ONE AND ALL - JSE MAGAZINE

ONE AND ALL

More than ever, evidence shows that companies that efficiently incorporate long-term sustainability considerations offer investors greater benefits

ONE AND ALL

From 2008 to 2012, over 700 companies around the world were analysed in terms of the link between financial performance and climate ‘engagement’.

Compiled by the UK-based CDP (formerly Carbon Disclosure Project) – the world’s largest repository of corporate environmental data – and consultancy Sustainable Insight Capital Management, the report states that ‘industry leaders are not only taking critical steps to establish the requisite governance, management systems and environmental efficiencies to engage on climate, but that they are also generating superior profitability, cash-flow stability and dividend growth for investors’.

The report adds: ‘Industry leadership on climate engagement is linked to higher performance on three key financial metrics – return on equity, cash-flow stability and dividend growth – that reflect overall corporate quality. Given that improved profitability, cash-flow stability and dividend growth reflect strong financial operating performance, we conclude that strong corporate engagement on climate change is mirrored by stronger corporate financial performance.’

Steve Nicholls, National Business Initiative (NBI) head of climate change and water, says globally sustainability and integrated reporting is on the rise. ‘Major international and local companies understand that environmental, social and governance [ESG] issues can have material impacts on their business. As a result, companies are moving to manage these factors and include ESG issues in their stakeholder communications – notably their integrated reports.’

The NBI works with over 100 local and multinational businesses that have committed to working towards sustainable growth and development in SA. The NBI is the SA partner of the CDP, an investor-driven, independent body that as of 2014 represents 767 global investors with over $90 trillion of assets under management. The NBI and CDP gather data in the form of an online questionnaire from JSE Top 100 listed companies to feed into annual reports. The CDP provides investors, corporations and governments with information and primary data on climate change, water and the risks of forest exploitation, and collects data from stock exchanges worldwide.

Corli le Roux, the JSE’s Head of the SRI Index and Sustainability, says policies on how to address sustainability issues are no longer enough – plans and progress reports need to be widely available to shareholders. ‘This is because governance and strategies around sustainability can have a powerful influence on the longevity of a company and therefore on the long-term returns it can provide to investors.’ Le Roux says the JSE is involved in the CDP through its Socially Responsible Investment (SRI) Index.

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‘Major international and local companies understand that ESG issues can have material impacts on their business’

STEVE NICHOLLS, HEAD OF CLIMATE CHANGE AND WATER, NBI

‘In 2013 more than half of the entire FTSE/JSE All Share Index met the climate change criteria, with nearly two thirds meeting the broader environmental requirements. Despite sustained strong performance by the Top 40, many mid-cap and some small-cap companies are expanding their disclosure around these matters. The SRI Index has continued to reveal encouraging signs of progress but scope for improvement remains, particularly around disclosure of specific management systems, targets and objectives and performance against these. 

‘The SRI Index data collection process taps into the CDP data to assist in assessing companies against our climate change criteria. Investor-driven initiatives like the CDP have significant potential to impact the way in which investment decision-making and shareholder activism expand to incorporate ESG considerations. The momentum created, and the data that is gathered through such processes, are bound to find expression in deeper and expanded engagement between companies and investors.’

Meanwhile, Nicholls says companies have often told the NBI that responding to the CDP boosts support from decision-makers and investors. Furthermore, when companies adopt climate change strategies and integrate them as part of their daily operations, the CDP becomes a valuable tool to measure a firm’s ongoing performance over time.

The questionnaire sent to participants examines climate change-related risks and opportunities within each company as well as the associated financial implications. This helps companies identify areas for further action to enable them to become sustainable over the long term. SA is currently the only African country involved in the CDP, among 60 other countries internationally. The CDP remains the global standard for measurement and reporting of climate change information and the biggest repository of greenhouse gas emission information from the business sector.

Signatory investors based in SA include the Government Pension Fund, Industrial Development Corporation, Advantage Asset Managers, Element Investment Managers, Momentum Manager of Managers, Standard Bank, Cadiz Holdings, Mergence Africa Investments, Nedbank Group, FirstRand, Investec, Futuregrowth Asset Management and Sanlam Life Insurance Investment Management.

By Louise Brougham-Cook
Image: Fredrik Broden/reneerhyner.com