ESG Disclosure – A case study

Teaching Case Study: SustainaEnergy Corp

Objective:

The objective of this case study is to explore the impact of board characteristics on ESG disclosure within an energy company in an emerging market. Students will assess how board dynamics can influence ESG strategy effectiveness and propose measures to enhance corporate governance and ESG outcomes.

Opening Paragraph:

In early 2019, SustainaEnergy Corp, a mid-sized energy company based in Johannesburg, South Africa, faced a pressing challenge. As global scrutiny over environmental, social, and governance (ESG) responsibilities intensified, the company’s newly appointed CEO, Thandiwe Mbeki, recognized the need to revamp their ESG disclosure practices. Operating in a competitive and regulatory complex emerging market, SustainaEnergy found its ESG ratings lagging behind its international counterparts, prompting concerns from investors and environmental groups. At the heart of this issue was the company’s board composition and practices, which had seen little change over the past decade. The overriding questions facing Mbeki were: How could the board be restructured to improve ESG disclosures? What board characteristics should be prioritized to enhance transparency and sustainability performance?

Body of the Case:

SustainaEnergy Corp was established in 2000 and had grown to employ over 2,000 people, focusing on renewable energy projects across Southern Africa. Despite its progressive business model, the company’s ESG disclosures were traditionally minimal and unstructured, reflecting a broader industry trend within the region.

The board of SustainaEnergy comprised eight members, predominantly male with significant industry experience but limited diversity in terms of international exposure and expertise in sustainability. The revelation from a recent study indicating a positive correlation between board gender diversity, board composition, and the level of ESG disclosure prompted Thandiwe Mbeki to reconsider the board’s configuration.

Mbeki consulted various stakeholders, including shareholders, environmental NGOs, and ESG rating agencies. “Our goal is not only to lead in renewable energy but to set standards in corporate governance that reflect our commitment to sustainability,” Mbeki explained during a pivotal board meeting. However, the path to reshaping the board was fraught with resistance. The long-standing board members were skeptical of the impact that changes in board makeup could have on the company’s governance.

Analysts suggested that increasing the frequency of board meetings and including more independent directors could enhance the board’s oversight and strategic focus on ESG matters. However, evidence was mixed, and the optimal board size for fostering effective ESG strategies remained unclear from global benchmarks.

Concluding Paragraph:

By the end of 2019, SustainaEnergy had initiated steps to diversify its board by including two female directors with backgrounds in environmental science and corporate social responsibility. Although it was too early to quantify the impact on the company’s ESG ratings, preliminary feedback from stakeholders was overwhelmingly positive. Thandiwe Mbeki pondered on the next steps in continuing to drive the board’s effectiveness in governance and sustainability practices. Could these changes be sufficient to meet the increasing expectations of global investors and regulators?

Discussion Points:

1. How significant is the impact of board diversity on a company’s ESG disclosure according to the study findings? Is there a direct correlation, or are other factors equally important?
2. What challenges might arise from restructuring a board to enhance ESG outcomes, especially in culturally diverse and complex markets like South Africa?
3. Considering the skepticism of long-standing board members, how can a CEO effectively advocate for and implement changes in corporate governance?
4. What additional board characteristics should SustainaEnergy consider to further enhance its ESG disclosure practices?
5. How can emerging market companies balance traditional business practices with the evolving demands of global ESG standards?