Beyond the ESG scorecard
In countries with weak rule of law, social impact is as central to a business’ license to operate as property title deeds or a registration number. Where corruption and unpredictable political economics are the name of the game, your best insurance policy is a solid relationship with the local community - they must perceive you as worth keeping.
The positive social impact business can have has myriad long-term benefits for us all. The pandemic has exposed our collective need for equitable growth, lower inequality and true environmental sustainability. But in Africa especially these are also essential for short-term survival.
I’ve been visiting businesses across Africa for nearly two decades, looking for investments with the strongest growth potential. Assessing a business’ commitment to social impact is a central part of the scoping process and ESG scorecards are a good place to start. But there are other critical indicators to be looking out for:
1. All jobs are not created equal.
ESG frameworks commonly count the number of jobs created, but the impact of one new job varies profoundly from country-to-country, region-to-region. In Western Equatoria State, South Sudan, for example, our teak company ETC is the only major employer in the entire state. The last four decades in South Sudan have been characterised by bloody conflict, so the jobs we have created for young men of fighting age have impact far beyond the buying power of a monthly salary. Jobs help to end the deathly, self-perpetuating cycle of hunger and violence. The multiplier effect in these regions is staggering: one salary directly supports at least six people, indirectly many more. We see this clearly at our gold mine in Zimbabwe, where successive economic crises have condemned 90% of the population to perpetual joblessness.
To assess the true impact a business is having through job creation, consider what other options exist - formal or otherwise - for the community to make ends meet.
2. Follow the tax
It’s a sad reality that very few governments in Africa are efficiently deploying taxes for the benefit of their people. Too often the burden of basic service provision falls on the shoulders of the private sector, to whom communities turn for schools, clinics and emergency relief. This is one of the reasons African businesses are so often ahead of the game when it comes to the redistribution of profit. At ETC, for example, we pay tax and royalties at a state level and operate a social fund run by a committee that includes members of the local community. They decide how to deploy the cash and have built primary and secondary schools as well as a clinic - facilities that are not being funded by the tax man in the capital, Juba.
A business committed to real impact looks beyond the tax bill, to redistributive mechanisms it can directly control.