A factor increasingly influencing investors and financers – that being the explicit consideration of sustainability concerns and the reporting thereof – has been encouraged in various ways by the JSE since 2002, when it was the first emerging market exchange globally to incorporate the King II Code on Corporate Governance into its listing rules and, thereafter, create markets for ESG-themed investment indices.

Other exchanges have followed suit, in various ways with more than 4 100 companies now assessed globally using the FTSE Russell ESG Ratings and data model, which scores and assesses companies on ESG disclosure, enabling them to be compared with global peers. With certain key mining activities impacting on ESG factors, such as energy use, carbon emissions, water use, waste generation, rate of injuries and fatalities, rate of employee turnover, and percentage of contractors or temporary staff, the mining industry is assessed against more stringent criteria than most.

Shameela Soobramoney, Senior Manager: Group Strategy and Sustainability at the JSE, says it is the intense impact that mines have on the environment and other social issues that highlights ESG within the sector. ‘It has also historically played a significant role in the country’s development and faces a delicate balancing act between being an important employer, complicated by related socio-economic challenges, and also managing evolutionary changes, such as reducing orebodies, automation and the potential impact this has on production, on the one hand, and number of people employed on the other.’

The pressure to embrace ESG can come from not just regulators but also a host of governing bodies and civil society organisations that have both community and environmental aspects in mind. So much so that they can be determining factors that influence the ability of a mine to secure project financing or even obtain mine permits.

Soobramoney says that up to just a decade ago the links between ESG and profitability were not clear, despite the existence of a moral imperative. ‘Now we have mounting evidence that, in fact, ESG practices relate directly to better investment performance. A good ESG score is often seen as a proxy for better management and financial performance. A meta study of more than 2 000 other studies showed that in the overwhelming majority of those studies better sustainability or ESG practices impact positively on corporate financial performance.’

It is partially due to the JSE’s efforts in promoting transparency and disclosure in the SA market over more than a decade that JSE-listed companies perform better than other emerging markets in relation to ESG, as per FTSE’s research. ‘In being home to the listing of many mining companies, the JSE has the opportunity to engage with this important sector at a different level to that of a standalone index provider.’

Soobramoney provides the 2012 Marikana tragedy as an example. ‘The JSE was able to extend the engagement beyond its listed companies to the entire sector to constructively discuss how to improve risk management as well as transparency in relation to reporting and stakeholder engagement.
‘Via this channel it was agreed that, due to the systemic nature of the issues, the entire sector would be precluded from the JSE’s ESG Best Performer award category that year, regardless of how well they had performed in relation to their ESG assessment,’ she says.

Despite consideration for ESG issues being built into listing rules via the King Codes, it remains imperative for mining companies to engage with their investors and stakeholders to understand how their existence is valued. ‘While some commonalities between investors are evident – and these include good governance in practice, not just on paper – transparency in relation to ESG-information with a focus on materiality must link back to the company’s actual business model and future prospects,’ according to Soobramoney.

‘Increasingly for mines, as we have seen locally from regulatory developments in environmental rehabilitation, for example, the environmental and social impacts are inextricably linked to the financial performance of the company, and investors are sharpening their focus on these aspects.’

By Kerry Dimmer
Images: Gallo/Getty images