TOP OF THE RANGE - JSE MAGAZINE

TOP OF THE RANGE

In 2014, the number of constituents of the JSE’s Socially Responsible Investment Index reached an all-time high, a sign that companies are very aware of sustainability issues

TOP OF THE RANGE

In 2014, the number of companies fulfilling the JSE’s Socially Responsible Investment (SRI) Index’s requirements relating to environmental, social and governance (ESG) policies, management practices and reporting climbed to 82, compared to 72 in 2013, says the JSE’s Corli le Roux, Head of the SRI Index and Sustainability.

The SRI Index Advisory Committee says: ‘10 years since its creation, the legacy of the SRI Index is clear as having contributed to driving maturity in sustainability management, as well as expanded disclosure.’

A significant milestone in the index over the past decade is that as of 2013, all Top 40 companies, including small- and mid-cap firms, are now automatically assessed, rather than on a voluntary basis.

The aim is to determine whether businesses meet the minimum requirements for inclusion in terms of good corporate citizenship and promoting sustainable development, particularly since the advent of sustainability initiatives globally and the creation of the King codes in SA. In 2013, more stringent requirements were introduced to the index to encourage transparency. Since then, assessments have been based only on information placed by companies in the public domain.

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International investment research provider EIRIS Research carries out the study on behalf of the JSE. No new requirements were introduced in 2014.

In 2014, eight companies were included in the index for the first time and nine others – Barloworld, Anglo American, Anglo American Platinum, Illovo Sugar, Lonmin, Netcare Limited, Royal Bafokeng Platinum, Standard Bank and the Vodacom Group – were identified as best performers, says Le Roux. ‘One of the nine best performers, Standard Bank, has achieved this status every year since 2007. Best-performing companies have to meet all the core requirements of the index in terms of social and governance, as well the best performer environmental threshold, and must fulfil all index requirements on climate change and have an independent chair.’

A significant milestone in the index is that as of 2013, all companies in the Top 40, including small- and mid-cap firms, are now automatically assessed

Small- and mid-cap firms are showing increased reporting and engagement on ESG issues. Last year 11 – the highest number of smaller companies – met the requirements for inclusion, according to Le Roux.

Smaller newcomers to the 2014 SRI Index were Aquarius Platinum, Capevin Holdings, Howden Africa Holdings, Super Group, Hyprop Investments, the Mr Price Group and the Spar Group, which joined their counterparts Advtech, Business Connexion Group and Group Five on the JSE for the first time. Top 40 Life Healthcare Group makes up the eighth new constituent in 2014.

According to research, governance areas still showed the strongest performance with 92.9% of companies meeting overall requirements in this category. Board practice and business value and risk management remain the strongest areas.

Two-thirds of all firms met the social requirements and stakeholder engagement and community relations remained strong areas. However, EIRIS found that there was an overall downward trend in reporting on social performance.

A further two-thirds of all companies also met the environment requirements of the SRI Index, with medium-impact businesses faring best in terms of their environmental policies and reporting. High-impact firms still grappled with coverage of all key environmental issues.

Sector results showed that 15 out of 18 mining companies qualified for inclusion against a background of mining companies, which made up 19% of constituents.

Other strong sectors included life insurance, general retailers, general industrials and food producers, which each made up 6.3%. Banks constituted 5.1% in 2014.

Le Roux says the JSE will continue to increase its efforts to drive debate around what sustainability means in the SA and the investment context.

‘As our work continues to evolve, the JSE wants to encourage greater transparency around ESG performance in an environment offering expanded data for research and analysis, as well as more opportunities for companies and investors to engage.’

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