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IsoMetrix recently hosted an ESG-focused panel discussion with Garyn Rapson, environmental law expert, partner at Webber Wentzel, and head of the firm’s ESG strategy.
Hosting the discussion for IsoMetrix were Robin Bolton, IsoMetrix ESG Principal, and Cecilia Jofré, IsoMetrix Chief Sales Officer and Business Director.
Read on for a fascinating conversation including an overview of ESG and its related standards, risks for companies around non or false reporting, the importance of verifiable ESG data, and potential future developments within the sustainability space.
Note: This panel discussion has been edited and condensed.
Robin Bolton (RB):
Thanks for joining us everyone. Garyn, can you start with a brief background on yourself and what you do?
Garyn Rapson (GR):
Sure. Thank you everyone for having me. I'm an ESG lawyer that operates out of Johannesburg in South Africa. I'm the head of our environmental law team, which is a team of nine dedicated environmental lawyers. And then I'm also the head of our ESG strategy as a South African, and African-based law firm.
So, talking about ESG, at the end of the day it's about doing the right thing for people and the planet, isn’t it?
You hit the nail on the head in terms of trying to do the right thing. That's basically what ESG is. And it's about the non-financial indicators that need to go into decision making.
It's not just about how much profit we can generate. It’s about can we do right for our stakeholders? Can we do right for our internal employees? Can we do right for our host communities, and the country that we operate in? It’s companies trying to do better and be a part of the solution.
Banks and investors see this as a financial risk as well. If you haven't accounted for the fact that there may not be fresh water available for your operation, for the fact that climate change could be so serious that you aren't going to be able to grow your crops, and that public infrastructure is going to start collapsing because of climate change issues, those all represent serious financial risks.
Once you've done all the right things, you then need to report and disclose on them. ESG is not a new topic, but it has certainly come to prominence in the last few years as we’re seeing increasing regulation which is driving the compliance aspect.
Speaking of compliance, there are quite a few frameworks and regulations globally such as GRI and SASB, and it’s become quite a messy space. Where do you see all these ESG frameworks and standards going?
You’re right, the reporting and disclosure side of things is a mess currently. There are hundreds of different standards out there, as well as standards in each jurisdiction. Companies are mostly just trying to figure out for themselves which is the best standard to use, and which standard is most aligned to their business, and then reporting against that.
But then certain investors will require reporting against other standards, and then it becomes an alignment disaster for them. And I think that's where IsoMetrix comes in. You can help in terms of how data is aligned to different standards and reporting frameworks, and streamline the reporting and disclosure.
In South Africa, we still do not have mandatory reporting and disclosure, but it is an indirect requirement. If you want any financing, you need to report. If you want to get access to insurance products, you need to report. It's become such an industry practice that it's almost like a quasi-law right now, and we think it will become real hard law at some point.
The US has drafted hard laws in terms of the amendments to the SEC rules, the UK has hard laws, the EU has hard laws, so companies all over the world are having to report and disclose, and trying to figure out the mess of the different frameworks out there.
There’s a hope that via the Global Reporting Initiative (GRI) there will be some standardization of the current frameworks, but we’re still some ways off that.
We’re also seeing a strong push towards double-materiality, where businesses will need to combine and report on their financial assessment with their (environmental and social) impact assessment.
Let’s talk about the dangers that are facing companies that don't measure their impact, and secondly, that selectively or falsely report on their data.
Corporates might claim that they are doing amazing things but may not actually be able to back up their initiatives with hard data. As a company your statements need to be verifiable to defend yourself against any claims against you in terms of misrepresentation, fraud, and general principles around the fact that you've lied, or overcommitted your services and products as being green or socially responsible.
Your data needs to be defendable. These matters tend to boil down to the data that you're going to have to present to the court and prove how you arrived at your baseline figures on which you made your claims.
Cecilia, in North America do customers understand the value of good data, or do you find you've got to educate them in this regard?
Cecilia Jofré (CJ):
I think it depends on the stakeholders and the type of organization that you're talking to. We have these frameworks that may not be necessarily mandatory for private companies, but I think that organizations understand the consequences of not tracking the data, down the line, whether they are private or not.
