ESG uptake within SME’s in Sub-Sahara Africa

ESG uptake in emerging markets, and especially Sub-Sahara Africa (SSA), is difficult to quantify if one uses the term ESG. The term is often foreign to small to medium size enterprises (SME’s) and often leads to confusion and sometimes anxiety due to a lack of understanding.

Vireo have observed that if ESG is broken down into its constituent parts as soon as possible, concerns harboured by SME’s are largely allayed. These initial engagements with SME’s where ESG is introduced are key to secure senior management buy-in and cooperation. This said, with increased awareness and uptake of addressing impact in established markets, ESG is quickly becoming the minimum requirement and we need to start introducing the concept of impact within emerging markets. 

Vireo have identified three aspects which we feel hinders ESG uptake in SSA. These are expanded upon below:

• One element, which is deficient in the Sub Sahara Africa (excluding South Africa), is in house skills to manage and mitigate ESG risk and identify opportunities. Capacity building in this regard is essential to effectively manage ESG. Currently, aspects of ESG are delegated to individuals who are largely untrained, and competency is developed on the job as the need arises. 

• Risk management is also an area which requires attention. Simple enterprise risk management practices within SME’s don’t include all, if any, ESG aspects. This leads to inadequate risk mitigation and leaves SME’s vulnerable. This is primarily due to not integrating ESG within the SME’s business processes as it is not well understood. Addressing this aspect results in meaningful change with respect to how ESG risk is perceived and managed. 

• Resource constraints in the form of CAPEX and OPEX are often obstacles to ESG integration. Connecting the dots between resource utilization and value add is something that needs to be articulated in a manner which makes sense to SMEs. 

As advisors, one key consideration we have identified as essential to keep in mind when it comes to ESG, sustainability and impact in SSA, is what the potential is for an SME to integrate these aspects into their strategic planning and day to day operations. This includes management buy-in, willingness to adapt and resources. Once this is understood, capacity can be built, and systems integrated.  Having internal mechanisms to support this process to ensure that an SME matures in its sustainability and impact journey is key to successful value realisation.