What you need to know:
To address sustainability effectively, companies need to take a holistic approach to understand the impact of sustainability on their value chains as a starting point.
Adverse weather events continue to dominate our newsfeeds. This year’s flooding in Bangladesh and India comes alongside heatwaves in Spain and India. The announcement that India, the world’s second largest producer of wheat, had declared a ban on certain wheat exports in response to supply side shocks arising from the heatwave, demonstrates the immediate knock-on effects of the poor weather on livelihoods not only in India, but also other countries that depend on its exports. This is cause for worry considering that it is early monsoon rains in South Asia and early summer in Europe, suggesting that the worst is yet to come.
Christian Aid also reports that the economic cost of the top 10 global adverse weather events escalated in 2020 and 2021 from $120 billion in 2019 to $141 billion and $170 billion in 2020 and 2021. Crucially, the most adverse weather events have been felt in all continents of the world. In 2020 and 2021, four out of the top 10 adverse events involved flooding and the associated costs are estimated to have risen by 49 percent from $48.5 billion to $72.2 billion.
These are clear signs that we are living on a planet under extreme pressure and provide context to the estimate by the Global Footprint Network that our demand on nature is 1.7 times greater than the capacity of our planet.
That demand is set to increase many times over as the world’s population grows by 2.1 billion people from 7.8 billion people in 2020 to an estimated 9.9 billion people by 2050 - if we do not change what we consume, how we consume it and/ or how we produce it. Africa is projected to account for just over half of that increase with an addition of more than 1.1 billion people placing our continent at the centre of the looming crisis.
The National Intelligence Council estimates that the global population will demand 35 percent more food by 2030 which will increase demand for water by 40 percent. Simultaneously, however, “climate change could reduce agricultural productivity by a third across Africa over the next 60 years”.
It is against this backdrop that unsurprisingly, calls for sustainability and sustainable development have taken root in the last few years. The United Nations (UN) defines sustainable development as that which “meets the needs of the present without compromising the ability of future generations to meet their own needs.” The UN further provides for three pillars for sustainable development as environmental, social and economic. This is similar to the investor view which focuses on how a company manages its environmental footprint (environmental) and its relationships with employees, customers, suppliers and the communities in which it operates (social); and how a company conducts its business (governance) - together forming the Environmental, Social and Governance (“ESG”) framework or pillars.
However, the role and expectations of business have for long been misunderstood and actions taken by companies have been misdirected resulting in not enough progress being made around the world. In some cases, this appears to be related to the failure of governments to commit visibly to sustainability-driven reforms. In Uganda, we have seen a lot of focus on corporate social responsibility (CSR) in the last two decades.
Although we do not wish to paint all of corporate Uganda with one broad brush, CSR has mostly been practised in isolation of the company’s business activities; typically as one-off activities disconnected from the company’s actual sustainability risks and often highly publicised with the implied intention of being seen to be doing good.
It is also scarcely mentioned in executive compensation schemes and where it is addressed for corporate strategy purposes, it remains isolated from core business plans.
In order to address sustainability effectively, companies need to take a holistic approach to understand the impact of sustainability on their value chains as a starting point. This is in effect a risk assessment process that considers to what extent business goals may be adversely or positively affected by sustainability factors.
Other steps can then be taken to incorporate sustainability goals and objectives into business strategy, the enterprise risk management framework, performance measurement and management, and finally the annual reporting process.
To do so successfully requires the buy-in of all stakeholders from shareholders, the board, management and employees. Crucially, it requires leadership by the board of directors and the chief executive.
A journey of 1,000 miles begins with one step. Sustainability is certainly a journey to be accomplished over the long-term and one which requires solid initial steps, led by boards of directors and chief executives of companies, to gain the traction required to survive and thrive in the current and future operating environment.
The author Uthman Mayanja is the country senior partner at PwC Uganda.