South Africa's companies strive for a sustainable future

Are South Africa’s companies up to the sustainability challenge? Monica Graaff and David Le Page go on the trail of the green corporate leaders.

In July 1987, during the darkest hour of apartheid, a group of brave businessmen and academics descended the staircase of an aeroplane in the Senegalese capital, Dakar. Mostly Afrikaners, they were on a clandestine mission to meet with the then banned liberation movement, the African National Congress (ANC). While the media back home cried “Traitors!”, this pioneering posse of capitalists had seen the writing on the wall: it was time to take charge of their own futures – it was time to talk.

It was a defining moment in South Africa’s history – a moment that calls for reflection now.

Until that point, the country’s politics had served business well. Apartheid and the migrant labour system that destroyed family life for millions of black workers, were in good part designed to keep white business happy. Moreover, Afrikaners had entrenched their power and influence over virtually every aspect of the economy via their secret organisation, the Broederbond or Brotherhood. But by the 1980s, the growing population and relentless popular protest had made majority rule seem inevitable, and business sensibly jumped to make a deal with the ANC.

Today, South Africa basks in the afterglow of a peaceful transition to democracy, and enjoys the fruits of an economy that has shown unprecedented growth at around 5% under the ANC Government. Yet a new threat of similar proportions is facing business. Most corporate leaders don’t yet realise it, but the writing is once again on the wall. This time the country is going to have to give up its notorious status of being one of the highest per capita carbon emitters in the world. Climate change is going to affect everything from water supply, food security and crime, to the very sustainability of the economy as a whole. It’s once again time for business to get smart and make a new deal with the future.

Shifting awareness

The drive to ‘go green’ is beginning to catch on in South African business. South Africa’s hosting of the Johannesburg 2002 World Summit on Sustainable Development, with its call for greener procurement policies, helped raise awareness. While in many quarters it is still business as usual, many of the large industrial corporations and associations did join Government in signing a National Energy Efficiency Accord in 2005, and monitoring shows that improvements in this sector, which uses 41% of the country’s energy, are being made. Other companies are now recycling paper, changing their light bulbs, commissioning sustainability reports and issuing streams of press releases about why their products use less energy or contribute in some way or other to save the environment.

Many of these efforts are still seen as soft middle class comfort issues. But the Johannesburg Stock Exchange has been leading a drive for a more far-reaching rethink. It has created a social responsibility index, one of the first in a developing country, and obliges listed companies to meet the requirements of the King Code on Corporate Governance. The recently released King III standard is the first in the world to make specific reference to sustainability and the Global Reporting Initiative (GRI), and also insists that sustainability be integrated into management processes and annual reports (rather than being managed and reported separately).

When it comes to good corporate citizenship, the country’s top companies regularly get high marks in international rankings. In some lights at least, South Africa comes over as a country with a world-class formal private sector operating under robust legislation. That’s the conclusion of the State of Responsible Competitiveness report, released in 2006 by the global non-profit organisation AccountAbility. It assesses the progress of countries in promoting responsible business in areas such as climate change mitigation, labour standards, anti-corruption and quality. South Africa was ranked at 28th in the world – the top-performing emerging economy, well above the likes of Brazil (56th), China (66th) and India (43rd).

The National Business Initiative (NBI) is the local focal point for the UN Global Compact – an international initiative to encourage big business to adopt socially and environmentally responsible practices. According to NBI’s CEO Andre Fourie, the uptake of Global Compact membership has been slow in South Africa, but is set to accelerate.

One initiative that is shifting awareness is the inter-national Carbon Disclosure Project (CDP), which surveys the climate response strategies of the top 100 listed companies. Many business leaders questioned the need for this when it was first introduced to South Africa in 2007 by Cape Town based business consultancy Incite Sustainability in partnership with the NBI. That has changed, says Fourie, “as global investors, customers and regulators are increasingly interested in a company’s carbon footprint”.

A change in the aisles

Business ‘greening’ is also being led by multinationals based in South Africa, such as brewers SABMiller, which are required to meet to global standards. SAB is working to build sustainability across all its operations, from water re-use and responsible drinking, to HIV/Aids interventions, carbon reduction and transparency. Similarly, major players in the retail sector are taking strides to clean up their act – each in their own way.

Food outlet Pick n Pay was an early front runner on the green agenda, with its shift away from CFC refrigerants and its reusable shopping bags. The Government followed suit in 2001 when it outlawed the free issue of plastic shopping bags to consumers. Pick n Pay now has a comprehensive sustainability plan with five year environmental and black economic empowerment (BEE) targets. The first major retailer to support the Southern African Sustainable Seafoods Initiative (SASSI), it sources 90% of its goods from within the country. And as a major sponsor of the Organic Freedom Project, it has increased its organic lines by 61% over the last year.

Massmart, the country’s wholesale and retail giant, is another corporate leader. Ranking third in the low emissions category on the CDP index for South Africa, it has focused on educating its customers and suppliers about alternative options, offering 200 suppliers free subscriptions to business sustainability magazine Mind Shift. It has also set up an Eco-wise environmental labelling campaign, and an e-waste takeback scheme that includes batteries and old stoves.

