In the wake of increasing global attention on environmental, social and governance (ESG) considerations, the significance of ESG reporting has never been more pronounced. The recently introduced new standards by the European Union (EU) and the US are likely to have significant implications for Africa. These standards are aimed at improving various aspects of production, trade and investment, and will have an impact on how Africa interacts with these global powers. It will be interesting to see how African countries respond to these changes and what opportunities and challenges they present.

In a recent ESG Africa Conference webinar, stakeholders provided insights into the EU's recently approved new reporting standards and how they affect EU and non-EU companies with activities in the EU. The European Sustainability Reporting Standards (ESRS) are mandatory and require companies to report annually on sustainability, together with their financial reports.

The webinar, which was moderated by ESG Africa Conference co-founder Wendy Poulton, also discussed mandatory requirements for climate reporting by the Securities and Exchange Commission (SEC) in the US.

Professional services firm Deloitte South Africa partner in assurance services for sustainability, climate change and equity, Jayne Mammatt, emphasised the transformative journey witnessed in ESG reporting, noting the proliferation of frameworks and guidelines over the years. She highlighted the challenges posed by the plethora of reporting standards, which often led to confusion among preparers and users alike, hindering comparability and decision-making.

“We have, however, seen a concerted effort towards simplification and harmonisation of reporting standards in recent years and have seen the emergence of diverse regulatory requirements such as the EU's corporate sustainability reporting directive and the SEC's mandates on climate reporting,” she noted.

“There is an overarching goal of establishing a unified set of standards, but achieving uniformity across jurisdictions remains an ongoing endeavour.”

Standard setter Global Reporting Initiative (GRI) Africa programme manager Bhongolwethu Sonti pointed out that the intertwinement of financial disclosures and sustainability disclosures is a crucial step towards integrating reports and better disclosing the internal impacts of initiatives, while also reporting the impacts within the ESG frameworks on society.

“It's an exciting time as technology is leveraged to aid in reporting, including the development of digital taxonomies by International Financial Reporting Standards (IFRS) and ESRS, which will help classify and converge different standards for companies.”

Despite being a daunting task, especially for small, medium and micro enterprises in Africa, adopting some of these standards will be beneficial in the long run, he said.

Marketing agency Benchmark Digital senior director for ESG market strategy and partnerships Peter Walsh, whose background is in environmental management and sustainability, noted how the field has evolved over the years.

“Throughout my career, I have been increasingly involved in the use of technology to address the environmental challenges we face today. That's why I'm proud to be a part of Benchmark Digital Partners, a company that provides a technology platform to help businesses address these challenges,” he said.

Walsh, who is based in France, pointed out that the industry was experiencing the biggest wave of environmental and sustainability legislation and frameworks ever seen.

“The Corporate Sustainability Reporting Directive (CSRD) is the pinnacle of these efforts, with a tremendously challenging burden on companies to gather, verify through audits and then report their data. Over 50 000 companies are impacted by this legislation, and many are struggling to understand what they need to report and how to do it. This is where technology plays a crucial role in facilitating compliance,” he said.

He highlighted that this reporting obligation should be viewed as a business opportunity.

“The world is changing and organisations that succeed will be those that address these issues head-on and extract business value from their sustainability obligations. While compliance penalties are a real concern for companies that fail to submit their reports, the bigger question is how to use all this data to operate the business more effectively. What's the real business value of sustainability reporting? The GRI was the first framework to emerge, but others have followed, and they all play a different role in creating business value. I’m eager to explore how companies can leverage sustainability reporting to their advantage,” said Walsh.

Poulton pointed out that one of the biggest shifts that has been seen is the double materiality, which involves working both up and down the supply chains. This not only affects a company's subsidiaries in other countries but also their suppliers along the value chain, many of which are in Africa. It is pushing the entire reporting industry towards a mandatory requirement of audited statements, which is quite onerous.

Corporate responsibility consultancy Trialogue ESG advisory consultant David Krone, meanwhile, noted that integrated thinking always came back to first principles.

“If your business has a clear idea of what's important and is purpose-led, with material issues linked to strategy and purpose and measures are put in place to manage those issues effectively, you have a proactive way of existing as a business,” he said.

Therefore, when codes and standards become mandatory or start affecting the business, these businesses are well prepared. He highlighted that it is important to note the shifts in codes and standards taking place.

“Instead of just focusing on topic disclosure, the new standards ask if these things are embedded in your company. Do you have a strong idea of what's important, are you measuring them, and are they linked to strategy and purpose? These are the key things that should be considered.”

The panel concluded by acknowledging the need for companies to integrate sustainability into their business strategy and operations, rather than simply treating it as a compliance issue.