Inequality and its related social challenges are persistent realities in Southern Africa, so much so that it has unfortunately characterised the region unfavourably. Socio-economic challenges such as unemployment, lack of access to quality healthcare, water, education and inadequate infrastructure can be found under a myriad of news headlines and country evaluations. With this being the case, it stands to reason that the ‘S’ in environmental, social and governance (ESG) factors needs more attention.
Applying an ESG lens to the deployment of capital by the government, a business strategy or an investment approach has become a critical feature of investment analysis. The ESG lens considers factors beyond financial performance, such as:
- a company’s or government’s impact on the
- treatment of employees or citizens and
- the governance practice it adopts
HOW ESG FEATURES IN NAMIBIA’S ECONOMY
Namibia is home to one of the world’s largest conservation areas, the Namib-Naukluft National Park. The park is committed to protecting the environment and promoting sustainable tourism. The park’s management employs sustainable practices such as waste management, water conservation and energy efficiency. Tourism is a significant driver of GDP in Namibia.
Namibia is also investing in renewable energy sources, such as solar power, to reduce its carbon footprint. For example, the Omburu Solar Power Plant, which is located in Namibia’s Omaheke Region, generates clean electricity that is supplied to the national power grid.
The Namibian government has made efforts to improve access to education and healthcare for all citizens. For instance, the government has implemented free primary education and has invested in building hospitals and clinics in rural areas to improve access to healthcare.
The Namibian Stock Exchange has implemented strict corporate governance standards for companies listed on its platform. These standards require companies to adhere to strict disclosure requirements, maintain independent board oversight, and have robust internal control systems.
The neglected ‘S’ factor and investment performance
Though many practitioners boast that they apply ESG, markets in general have not priced social risks into the investable securities. Head of ESG Research at Alexforbes, Premal Ranchod, suggests that market prices for data points, which it can measure using transparency and corporate disclosures. Improvements here will incrementally feature in listed securities. “With the Namibian Stock Exchange requirements, we have noticed that several companies in both Namibia and South Africa are beginning to issue ESG reports as part of their corporate reporting suite,” adds Ranchod.
We cannot argue with the climate change science, which justifies why environmental risks should be urgently dealt with. We also cannot deny the severe economic implications that poor governance measures have produced.
HOWEVER, HAS ADDRESSING THE ‘E’ AND THE ‘G’ MEANT NEGLECTING THE ‘S’ IN INVESTMENT DECISIONS?
Extreme weather conditions are highly concerning and a relevant social plight, because rising temperatures lead to a decline in food production, whether for consumption or export. In short, it has a socio-economic impact affecting the growth and stability of a country.
Another pertinent example is a country’s transition away from coal-fired power towards cleaner forms of electricity generation. Where governments mismanaged this process, it has led to a loss of jobs, impacting the livelihoods of communities.
Initiatives that help to limit or reverse these issues can contribute towards realistic and sustainable opportunities that improve productivity, stabilise political uncertainty, grow an economy and increase the number of attractive investment opportunities. Collectively, this means less volatile and more attractive investment returns.
Ambition to address ESG risks
Ranchod cites that investment in infrastructure specifically, and the generation of renewable power, is one avenue where a country can be more explicit in the quest to address the socio-economic issues raised.
Renewable energy investments were first introduced in 2007 in Namibia, with regulation updates in 2015 becoming more progressive. Many renewable energy projects in Namibia are designed to not only reduce the country’s carbon footprint but also provide social benefits to local communities.
Ranchod mentions several examples: “The solar plants in Omburu, Osana and Rosh Pinah have measurable social benefits in addition to the ambition of clean energy. These benefits include providing rural communities with clean drinking water, funding of community trusts, improving the safety of communities at night using solar street lights as well as the training of citizens linked to job creation.”
The Namibian government has set a target of generating 70% of the country’s electricity from renewable energy sources by 2030. To achieve this goal, the government has partnered with international organisations such as the International Renewable Energy Agency (IRENA) to develop renewable energy projects. This sector is still in the development phase and hence pension funds have not yet participated given their risk profile.
The government of Namibia has also established the Renewable Energy Feed-In Tariff (REFIT) policy, which provides a guaranteed payment for renewable energy generated by independent power producers (IPPs). The REFIT policy aims to encourage private investment in renewable energy and create a sustainable market for renewable energy in Namibia.
Reporting standards – the runway for social work
Ranchod is keen to point out that whilst there has been progress, there remains a global rising social cost which needs solutions. One way in which the corporate sector can help reduce the cost is to measure and report in a meaningful way how their strategy responds to ESG issues that affect the business.
In January 2024, the International Sustainability Standards Board (ISSB) will release the much-anticipated S1 and S2 reporting standards on sustainability and climate change. While it will not be an instant panacea for social ills, it is a bolder step towards consistent reporting on ESG issues, which all companies will be required to apply.
These reporting standards will elevate transparency and accountability. Asset managers and asset owners like pension funds can then allocate capital in a more informed manner, whether listed or unlisted, regionally or abroad. These facets cater for better investment decisions, management of risk and the identification of opportunities.