Massmart doesn’t shout its green achievements from the rooftops, though – in the words of Corporate Affairs Director, Brian Leroni, it wants “to avoid [being seen to be] acting opportunistically”. By contrast, up-market store Woolworths – the country’s Marks & Spencer equivalent – has fewer qualms about catching the limelight. Taking a marketing approach to going green, it explains many of its actions to consumers as being part of its ‘Good Business Journey’. This is based on four key priority areas: accelerating social transformation, driving social development, embracing an environmental focus, and addressing climate change – with plans to reduce its carbon footprint by 30% by 2012. Already the stores are showing evidence of stocking more recyclable packaging and environmentally friendly produce, and are encouraging consumers to re-use and recycle. Last year it was named Responsible Retailer of the Year at the World Retail Awards, ahead of EU retail giants like Carrefour, Sainsbury’s and Tesco.

Greener shopping, of course, isn’t going to save the planet. South African business as a whole has a long, hard road ahead to inculcate sustainability principles into its long-term strategies and investment plans. As Kevin Aspoas, CEO of Jupiter Drawing Room – one of South Africa’s top advertising agencies – puts it: “We have all got it horribly wrong up until now. In the next 50 years, we will need to redefine and redesign every product and every industry in order to be sustainable”.

But for now, greening the economy has to take place within the context of global economic meltdown. Fortunately, South Africa’s well-regulated banks had not fuelled up on the ever more rarefied derivatives that drove their northern counterparts to their recent highs and still more recent crashes. But recession still hits hard, and the country’s strongly export-driven economy is expected to contract by at least 1.5% this year. And while Government claims this is nothing to worry about, South Africa has a massive current account deficit – at 9%, the second worst in the world.

So it’s not enough that the country has basked for the last 15 years in the novelty of democracy and economic growth. Thanks to BEE codes of practice, its expanding middle classes have been drenched in new wealth. The country’s fault lines have now shifted to a new apartheid which is based as much on the value of your car as on the colour of your skin. Enormous problems remain.

Tackling those problems means getting to grips with some inescapable truths. In an advisory briefing to the Cabinet last year, Mark Swilling, Professor of Sustainability at Stellenbosch University, warned that South Africa would not be able to meet its growth and development targets, let alone its Millennium Development Goals, if it did not accept the reality of dwindling ecosystem services and legislate effectively to preserve them. The country might boast an array of some of the best environmental laws in the world, but it still lags embarrassingly behind some of its African neighbours, according to Yale University’s pilot 2006 Environmental Performance Index. It placed South Africa fourth in the sub-Sahara, and 76th amongst the 133 indexed countries.

As economic historian Sampie Terreblanche points out, the country still operates with a ‘dual economy’ – one in the ‘first world’ and one in the ‘third’ – and a significantly different approach to economic development is required in order to satisfactorily integrate the two. Despite South Africa recently adopting a ‘developmental state’ philosophy – an approach that includes targeted government intervention in key areas of underdevelopment – inequality has continued to deepen since the dawn of democracy in 1994. Unemployment rates are well over 20%, there’s rising infant mortality, and about one in five adults has HIV.

These challenges are not lost on the electorate. The promise to create mass employment was a ticket that helped new President Jacob Zuma to win leadership of the current ANC Government. Promisingly, Deputy President Kgalema Motlanthe has also said, “We believe that the green economy in South Africa needs to grow”.

William Frater of Incite Sustainability points out that South Africa’s combination of a secure tax base, fiscal discipline and a well-regulated financial sector puts it in an excellent position to make big investments in infrastructure that could potentially be the foundation for a more sustainable economy. Already some local black-run asset management companies have begun to sniff around ventures in solar thermal power, underground coal gasification (in theory cleaner) and smart grid technologies.

Increased shareholder activism is also adding pressure for more responsible investment. Showing significant leadership, the Government’s pension fund body, the Public Investment Corporation – the largest asset owner in SA – now subscribes to the UN’s Principles for Responsible Investment.

Despite this, a 2008 report on the state of responsible investment in South Africa shows there is still very little demand or encouragement for responsible investment products. So far, most business greening has been compliance and reputation driven, rather than sparked by the market or by an intelligent understanding of things soon to come. As Frater puts it: “Business is beginning to get a grasp of the impending crisis, but only a few get how serious it is”.

The country needs a mobilisation of social leadership, in both business and Government, of the kind that produced the transition to democracy. If that leadership can seriously address both underdevelopment and the greening of the economy, and if the global economic crisis/opportunity is fully exploited, then sustainability could shift from being seen as a middle-class luxury to becoming the foundation of its society. With renewed Government interest, now is surely the time to do it. The question remains: will business do its bit to galvanise action?

Additional material by Jonathon Hanks, a senior associate of the Cambridge Programme for Sustainability Leadership.

9 December 2009

David Le Page and Monica Graaff