By Fiona Sutton
With the European Union poised to make environmental, social and governance (ESG) reporting mandatory for global supply chains, many South African firms with EU customers will soon need to raise their game.
Among the key factors these ESG reports will need to cover in more detail is the question of how companies embrace their role as “stewards” of the country’s scarce water resources.
The EU’s Corporate Sustainability Reporting Directive (CSRD) has been in effect since January, 2023 and it requires EU businesses – including qualifying EU subsidiaries of non-EU companies – to report on the environmental and social impact of their business activities.
Companies subject to the CSRD will have to report according to European Sustainability Reporting Standards (ESRS).
South African companies are connected to global markets through commodities and capital markets and should expect ESG reporting soon to be mandatory.
Local suppliers and customers of scoped-in EU companies should prepare for this, as they may have to meet expanded ESG reporting demands from EU companies.
Investors and stakeholders already expect companies to incorporate ESG risks and opportunities into their strategies, operating models and processes, as well as products and services.
ESG reporting enables a company to be more transparent about the risks and opportunities it faces. It is a communication tool that plays a crucial role in convincing sceptical observers that the company’s actions are sincere.
While ESG reporting is not yet mandatory in South Africa, the JSE’s Sustainability Disclosure Guidance is indicative of a move towards such mandatory reporting.
This guidance is voluntary and aims to assist South African companies in navigating the international landscape of reporting standards.
Water stewardship is playing an increasing role in water-related ESG reporting, and the use of global best practice tools like the International Water Stewardship Standard from the Alliance for Water Stewardship (AWS) can support a company in its ESG reporting.
The AWS Standard is a site-to-catchment scale standard for sites with major water-using activities to understand their facilities; water-use and impacts.
It also assists companies in working collaboratively and transparently with local stakeholders for sustainable water management within a wider catchment context.
The AWS Standard – which is site-based and intended to deliver positive outcomes in the context of a catchment – is built around five steps: gather and understand; commit and plan; implement; evaluate; and communicate and disclose.
The five steps directly address water stewardship but also assist with water-related ESG reporting requirements.
Step 1 requires the site to generate a multitude of reference and baseline values.
These values provide insight into the site and its context in the catchment, as well as other catchments in relation to the site’s indirect water-use.
The site and catchment-specific reference and baseline values data are gathered to set achievable actions, agreed responsibilities, time frames and resources – as well as guide other initiatives for sustainable water-related impacts.
The AWS Standard requires an assessment of water-related impacts throughout the value chain, from sourcing and manufacturing processes to the delivery of services and the use and disposal of products.
Step 2 requires the site to develop a Water Stewardship Plan (WSP), which includes targets that will lead to improved performance related to the five outcomes.
These are improved water governance, sustainable water balance, good water quality, healthy status of important water-related areas, and access to water, sanitation, and hygiene (WASH) for all.
SRK’s specialists can assist a site in the development of their WSP, in which they incorporate Steps 3 and 4.
Step 3 focuses on demonstrating that the WSP is being implemented effectively and details the proposed commitment of the site to continual improvement.
Step 4 allows for the evaluation of performance and progress of the WSP by assessing its contributions and benefits to water management, as well as how risk exposure has changed for the site and its stakeholders.
Step 5 provides communication and disclosure opportunities for the business to declare its water stewardship journey to staff as well as to its clients, investors and external stakeholders.
This step also links closely with Step 4, providing opportunities to communicate the changes and improvements being made to the business’s water stewardship approach.
Fiona Sutton is the principal scientist at SRK Consulting.
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