Full disclosure

The exchange continues to prioritise ESG standards of reporting

Full disclosure

The JSE has been helping South African business navigate what Harvard Business Review calls a sea of acronyms for sustainability standards and regulations washing over companies. ‘Companies face a giant wave of questions that can overwhelm,’ according to the publication, quoting a sustainability executive who complained that ‘the Earth will burn down while we are filling out ESG surveys’.

The three letters ESG (environmental, social and governance) are used to break down and organise key sustainability issues more easily as a basis for establishing frameworks and standards that can assist companies on their path to sustainability, says Shameela Soobramoney, JSE Group Chief Sustainability Officer. She cautions that ESG is not sustainability, and that a clear understanding of how businesses impact the environment and society and the context of planetary boundaries is critical if we want to achieve the aims of sustainable development. While it may seem that companies have to divert much of their time and effort into collating, measuring, evaluating and disclosing ESG data, it’s a vital process as it lays the foundation for more sustainable operations. Better disclosure and non-financial reporting also means that better investment information is available, which enables investors to make better-informed decisions.’

That’s why ESG metrics and baselines are so important; in fact Harvard Business Review puts corporate sustainability standards on par with product safety and fire standards.

Soobramoney points to the growing global drive for common ESG standards that jurisdictions such as SA have started to adapt to their local context. ‘The JSE Sustainability Disclosure Guidance, for example, is aligned with the major frameworks – such as those being developed by the International Sustainability Standards Board, which is the new standard-setting body established by the International Financial Reporting Standards Foundation,’ she says. ‘We have drawn from the recommendations of the Task Force on Climate-Related Financial Disclosure, the UN Sustainable Development Goals, as well as the European Sustainability Reporting Standards.’

A key goal of the guidance, which was launched in June 2022 and is not a listings requirement, focuses on what sustainability information SA companies should disclose, and why ESG issues matter to them and to the investment community. Recent global events have demonstrated that ESG risks are becoming ever more pressing, as businesses are impacted by climate-change-related extreme weather events such as floods, fires and droughts; by the economic aftermath of the COVID pandemic; as well as by social inequality and governance failures. The latest Global Risks report from the WEF further underscores that, with environmental and social risks continuing to dominate the top 10 global risks.

‘There are major economic implications to sustainability challenges’ she says. ‘Hence the imperative for decisive action is even more clear. The “why” is paramount, because once you understand why ESG risk is material for you, your practice and intent shifts from tick-box compliance to embedded and integrated sustainability thinking,’ she says. ‘The JSE advocates a double materiality approach, which considers the environmental and social impact on company value as well as the company’s impact on the environment and society.

‘Ultimately it’s an existential question, seeing that humankind will not thrive if we continue depleting the very resources on which we depend for our survival. Companies need to fundamentally rethink their business models to operate within our planetary boundaries and with due cognisance to maintaining adequate social foundations.’

Over the past two decades, the JSE has put sustainability instruments and segments in place to assist companies. As early as 2004, it developed the first exchange-sponsored Socially Responsible Investment Index to promote sustainable and transparent business practices, which was replaced with the similar FTSE/JSE Responsible Investment Index Series in 2015. The JSE was also one of the first emerging-market bourses to launch a Green Bond segment (2017), which expanded into the continent’s first Sustainability Segment (2020), which includes social and sustainability bonds. In 2022 the JSE was among the first to introduce a Transition Bond segment, adding a Sustainability-linked Bond at the same time.

According to Soobramoney, transition finance may be needed in SA’s heavily fossil-fuel-based economy because the move from ‘brown’ to ‘green’ doesn’t happen overnight. Transition technology and activities will need to be supported. She adds that the urgency of climate change and the massive concerns around biodiversity loss mean that companies can’t just sit and pontificate, but need to understand why ESG is material to them and act on it without delay. As a quick entry point, the JSE Disclosure Guidance will assist those feeling overwhelmed and needing help to navigate the sea of acronyms and finding their ‘why’ in the broader ESG landscape.

By Silke Colquhoun
Image: Gallo/Getty Images