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Vigeo Eiris News - 07/12/2012

JSE SRI Index review highlights sustainability improvements amongst South African companies

This year’s Johannesburg Stock Exchange (JSE) SRI Index review finds that 76 out of 108 South African companies assessed by EIRIS for the JSE meet the sustainability criteria for inclusion in the JSE SRI Index.

Now in its ninth year, the JSE SRI Index is based on sustainability criteria developed by the JSE and global responsible investment research firm EIRIS. Research for the index is undertaken by EIRIS’ global platform partner the University of Stellenbosch Business School’s Centre for Corporate Governance in Africa. The JSE is supported by the Government Employees Pension Fund – Africa’s largest pension fund – which has been actively involved in the JSE SRI index.

The SRI Index comprises of listed companies which meet criteria related to their environmental, social and governance (ESG) policies, management practices and reporting. The intention of the index is two-fold: to encourage companies to operate responsibly and transparently and to prompt institutions to consider ESG factors when evaluating investments. The SRI Index is a key benchmark for broad-based environmental, social and governance practice amongst listed companies.

The 2012 JSE SRI index includes 76 companies spread over fourteen sectors and comprises of 36 large-cap companies from the FTSE/JSE Top 40, 33 mid-cap companies and 7 small-cap companies.

2012 JSE SRI Index review highlights:

  • Continuous improvements in companies’ commitments to social, governance, climate change and environmental issues are confirmed in 2012;
  • As in 2011, the FTSE/JSE Top 40 largest companies listed on the JSE demonstrated the strongest sustainability performance with over 90% of them meeting requirements for inclusion on the JSE SRI Index;
  • South African specific issues: 80% of SA companies meet JSE SRI Index criteria on Black Economic Empowerment (a slight increase of 1.3% since 2011), whilst 64% of SA companies meet criteria on HIV/AIDS (a slight decrease of 1.2% since 2011);
  • Three companies have entered the JSE SRI Index for the first time in 2012.

Sectoral performance

  • The mining sector accounts for 18% of the total number of companies in the Index (18% in 2011);
  • This is followed by life insurance and retail (both 7% each in 2012 and 2011) and banks (7% in 2012; 8% in 2011).

Individual research areas

  • The environmental and social requirements of the Index each shows an 82% success rate by all companies assessed in 2012, an improvement on 2011;
  • 68% of SA companies meet the JSE SRI Index ‘best performer’ criteria on environmental issues (a slight increase from 63% in 2011);
  • The governance areas remain the strongest with 98% of companies meeting the overall requirements here (91% in 2011).

 

As part of the 2012 review EIRIS conducted a parallel study for the JSE which assessed standards of public disclosure of ESG issues amongst South African companies. The study found that 20 of the companies which qualified for the 2012 SRI Index would not have made it onto the JSE SRI index this year had assessments been based purely on publicly-disclosed ESG information.

The JSE SRI Index is sensitive to socio-political events and the current labour unrest reflecting challenges to business in South Africa. This year the number of ‘Best Performers’ fell from 22 in 2011 to 10 due to more demanding reporting criteria and recent labour issues in the mining sector. The JSE is engaging with the affected mining companies and the Chamber of Mines to monitor the progress towards finding solutions.

Speaking at the launch of the 2012 Index review in Johannesburg last week, Peter Webster Executive Director at EIRIS, said: “We’re really impressed by the progress South African companies are making on sustainability, but levels of disclosure on ESG issues do need to improve. Many companies have done the work, they just need to make public what they have done. I can see new models of engagement between investors and companies opening through increased public disclosure”.

Further details on the 2012 JSE SRI Index Survey Results are here.

Keywords : ESG, Rating, United Kingdom