves ‘if non-financial matters are financially material, then why should non-financial data be treated any differently than financial data?”

Mikkel Skougaard, Director of ESG Reporting at VeriskMaplecroft quoted at Trust ’23

The Importance of Quality Data

• Robust data governance processes must be implemented to ensure ESG data integrity through a combination of the correct approvals, controls, and IT systems.
• Companies that embrace the increased visibility of the data value chain required for effective ESG reporting will gain a better understanding of how to create value and manage risk.
• Compliance with EGS regulations pushes companies to improve data management processes which in turn increases overall reporting accuracy and opens new data sets for use in AI and other data products.

Conclusion:

South Africa’s push for mandatory ESG reporting positions the country as a leader in sustainability reporting. By embracing ESG reporting, companies can not only comply with regulations but also demonstrate their commitment to environmental and social responsibility, attracting investors and building trust with stakeholders. The road to sustainability starts with understanding and reporting ESG metrics. Are you ready for the journey?

#ESG #Sustainability #SouthAfrica #CIPC #ESGReporting