copyright© jse limited 2005 corporate governance focus african peer review, 1 december 2005 nicky...

Copyright© JSE Limited 2005

Corporate Governance focusAfrican Peer Review, 1 December 2005

NICKY NEWTON-KING

Deputy CEO



Sustainability reporting in RSA

• SA strong Roman Dutch legal heritage but commercial legislation and

regulatory structures borrow heavily from UK and Commonwealth

• JSE Limited only licensed equities exchange in SA

– Front line regulator of listed companies

• 15th largest exchange in the world – largest in Africa

• Regulatory responsibly shared

– Companies Act – dti

– Accounting standards – SAICA and GAAP Monitoring Panel (JSE)

– Listings requirements – JSE

– Labour legislation – Dept of Labour

– Environmental legislation – Dept of Min and Energy, DWAF, DEAT

• King II


JSE SRI Index

• Product of extensive consultation

• Outcome – agreed criteria

– Focus on sustainability practices, not

ethical screens

– developmental approach

– reflect principles common to a range of

international and local documents

• Voluntary participation

– FTSE/JSE All Share Index constituents


SRI Index Architecture

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Corporate governance


SRI Index Architecture

• Benchmark index

• No exclusions

• Free float market capitalisation

• Environmental impact classification

• Sustainability factor in due course


Environmental sustainability

• Companies Act– No existing reporting requirements– Review of Companies Act considering this aspect

• Environmental legislation– Reports to relevant Ministries with prescribed content– Accessible to public but not widely published

• King II– Report at least annually on the nature of its social, transformation,

ethical, safety, health and environmental policies and practices• JSE

– No specific ones bar comply and explain with King II but would require disclosure of material information which could affect price

– Mining companies have SAMREC code initial and continuing obligation disclosure requirements


Environmental sustainability

• SRI Index – Regular, clear and comprehensive disclosure of major environmental

sustainability objectives relevant to the company including of performance against environmental targets

– Public disclosure of quantitative, comparable data on major environmental issues relevant to the company

– Disclosure of major non-compliance, fines, prosecution or incidents relating to the environmental sustainability issues identified in these Criteria


Social sustainability

• Labour legislation– Annual report on Employment Equity to DoL in fixed format– Accessible to public but not widely published

• Industry Charters & dti Codes of Best Practice– Still to be promulgated– “Voluntary” – Report on ownership/control, EE, procurement, CSR– Formats still not finalised


• King II– Report at least annually on the nature of its social,

transformational, ethical, safety, health and environmental policies and practices


Social sustainability

• JSE– No specific ones bar comply and explain with King II but would

require disclosure of material information which could affect price• SRI Index

– Public disclosure of quantitative, comparable data on major social sustainability issues relevant to the company

– Performance against targets reported on– Disclosure of major non-compliance, fines, prosecution or

incidents relating to the social sustainability issues identified in these Criteria


Economic sustainability

• Companies Act– Annual reporting requirement in accordance with GAAP– Financial disclosure standards for certain corporate actions– Legal backing for GAAP to be achieved early in 2006– Review of Companies Act may allow abridged reporting for some

companies • King II

– Report in accordance with GAAP• JSE

– Report in accordance with GAAP annually– Additional financial disclosure standards for certain corporate actions– IFRS from 2005 for all listed companies– Enforced through GAAP Monitoring Panel – to exist until legal backing

achieved


Economic sustainability

– Disclosure of major non-compliance, fines, prosecution or incidents relating to the economic sustainability issues identified in these Criteria

• SRI Index – Public disclosure of quantitative, comparable data on major

economic sustainability issues relevant to the company

– Regular, clear and comprehensive disclosure of major economic sustainability issues relevant to the company, including of performance against economic targets




• King II– Aspirational code for all business entities – not mandatory– Outlines best practice on governance ie. audit committees, split

Chair/ CEO, code of ethics – Report at least annually

• JSE– For listed companies only– Some aspects of King II made mandatory ie chair/CEO split– Disclose annually whether comply with King II and if not, why not



• SRI Index– Demonstrated commitment to the achievement and maintenance of

internationally recognised corporate governance standards and principles, such as King II in South Africa, in a manner appropriate to the company’s size, business and geographic spread of operations

– Demonstrated policy or strategy of stakeholder involvement on key issues concerning the company

– Demonstrated policy of ethical conduct– Test: Regular, clear and comprehensive disclosure of major facts

relevant to the company, including of objectives and performance against these, as well as of matters of public interest, such as donations to political parties


Focus of SRI Index

Policy

Performance

Reporting

First Round focus

First and second annual reviews

More demanding set of Criteria


SRI Index 2004

• 74 companies participated in the

process

• 51 companies were part of the

first SRI Index

– 31 Top40

– 17 Mid-Cap

– 3 Small-Cap


SRI Index 2005

• 49 companies currently constitute the Index

– 32 Top40

– 13 Mid-Cap

– 4 Small-Cap

• Higher % of participating companies passed

• 7 new companies participated for the first time

– 4 of these qualified

• Performance recognition

– 23 high-impact companies met the Criteria

– 12 medium-impact companies met the Criteria

– 14 low-impact companies met the Criteria

• 58 companies participated in the 2005 review


Lessons learnt

• Companies in SA are doing a lot and should be encouraged

• Sustainability is multi-faceted and hence sustainability reporting is driven by a number of legislative and other interventions

• Trends from the SRI Index:

– Increase in non-public information disclosure

– SA social reporting excellent, environmental lacking imperative

– Companies who use GRI or SRI Index criteria to structure reporting generally have better understanding of sustainability and do better on the Index

– GRI works better for multi-nationals

– Glossy reports not a good indicator of whether companies really understand what sustainability is

– Growing awareness and performance amongst low impact companies, particularly finance sector


Going forward

• 2005/2006 review currently underway

• A carrot and not a stick for companies and investors

• Need greater support from the buy-side for the importance of sustainable

business practices – mainstream SRI

• This needs

– Vocal championing

– Clear understanding that we are not just talking about CSR

– Good, clear and achievable guidelines of what companies should do


Focus points

• Shareholder activism

• Revolving doors

• The importance of sustainable development for state-owned

enterprises

copyright© jse limited 2005 corporate governance focus african peer review, 1 december 2005 nicky...

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