Coming clean: What the JSE's guide for sustainability and climate change disclosures is all about

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JSE CEO, Leila Fourie.
JSE CEO, Leila Fourie.
Simon Sonnekus/Netwerk24
  • The JSE released its first guide for companies reporting sustainability and climate-related impacts.
  • The guidance draws from international best practices while considering the local context, says JSE CEO Leila Fourie.
  • If companies operate in a manner that reduces environmental impact and disclosing these activities will have financial benefits, says Daniel Mminele.

The Johannesburg Stock Exchange (JSE) has published a new guide to assist companies in their reporting of sustainability and climate-related impacts.

The Sustainability and Climate Disclosure Guidance documents are the first of their kind and are intended for use by both listed and unlisted companies, although not obligatory. The Climate Disclosure Guidance complements the Sustainability Disclosure Guidance - which is the overarching document on how and what information should be disclosed when it comes to Environmental, Social and Governance (ESG) issues and climate change.

Speaking at the launch at the JSE on Tuesday, CEO Leila Fourie explained that the guidance draws from international best practices but also considers the local context. The global initiatives on sustainability, ESG and climate change disclosure are aligned to include the International Financial Reporting Standards (IFRS), the GRI Sustainability Reporting Standards and the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations. According to the JSE, the guidance serves as a blueprint to show companies what matters on a local and global landscape and disclose accordingly.

It is envisioned that the quality of information from companies about sustainability and ESG will improve to inform investment decisions better. It is also expected to enhance the performance of companies when it comes to sustainability and ESG.

"It is our hope that the JSE Disclosure Guidance will help to improve business leadership, performance, accountability and transparency across the entire sustainability ecosystem," said Fourie.

Daniel Mminele, head of the Presidential Climate Finance Task Force, delivered a pre-recorded keynote address noted that the guidance is a milestone on a continuous journey.

He stressed the importance of disclosure guidance in assisting capital markets to better assess sustainability and climate change-related risks and opportunities. The information can assist investors, especially in the private sector, in making decisions about capital allocations.

Companies should not limit the guide to a compliance exercise, as there are real financial benefits that can be realised if they improve their practices and disclosures. "… Operating in the manner that reduces the environmental impact of companies and reporting and disclosing activities in this regard could be a distinguishing selling point … and produce tangible financial benefits," Mminele said.

Fourie noted that the fastest-growing asset class in the world today is that of sustainable development. "The sustainability segment has raised over $1 billion… since launched, it has been the best performing segment in the bond market last year," said Fourie.

READ | JSE allows climate, sustainability bonds as ESG investment jumps

Olano Makhubela, divisional executive for retirement funds supervision at the Financial Sector Conduct Authority, shared that the guide is important for the country. Until this point, it has been challenging for investors such as retirement funds to properly assess investments against ESG without there being the disclosure of the relevant information by companies.

"How do you as a citizen know that the company is polluting, and to what extent, if it does not disclose?" Makhubela put forward. "Knowledge is power, and the availability of information empowers everyone to act," he added.

Makhubela said that it is of no use for companies to misreport their true state of financial affairs – as they will end up collapsing and cause job losses.

"… It is better to report and disclose honestly and accurately than to try and conceal and mislead because ultimately the truth does come out," said Makhubela.

The FSCA is working on building capacity to determine how best to supervise sustainable financing. It has partnered with academia and multilateral organisations like World Bank and its International Finance Corporation to assist.

"Nobody wants to retire in a wasteland. The markets can give me the best financial return, but it does not help much if I am going to live and retire in a highly unequal and dysfunctional society, with unrest and floods."
- Olano Makhubela

Stephan Bernard, ESG analyst at Allan Gray, noted that there has been a challenge in obtaining quality ESG data when it comes to assessing sustainability aspects of investments. Based on engagements with companies, Bernard pointed out that the lack of information is not because companies necessarily don't want to share information, but rather there is a lack of clarity on what is needed. This makes ESG reporting a cumbersome process. But the guidance from the JSE may address this challenge.

Disclosure

In its Sustainability Disclosure Guidance, the JSE highlights that sustainability issues have a material impact on businesses. More so, transitioning to a more sustainable economy means companies must understand and disclose their impacts in this regard.

Disclosure has the potential to improve access to capital with more favourable terms – as it effectively unpacks sustainability risks and opportunities. "Investors and stakeholders are increasingly expecting companies to report on their sustainability impacts, risks, and opportunities with the same rigour as they apply for financial information," the guidance read.

The documents indicate that companies unpack sustainability-related impacts and climate-related impacts in the areas of governance, strategy, management, and performance metrics and targets.

The Climate Disclosure Guidance is helpful for companies starting to disclose climate-related information for the first time, providing a step-by-step guide, according to the JSE. For those companies which are already advanced in their climate reporting, the guide also provides additional resources for them.

Tracey Davies, executive director at non-profit shareholder activism group JustShare, described the guidance as "robust" and "easy to use." While good disclosure is "crucial," it is only the baseline of what is needed, she explained. "What matters is how acted on and what happens next," said Davies.

What should be measured and rewarded is the action that follows disclosure - and how these actions change the sustainability crises we face.

The JSE has been at the forefront of encouraging sustainability in financial markets. It was the first stock exchange to launch a sustainability index, in 2004. This was replaced by the FTSE Responsibility Index. A green bond segment was launched in 2017 and in 2020, a social and sustainability bond index was introduced. In April this year, the JSE introduced transition bonds.

The JSE is also a signatory to the Principles for Responsible Investment, supported by the United Nations and is a founding partner of the Sustainable Stock Exchanges Initiative.

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