Two thirds of JSE-listed companies assessed on behalf of the JSE by global investment research provider EIRIS (with their local partner at the University of Stellenbosch Business School), fulfil the base requirements to become a constituent of the exchange’s Socially Responsible Investment (SRI) Index.
The exchange has released the findings of the 2011 annual SRI Index review (which reviewed 109 companies, including the JSE’s biggest) which aims to encourage integrated risk management among companies and to prompt investors to use responsible investment strategies.
Climate change a significant challenge
The announcement was made in Durban in parallel to the 17th Conference of the Parties on climate change (COP 17). JSE Director of Government and International relations, Geoff Rothschild, commented at the event that “The JSE recognises climate change as being one of the most significant sustainability challenges facing us at this time. There is a need for anyone who considers themselves a responsible global citizen to make the necessary changes towards a more sustainable existence in order to safeguard the future of both our species and the planet.”
The SRI Index comprises listed companies which meet criteria related to their environmental, social and governance (ESG) policies, management practices and reporting. The first of its kind in an emerging market, and a leader worldwide, the index’s intention is two-fold: to encourage companies to operate responsibly and transparently and to prompt institutions to consider ESG factors when evaluating potential investments. Following its inception in 2004, the SRI Index has become a significant benchmark for broad-based environmental, social and governance practice amongst local listed companies.
Companies embracing change
“We remain impressed with how willing companies are to seriously engage on issues. The increasing depth of discussion and extent of company responses supplied affirm that companies now see ESG principles as very much a part of normal business practice, and this is reflected in this year’s SRI Index composition,” says Corli Le Roux, Head of the JSE SRI Index.
In the 2011 SRI Index review –
- 109 companies were assessed, 9 for the first time;
- 83 of those assessed submitted detailed profiles and responses. This response rate is particularly high, both in local and global terms;
- 67.9% of the total assessed companies qualified for the SRI Index, with a resulting Index constituency of 74 companies;
- Three companies are in the Index for the first time;
- 22 companies have been identified as best performers, meeting a higher threshold than in 2010;
- Three of these qualified as best performers for the first time.
With consistent strong performance in relation to social and governance issues, environmental practices remain a hurdle for companies, despite demonstrating improvement in this year’s review. The higher climate change entry threshold for 2011 also proved a challenge.
The mining and banking sector continue to perform well, and this year all companies in the sectors for Construction & Materials, General Financial, Industrial Metals and Life Insurance qualified.
Dovetailing off these results, the JSE commissioned a study into the extent to which leading South African companies are tackling climate change. The research focused on the ‘Top 40’ large cap South African companies listed on the JSE SRI index.
The analysis reveals encouraging signs of progress through improved governance, better strategies and more disclosure on climate change. Overall, 95% of companies analysed demonstrate at least some form of response to climate change. But only 30% of the companies analysed have demonstrated reductions in their operational GHG emissions over the past few years.
Says Le Roux: “The JSE ‘Top 40’ companies have certainly made some progress on climate change to date. However, much more still needs to be done to reduce their own climate change impacts and to better plan for how they will operate in a world that has been altered by climate change.”
Conclusions of the JSE Top 40 Climate Change Report are:
- 73% of JSE Top 40 companies demonstrate a good overall response to climate change;
- 95% of companies published commitments on climate change and have senior staff responsible for the issue;
- 60% of companies have set short-term GHG emissions targets, but only 23% have set long-term targets, leaving considerable room for improvement;
- 95% of companies are disclosing absolute CO2 emissions and 85% are disclosing normalised emissions;
- 30% of companies have reduced CO2 emissions over the last few years;
- 35% of companies have linked performance on climate change to manager’s remuneration;
- Mining and banks sectors – the two largest sectors amongst the JSE Top 40 – demonstrate a high quality response to climate change overall.
Le Roux concludes: “From the JSE’s perspective, the priority for the SRI Index in 2011 has been strengthening investor relationships, particularly with fellow signatories of the PRI (Principles for Responsible Investment). Going forward, our focus will be to expand the availability of analysis on company performance from the SRI Index process, an area which has been highlighted as a need for investors to strengthen their engagement with and investment in companies. Through the evolution of the SRI Index the JSE aims to continue to identify opportunities to encourage transparency and responsibility in relation to ESG concerns.”
The JSE, a central player in the local economy, sees itself as influencer and regulator of listed companies. Its sustainability activities include company regulation (the Listings Requirements include a requirement to apply King III or explain where this has not occurred), investment tools (such as the SRI index and customised products), sustainability advocacy and a growing focus on internal sustainability.