The insurance sector is leading Africa's sustainability push

Transparency in reporting and the sharing of sustainability information is increasingly becoming a critical component of modern business. Whether it be mandatory reporting requirements, capital allocation requirements, or supply chain due diligence, there is a shift across value chains in recognizing the inherent importance of sustainability as core to any business.

This has led to the emergence of environmental, social, and corporate governance (ESG) practices, which expand beyond traditional corporate social responsibility. They encompass a company’s ability to minimize its impact on the environment; how it affects its own people and the community in which it does business; and its ability to put risk mitigation and sustainability practices in place.

Already 97% of businesses are feeling the impact of global warming, while some 50% have had their operations negatively affected. This was revealed in Deloitte’s 2022 CxO Sustainability Report, which surveyed more than 2,000 C-suite executives in 21 countries, most of whom realize the once-distant threat has “arrived”, and believe the world is at a tipping point in terms of climate change.

Globally, it is evident that the focus on ESG is growing, driven by the environmental component, responses to climate change and high investments into sustainable funds. In Africa, the need for entrenching ESG practices has never been more critical.

Historically, environmental and social justice have been left to governments to facilitate; however with business stepping forward in recent years, ESG could offer a framework for sustainability in Africa, whereby the public and private sectors actively participate in this shared agenda for the continent.

Writing for CNBC Africa earlier this year, Sanda Ojiambo, CEO and executive director of the UN Global Compact commented on this sea change: “Sustainability is helping to fire up the best new business ideas on the continent. It is fostering innovation and is addressing some of our most pressing needs, such as the fight against climate change.”

Ojiambo pointed out that, with the youngest population in the world (more than 60% under the age of 25), Africa is poised for growth, provided it can build a healthy, robust and resilient economy with a focus on the United Nations Sustainable Development Goals (UN SDGs), which will open doors to business opportunities.

Insurers in Africa have already taken the lead by acknowledging their role in fostering sustainability, resulting in the April 2021 Nairobi Declaration on Sustainable Insurance, which aims to strengthen disaster-risk management on the continent. Presenting a united African voice, the declaration is a commitment from the insurance industry to support the achievement of the UN SDGs, and implement the Sendai Framework to build resilience. To date, 50 signatories have indicated their willingness to focus on ESG principles in their business models.

African Risk Capacity (ARC) Ltd., a parametric insurer and one of the signatories, has been pushing for action since the signing of the declaration and encouraging more countries to come on board. A top ESG scorer in the global insurance industry, having been evaluated by Sustainalytics last year, ARC Ltd.’s preparedness to meet future risks and opportunities linked to ESG factors, such as climate change, regulatory risk and reputational issues, is setting an example for other insurers in Africa.

In its quest to assist its member states and their vulnerable populations more effectively with insurance against natural disasters, ARC Ltd. consciously partners with ESG-focused reinsurers and investors, thereby advancing the sustainability focus.

When looking at sustainability reporting, in order to make ESG information useful for decision-making, a clear and consistent global ESG reporting baseline is required, rather than the multitude of different frameworks and standards currently in place. As part of actively driving the sustainability agenda, the World Economic Forum is accelerating the global alignment of ESG reporting standards. This is needed for the private sector to track progress towards achieving the United Nations Sustainable Development Goals (SDGs).

Since 2019, the Forum has been working with the Big Four accounting firms and consulted with more than 200 companies to identify a set of universal metrics – the Stakeholder Capitalism Metrics (SCM) – drawn from existing standards that allow businesses to effectively measure, manage and disclose their impact on ESG.

More than 150 major companies have adopted the SCM to record their progress, demonstrating their support for moving towards a globally aligned system for clear and consistent ESG reporting and disclosure. The metrics give companies a running start on the ESG reporting journey, with a handful of companies taking the SCM on board to guide their first-ever ESG or sustainability report. The Forum has captured 10 case studies in company transformation brought about by implementing the SCM.

Going forward, Africa can expect increasing pressure from the global community with regard to sustainability, while it continues to grapple with socio-economic, political and climate challenges that are hampering growth – expected to decrease by as much as 4.1% this year and next.

However, as sustainability expert Marie Parramon-Gurney points out, discussions about ESG in Africa should be anchored in the realities of the continent. An integrated and transformative approach is needed to tackle the issues Africa faces, and businesses can play this transformative role. “Sustainability is at the core of the inclusive, resilient, sustainable, regenerative development of the continent,” she says.

The first step towards ESG already taken by insurers is nevertheless positive and may encourage other sectors to follow suit. While it is clear that these practices have the potential to change the way Africa does business, in light of its greatest environmental challenge, ultimately the onus now rests on business leaders to substitute discussion with action and put forward a new paradigm.