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African Boards: three ways to build more effective ESG leadership

KIna Advisory | African Boards: 3 ways to build more effective ESG leadership

Seeing a number of African companies step up, scale up and begin to scale out during the Covid-19 pandemic has been a great source of inspiration to me recently. From re-purposing production lines to prioritising local manufacturing, from developing new fintech solutions to introducing new logistics services, the ability of African businesses to adapt and solve challenges in adversity has shone through. The challenge now is to capitalise on this advantage.

Some of these companies, just like their counterparts worldwide, will never look back. They have exploited new or newly discovered consumer demands, found unique ways to solve supply chain problems and embraced the digital transformation. They have also begun to experience the world’s new normal, which requires all businesses to look at how they integrate the sustainability agenda as well as environmental, social and governance (ESG) best practice into their core business operations. A structured approach to this is as critical to creating value and securing a long-term future as solid commercial and financial planning and strong technical standards.

If you’re a Board member reading this, you probably know that integrating sustainability best practice into core business operations starts with you. I’m sure however, that if your business has been struggling to stay alive recently, it will be hard to raise the subject with your management team. Here are three practical steps you can take to move things forward: -

1. Understand your new normal

While businesses have had to adapt rapidly to changing consumer needs and demands as a result of the pandemic, this adaptation has only served to accelerate the ESG-related change that was already underway. Even before the pandemic, investors were beginning to pull back from companies that were slow to meet their ESG/Sustainability requirements. Customers and employees — the younger ones in particular — were already starting to turn their backs on companies that couldn’t match their values when it came to climate change, resource efficiency or diversity.

As a Board member, you need to understand what this shift means for your business. You need to be well-informed. It’s a good idea to speak to other board members, both inside and outside your organisation, who may be thinking the same as you. You won’t be the only one grappling with this. I would also advise finding some strong sources of regular reporting and debate on the latest trends in Sustainability. There’s a lot of information out there, but you could start with Business Green or the World Economic Forum for a good overview of what’s topical. McKinsey Global Institute and Forbes are other sources I trust.

If you don’t already meet with external stakeholders, try asking your investors, your business partners, your customers and your employees (including different age groups) what sustainability issues they think you should be considering for your business to remain relevant in the future. Depending on what they say, you could invite external experts to present to the Board or even arrange training as part of your annual programme. In the past, it was difficult for African companies to access such tools, but I now offer all of my Board Masterclasses virtually, and so do many others.

2. Introduce a risk management approach

Understanding what’s changing and why will help improve the quality of your dialogue with your company’s management team. They may already have been dealing with changes in the business context, such as new environmental regulations or standards, supply chain integrity issues, privacy and data protection requirements, employee health and wellbeing challenges and the need for diversity throughout their workforce. Being able to predict and manage these challenges is vital to building resilience and to the future of your business. It will also ensure ongoing alignment with the beliefs and values of your investors, customers and employees.

An excellent but relatively simple way to start doing this is by ensuring that the business has a risk register. Whether you have a formal risk management process or not, ask your management team to list the current and emerging environmental, social and governance challenges they are grappling with. Next, ask them to start estimating the impact of these challenges on achieving your future business goals — for example, impacts on cost or schedule. You can cross-reference this list with what the Board hears direct from stakeholders, for good measure. Ask for a plan to be developed to address each of the risks considered material to future success — and don’t forget to celebrate your progress.

3. Mainstream the ESG conversation

If you think this sounds like a massive increase in workload or cost, it needn’t be. You don’t need a separate Board agenda item — this is about how you oversee the identification and management of all risks to achieving your commercial, operational and reputational goals. As such, it should be part of your core business planning and decision-making process.

Set clear expectations for regular updates on ESG risks from your management team. An effective way of structuring this is to agree on a set of metrics linking ESG performance to your wider business value drivers, such as access to capital, staff retention and operational efficiency. This will help maintain a focus on strong governance throughout your conversations with management while respecting the company’s commercial imperatives.

If you’re struggling to keep sustainability on the agenda, doing some or all of these things should help to support more informed dialogue between the Board and company leaders, make it easier to assess and manage ongoing material risk, and establish a clear and enduring link to the bottom line. I would love to hear your thoughts on this, along with any ideas you may have had while reading. In my next post, to be published on 4th March, I will go into more detail on Point 2 above — how you can expand your risk management processes to include ESG risk and, in so doing, add value to your business.


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