Human rights issues and environmental degradation could have an impact on an organization’s profit in the future, and that's exactly what sustainability is – the ability to sustain and to create value in the long term for a variety of stakeholders.
I think increasingly companies are realizing that this is the way to go for their own survival, because if they don't, they're going to become uninsurable, they will not attract talent, and they will not attract business contracts.
Garyn, considering some of the recent pushback in the United States regarding ESG, what advice would you give companies in this context?
I think you need to forge ahead with what you believe the right thing is from a sustainability perspective.
Obviously there'll be certain issues that you’ll need to comply with, but I think you’ll need a parallel sort of reporting framework for yourself if you believe that this is an important thing from a resilience perspective.
My law firm operates in South Africa where the compliance and enforcement are not as great as in the U.S., and a lot of this is actually happening voluntarily here.
Companies have realized that events like riots, and stoppages of their businesses via employee striking, floods and fires - all these things have placed their businesses at risk, and they need to prepare for these events from a sustainability perspective irrespective of whether there's regulation.
Agreed, and if a company can't gather the right data accurately and report on it, they break their consumers’ trust. It’s extremely hard for a business to come back from that. It highlights the need in the ESG space for doing things properly and responsibly.
Ok, let’s open this up to the audience – are there any questions for our panel at this stage?
Is there anyone driving things forward in South Africa in terms of ESG reporting?
Yes, the Johannesburg Stock Exchange (JSE) has published guidance documents in terms of both sustainability reporting and climate reporting.
The JSE has made them voluntary for now, but they've issued these guidance documents to help businesses in South Africa to wade through the mess of reporting frameworks and standards, and to give guidance as to what they should be doing and which standards to use.
The second objective of the JSE here is to lay the foundation for the hard laws that are to come. We know that there are draft amendments to our Companies Act and other company laws which will be hardwired into law in South Africa in the not-too-distant future.
With the move to legislated ESG requirements and disclosure, do you think that non-mandatory standards like GRI and SASB will eventually fall away?
That's a good question. I think it will be a mix for each country and the approach that they take. Some countries may hardwire certain standards into law, which may in turn refer to an international standard, or an international benchmark. So perhaps voluntary standards may live on via incorporation into future legislation.
Garyn, I know you touched on this earlier, but what are the penalties or risks to companies that don't disclose enough, or falsely disclose. What kinds of things do they need to be aware of?
There are various aspects to this. We have climate change litigation that could come from an individual or organization that challenges whether a company has taken the risks of climate change seriously enough, and whether they have credible action plans to reduce their carbon emissions.
Then there's greenwashing. There’s a new wave of litigation coming in terms of holding boards of companies directly responsible in terms of breach of fiduciary duties to the company for not taking the risks of climate change seriously.
And then the last aspect is what we call ESG impact litigation. That's your classic class-action lawsuits that are brought against companies for legacy issues such as historic contamination events, and health and safety issues that have caused cancer to old employees for example.
ESG impact litigation is evolving quickly, and for the most part, results in a damages claim against the company - damages which need to be quantified. This can be difficult to do, but there are new frameworks coming out in terms of how to quantify the damage that's being caused by the additional carbon that a company has generated. It’s an interesting, evolving space.
Last question. In terms of using ESG data, and the necessity of having it be auditable and verifiable, have you seen it used in court in SA for any claims?
To date we do not yet have our first real greenwashing type of claim in South Africa, but we know they're coming.
There's an NGO called Just Share that is doing a lot of work in the space. They are currently disrupting the annual general meetings of some of the big companies in South Africa, and challenging those companies in terms of the commitments that have been made in their annual financial statements. We believe that they are preparing their test cases in this space.
Internationally, in all these cases it is the data that gets presented to the judges. Has the company in question verified their data, and is that data credible to rely on in terms of the commitments promised?
Right, so definitely something that companies need to be doing then – gathering their ESG data and storing it in a format that is verifiable and auditable.
Garyn, thank you. It's always interesting hearing from your perspective. We appreciate the time and the insights which you’ve provided.
Thanks everyone, bye.