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November 2008

November 2008. Backdrop to JSE’s sustainability focus . Global awareness of need for corporate transparency Emerging market status impacts SA capital markets SA-centric issues receive investor attention Economic inequality Emerging factors eg Black Empowerment, HIV/Aids

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November 2008

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  1. November 2008

  2. Backdrop to JSE’s sustainability focus • Global awareness of need for corporate transparency • Emerging market status impacts SA capital markets • SA-centric issues receive investor attention • Economic inequality • Emerging factors eg Black Empowerment, HIV/Aids • International leadership in corporate governance • Publication of King Code of Corporate Governance • Incorporate of King Code into corporate requirements

  3. JSE’s approach to sustainability • Focus debate on corporate sustainability • Promote King Code of Corporate Governance • Enforce sustainability reporting through Listing Requirements • Encourage continuous improvement through SRI assessments • Align with global norms by drawing on well-known frameworks • GRI and UN PRI drawn on in SRI Index development • Close alliance with FTSE4Good • Focus on SA-centric issues • Encourage investor interest • Promote SRI Index data • Offer SRI constituents as stock pick universe or tradeable index

  4. Listing regulations: governance enforced • JSE Regulations place onus on company to volunteer • Description of how it has applied King II principles • Enough detail to allow investor evaluation • Where compliance is voluntary, company must • Explain reasons for any non-compliance • Keep stakeholders informed of developments • Certain compliance is mandated eg • Existence of policy detailing procedures for Board appointments • Need to separate positions of chairman and CEO • Requirement that Audit committee must select external auditors • Normal sanctions applicable for non-compliance

  5. SRI Index: assessing non-financial risk • First exchange-sponsored SRI Index in emerging market • Blends SA focus and global requirements • Financial performance threshold applied • Significant reliance on industry experts: • Investors consulted in original construction • Annual findings reviewed by Advisory Committee • JSE focus has shifted • Initial focus on index construction • Current focus on creating investable products around index

  6. Construction of index • Companies assessed in 3 areas: Environment, Society and Governance • Each area examined ito policy, performance and reporting • Structured to be aspirational: no industries excluded • Review occurs annually • Controversial events can prompt downgrading • Best performer can have title removed • Constituent can be removed from index • Company can receive warning

  7. GRI and SRI • SRI index criteria are internationally aligned • contain multiple aspects considered by GRI guidelines • the GRI was a source document for the JSE’s criteria • Index criteria based on ESG principles; GRI look at economic, social and environment • Governance is contained in the other pillars • Both SRI and GRI look at company strategies, performance and reporting • SRI reporting indicators are in line with GRI guidelines • There are some areas of overlap in GRI and SRI indicators

  8. Future challenges • Develop collaboration with SA’s largest pension fund • Fund aims to develop responsible investing mandate • Prompt institutions to build SRI criteria into analysis • Improve quality of corporate sustainability reporting • Reporting ESG policies • Quantifying of impacts of criteria • Committing to targets • Encourage SME involvement despite cost pressures • Introduce criteria in new areas: • Climate change • Bribery & corruption • Human rights

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