For more than 10 years, the JSE’s successful Socially Responsible Investment (SRI) Index has raised the profile of sustainability among listed companies and investors, and engaged participants in four areas: environment, climate change, society and governance and related sustainability concerns.

Now the JSE is to align its environmental, social and governance (ESG) disclosure indicators – as well as its method of data collection – with global index provider FTSE Russell’s evolved ESG approach.

‘We see this as an evolution of the SRI Index,’ says Corli le Roux, Head of SRI Index and Sustainability for the JSE. ‘We’ll still be covering ESG indicators but they’ll be far more focused on what investors are looking for. The advantage of the new index is that our work in sustainability will form part of a global universe of corporates.’

The disclosure practices of businesses will be assessed against cutting-edge ESG factors, while investors will be able to integrate ESG considerations into their investments.

‘The new process will also give us a clearer issue of performance against targets. For instance, we’ll be able to track environmental performance between companies and sectors,’ she says.

On the environmental side, issues such as climate change, water, waste, pollution and biodiversity will be examined. Corporate governance indicators, which traditionally show excellent performance due largely to the influence of King III, will be boosted by more of a focus on the supply chain as well as tax transparency.

‘For companies, the index is very important in terms of reputation. Increasingly, investors are looking at sustainability as an issue. We’re hoping the new index will spur more investment interest into companies on the basis of sustainability performance.’ Le Roux adds that the collaboration between the JSE and FTSE Russell offers a number of synergies and benefits for both organisations as well as clients.

The index is to continue with the existing 85 businesses that fall into the JSE’s ESG process. ‘This includes the JSE Top 40, as well as a number of mid caps and a handful of small caps. In time, we will cover more companies,’ she says.

‘The advantage of the new index is that our work in sustainability will form part of a global universe of corporates’

CORLI LE ROUX, HEAD OF SRI INDEX AND SUSTAINABILITY, JSE

The new partnership will enable more quantified information on the various sectors and businesses. The biggest sector in the SRI Index is made up of mining firms. Life insurers, general retailers, industrials and food producers are also active participants in the index.

While transparency and disclosure will be vital, the new index will also propel businesses to show what practical steps they are taking to improve sustainability practices.

‘I think it’s definitely going to encourage companies to up their game,’ says Le Roux. ‘Over the past 10 years, we’ve continually needed to raise the bar to make companies improve. This is a new challenge. We are very excited about it, as it offers more opportunities to improve conditions for investors, while corporates will be able to be part of a large, global set of companies that are measured against global best practices.’

The move also dovetails with global workplace trends, which show that the new generation of employees are people who care about the environment and look for a company that is ethically, socially and environmentally responsible.

According to Le Roux, businesses are using this as a competitive edge in terms of performance, in addition to attracting customers and employees.

‘The fact that we are seeing the large institutional investors make serious moves to integrate ESG factors into how they invest in pension funds, insurance funds and long-term assets also underscores how important issues of sustainability are.’

By Kim Cloete
Image: Fredrik Broden/reneerhyner.com