Over 70% of companies assessed on behalf of the Johannesburg Stock Exchange (JSE) fulfil the base requirements to become a constituent of the exchange’s 2012 Socially Responsible Investment (SRI) Index. That is an achievement to be welcomed by the growing number of shareholders asking listed companies to improve disclosure about broad sustainability issues, says the JSE’s SRI Index head, Corli le Roux.

The research was carried out on behalf of the JSE by global investment research provider EIRIS (with their local partner the Centre for Corporate Governance in Africa at the University of Stellenbosch Business School). The JSE is supported by the Government Employees Pension Fund (GEPF) in this initiative.

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.

“Since the index’s inception more than eight years ago, we have been very impressed at the strides that companies have made in managing material sustainability issues. This year’s SRI Index composition once again affirms that companies believe in the importance of applying ESG principles in business practice,” says Le Roux. “However, with that said, the JSE continues to review and upgrade its assessment criteria and we aim to move towards a focus on public disclosure to meet investor demands from companies entering the index.”

In the 2012 SRI Index review

• 108 companies were assessed (2011: 109)
• 76 of the companies assessed qualified for the SRI Index (2011: 74)
• Three companies are in the index for the first time ever
• The index comprises 36 Top 40 companies, 33 Mid Cap companies and seven Small Cap companies
• 10 companies have been identified as best performers (2011: 22)
• Similar to 2011, in 2012 the strongest performance was has been demonstrated by Top 40 companies with 90% meeting entry level requirements.

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
• The governance areas remain the strongest with 98% of companies meeting the overall requirements here (91% in 2011)
• 78% of the total number of companies assessed have met the entry level requirements for climate change criteria (72% in 2011)

“GEPF is again delighted to have partnered with the JSE for the 2012 SRI Index. We congratulate each company included in this year’s index and wish to convey special congratulations to those companies in the Best Performer category,” says John Oliphant, Principal Officer, GEPF.

There are 10 best performers in the 2012 review (22 in 2011). Six potential best performers have been precluded from the best performer category in the 2012 SRI Index due to the mining sector not being considered for best performer status after recent labour unrest in the industry. The best performer category contracted further this year as a result of the fact that the process evaluated company reporting requirements based only on information in the public domain. Although policy and performance criteria could still be supplemented by confidential information, reporting elements had to be publically disclosed.

“The events of 2012 with respect to South Africa’s mining sector are a sober reminder that there is still much work to be done. This calls for a renewed commitment by companies and investors to appropriately address material environmental, social and governance (ESG) factors when seeking investment returns,” says the GEPF’s Oliphant.

Concludes Le Roux “The JSE is among five global stock exchanges (which include the Nasdaq, Brazilian, Egyptian and Istanbul exchanges) who make up the founding signatories to the commitment made at the 2012 Sustainable Stock Exchange (SSE) event to promote long term sustainable investment in our marketplaces. Our SRI index is further confirmation of our on-going commitment to sustainability.”