Sustainable entrepreneurship key to securing future investment

Gugu Mjadu

Steps to building an ESG compliant business from the get-go

Prioritising sustainability and socially responsible business practices has become increasingly important to potential investors when evaluating opportunities. According to the 2018 Schroders Global Investor Survey, a study by global asset-management company, Schroders, of more than 22 000 investors across 30 countries, 88% of South African investors indicated that sustainable investing is more important to them now than it was five years ago, compared with 76% of investors globally. It is for this reason that entrepreneurs should prioritise their Environmental, Social and Governance (ESG) score from the get-go to ensure investor interest down the line.

An ESG framework is based on three central factors when measuring the sustainability and ethical impact of an investment. These three factors are categorised into Environmental (water usage and waste production), Social (treatment of employees in the workplace and clients) and Governance (compliance, regulation and board levels).

According to Gugu Mjadu, spokesperson for the 2018 Entrepreneur of the Year® competition sponsored by Sanlam and BUSINESS/PARTNERS, although profit is a pivotal aspect considered when looking to invest in a business, a sustainable business is just as important. “Entrepreneurs need to ensure they adopt sustainable measures when doing business which means they need to be responsible for minimising their impact on the world. It is up to the business owner as well as their employees to be as efficient and responsible as possible and to only use the necessary resources.”

Mjadu says that when looking to invest in a business, investors are looking for an ESG-compliant company that in the long-term boasts minimal risks. “If companies have a good ESG score it’s likely that they will meet the current and future demand of more sustainably sourced products or services. With minimal risk associated to the business, it’s likely that the business will also yield better financial returns in the long-term which is beneficial to the business owner and investor.”

She believes that this is especially true given the spate of corporate scandals which have emerged recently. She points to the same Schroders report which states that South Africans appear to be driven towards sustainable choices by their tendency to support local businesses, but with a focus on avoiding controversy. “Although most people (65%) prefer to support local products and services, 71% reported that they often or always avoid businesses with a track record of controversy, compared with a global average of 56%.

Mjadu adds that it’s not only important for investors to find sustainable businesses to invest in but for business owners to ensure their investors are sustainably aligned too. “Socially-minded partners will work well together as they think about their entire footprint and not only the final consumer product and profit.

So, how does an entrepreneur measure and track its own ESG level? According to Mjadu, there is a mixed reporting system. “Part of this is self-reporting through data captured by the business owner and the other part is through an ESG analyst who will come into your place of work and analyse the various factors for your business. If you are not familiar with measuring the various ESG elements, it’s important that an ESG specialist be brought in to ensure compliance. Once you have this data captured, it makes it easier to offer up to potential investors and shows that you abide by good business practices.”

Mjadu leaves entrepreneurs with the following tips to ensure an ESG complaint business.

1. Environment: Ensure overall efficiency in your business especially when it comes to managing resources and looking after the environment around you.
2. Social: Make sure that you have diversity in the workplace and that you work with line managers to ensure a healthy and happy workplace.
3. Governance: This refers to how well you company is run. Ensure transparency and accurate reporting – you don’t want to make the news as the next corporate scandal.