Andrey Bogdanov is the principal and interim CEO at Risk Insights and Co-Chair of the World Economic Forum New Champions South Africa Chapter. They’ve developed a tool called ESG GPS, which uses AI to rate the ESG credentials of listed firms. We spoke to him about how he sees the world of ESG.

Is it your experience that institutional investors are increasingly concerned with the environmental reporting aspect of ESG?

Asset managers, private equity players and venture capitalists increasingly take ESG reporting and disclosure into their risk appetite and risk-return calculations. ESG is more than a buzzword. Institutional investors are recognising the green equation and the impact on alpha returns for the future. Transitioning into ESG requires transparent disclosure on ESG reporting for all companies. 

We definitely see more and more ESG and environmental aspect reporting. Demand for such disclosure is driven not only by international investors, which have been focusing on it for years, but also from local asset managers and banks. Yet, there is still a catch-up element when we compare the ‘size’ of such concern with local versus international investors.

Is South Africa at risk of falling behind global players when it comes to ESG reporting standards?

A number of South African companies from the listed space, especially in the basic resource and banking sector, have improved reporting and disclosure from an ESG perspective but a significant percentage of listed companies, around 60%, still need to improve ESG disclosure. As Risk Insights we have seen a marked improvement in disclosure in 2020 and 2021 in line with global peers. 

There is still a process of appreciating the importance of ESG disclosure by many, including listed companies in South Africa.

The entire world is transitioning into the ESG space, and there are leading companies everywhere in the world, South Africa is no exception. However, we are lagging in many sectors in terms of ESG reporting. 

Due to different ESG factors based on sector and country materiality, which are under scrutiny, SA is lagging and will need to up its game towards carbon neutrality and gender and race equity. This requires transformational leadership, thereby impacting Boards and C Suite directly.

Would it be fair for those in the accounting space to regard ESG reporting as an opportunity to innovate or gain a global competitive edge instead of seeing it as yet another obstacle?

Absolutely! Global and South African market competitive edge stand to be gained as more and more financial institutions are providing ESG related funding.

How has your experience in the ESG landscape changed over the last five years?

It’s a very dynamic environment. We’ve seen significant improvements, but there is a long way to go for many, and time is running out. ESG has evolved from triple bottom line to CSR to ESG materiality reporting. 

The BP incident with its record pay-out, (Deepwater Horizon Oil Spill)  in my humble opinion, started a change process which was then exacerbated by Europe, and the Paris Agreement. There had been a seemingly strong adoption in Europe, but slower in America. With new administration in the White House, the gap has been closing. The pandemic acted as a further catalyst together with Black Lives Matter movement and LGBTQ+ impacting the landscape globally and in SA. 

Millennials and Gen Z have also become very vocal about climate change and the impact for generations to come, thereby shifting and accelerating ESG reporting, disclosure and strategies for the globe. 

Do you foresee the South African government legislating the ESG space?

Absolutely, it is well overdue. Some regulations already exist regarding social (labour laws), governance (King Code) and environmental laws. However, much more needs to be done, and fast, if South Africa wants to lead the African continent into the 4th industrial revolution and stakeholder capitalism.