Integrating Sustainability in South Africa

Author Name: 
Michelle Joubert and Corli le Roux, Johannesburg Stock Exchange

While the global financial crisis succeeded in drawing attention to sustainable practices in company behaviour and investor decision-making, responsible investing was a fast-growing phenomenon well before September 2008. In South Africa, a confluence of factors is driving companies and investors to focus on long-term goals rather than short-term gains. A primary motivator had been provided by the Johannesburg Stock Exchange (JSE)’s expansive activity in the area. 

In recent years, global interest in responsible investment has made headway beyond the niche asset class of traditional socially responsible investment (SRI), often expressed in the form of negative screening or ethical investment. The mainstreaming of sustainability practices has been underscored by the 743 signatories to the United Nations’ Principles for Responsible Investment (UNPRI), representing funds under management in excess of US$18 trillion – including traditionally sceptical investment institutions. Growing concerns about climate change and human rights also add to the increasing focus on responsible investment.

In South Africa, historic factors have contributed to an awareness of responsible practices. The anti-apartheid movement positioned South Africa as a key hunting ground for values-based investors. The country’s unique history in moving beyond this legacy has obliged companies to address labour, affirmative action and health related issues with much more urgency and vigour than elsewhere, so that today no business in South Africa can be divorced from the fact that sustainability and social responsibility is entrenched in the business landscape. 

Within this context, it is no surprise that local fund managers, in recognition of the continued existence of great inequality in South Africa, increasingly acknowledge the importance of responsible investment. Given its history and the make-up of the economy, with labour-intensive and resource-focused industries, sustainability issues are of interest to concerned investors. For this reason, a large number of local institutional investors have now adopted the UNPRI (there are currently 28 South African signatories), including South Africa’s largest pension fund, the Government Employees Pension Fund (GEPF), with assets just shy of ZAR800bn, and the owner of sizeable interests in many JSE-listed blue chip companies including Sasol, Standard Bank and Anglo American.   

In the area of corporate governance, recent policy developments have also increased the focus on sustainability issues. The King Reports on Governance for South Africa are recognised worldwide for setting a benchmark for organisational integrity and corporate citizenship. With the first iteration in 1992, it was welcomed as a significant advance in good governance at a time when these issues were increasingly under the spotlight. King II in 2002 raised the bar even higher by introducing a focus on integrated sustainability reporting, and today all listed businesses operating in South Africa must comply with principles of governance as defined by King III, which replaced King II on 1March 2010. Notably King III stresses that sustainability, governance and strategy are inextricably intertwined, and emphasises integrated reporting as a critical component of good governance. 

As regulator of listed companies, and as a significant role-player to the South African economic landscape and business ethos, the JSE believes that it can stimulate debate between listed entities and investors regarding corporate governance and responsible investment issues. Over recent years, the JSE has been involved in a range of activities to facilitate the implementation of responsible investment strategies and increase the focus on environmental, social and governance (ESG) issues in South Africa. The exchange also became a signatory to the UNPRI in November 2009, and is currently one of four stock exchanges to have signed.

The JSE’s activity in sustainability mainly takes place in five areas. 

1.     Regulation

The JSE took a leading position internationally by incorporating sustainability principles into its regulatory approach, based in large part on the King Reports. Historically, JSE Listing Requirements have placed the onus on listed companies to volunteer a description of how they apply principles raised in the King Reports. Where compliance has been voluntary, companies had to explain reasons for any non-compliance and keep stakeholders informed of developments. 

Requirements have become more stringent after a recent review leading to the publication of King III, prompted by changes in international governance trends and the reform of South Africa's company laws with the promulgation of the new Companies Act, 2008, anticipated to come into effect in the second half of 2010. More comprehensive governance principles, promoting the effective functioning of companies, will be compulsory in terms of the new Act. JSE Listing Requirements now comply with King III, including those requirements that deal with sustainability efforts. 

King III stresses the importance of building a sustainable business, in economic terms but also considering social and environmental impacts. In a change from King II, King III moves from "comply or explain" to an "apply or explain" approach. This requires a greater consideration of how a recommended practice in King III could be implemented. 

King III also focuses on the need for each listed company to report annually on how it has affected the economic life of the community in which it operates. In the report, companies should state how they intend to enhance positive impacts and work on negative impacts. An integrated report should give users an all-round view of the company by including social, environmental and economic performance along with financial performance. 

2.     Investment 

The JSE has embarked on the creation of various investment tools for investors to reach their responsible investing targets and contribute to sustainability. This stream remains dominated by the Socially Responsible Investment Index Series, launched in May 2004. The JSE was the first exchange globally to own such an index, the first such instrument in an emerging market context.    

The JSE worked with people across society’s spectrum as well as the JSE SRI Advisory Committee to create the SRI Index as a means to crystallise good triple bottom line and governance policy and practices in the local context, in addition to recognising the efforts already made by South African companies in this area. 

Through its annual assessment of companies against a broad range of indicators whose stringency and complexity increase over time, the index continues to strive to deepen the ongoing ESG debate. It has already been established as a benchmark in relation to conformance to the ESG imperative as well as a widely accepted gauge for compliance to King III.  The local investment community sees the SRI Index as a catalyst in encouraging commitments to responsible investment, cementing the JSE’s role as a leader and demonstrating its commitments to promoting responsible, sustainable investment, also sending a positive message to current significant players, particularly the GEPF.   

In the first years following its inception, the JSE concentrated on establishing and explaining the criteria particularly amongst issuers, but as the operating environment changed in South Africa and the demand for responsible investment has grown, the index has matured to meet the needs of investors – notably institutional investors. And through initiating a collaboration with the GEPF in 2008, the JSE has captured the interest of institutions in responsible investing that could not have been achieved alone. 

In September 2009, the JSE began disseminating live values of its SRI Index to the trading screens of thousands of investors worldwide. The introduction of live values, instead of solely close of day values and the increased visibility and transparency of the index is certain to prompt the creation of investment instruments based on the index. 

Another recent development was the introduction of the SRI Swix in November 2009, created in direct response to demand from institutional investors. The SRI Swix excludes foreign shareholding to more accurately reflect the domestic market while also reducing resources exposure. 

3.     Research

The JSE takes a proactive approach to strategy, maintaining ongoing research and development work. This approach is no different in relation to the exchange’s sustainability work, through various simultaneous projects exploring a range of opportunities across the spectrum of sustainable development. 

For example, institutions constructing responsible investment portfolios are giving increasing consideration to climate change concerns. A complex issue, there is much debate on how to include mitigation and adaptation considerations. In light of this, the JSE conducts research into climate change and its impact on the financial sector. This year, climate change criteria will be introduced for the first time into the SRI Index review. The JSE plans to refine this area, thereby introducing a measurement of how listed companies are addressing climate change risks in the absence of a regulatory driver in SA.

 With any challenge, there is also opportunity. The JSE believes that there is an opportunity to create a national asset in the form of a carbon market. A member of the South African Climate Change Working Group, the JSE is investigating the development of a voluntary South African carbon market. This would lift some of the administrative burden off business. In the absence of legislation, the development and participation on a voluntary exchange would signal to shareholders, rating agencies, customers and citizens that business is taking a proactive rather than reactive approach, driving rather than simply accepting policy. This would add to South Africa’s sustainability credentials. 

4.     Advocacy

Beyond exploring and implementing regulatory and commercial opportunities, the JSE also champions the mainstreaming of responsible business and investment practices through involvement in policy bodies, advisory panels and discussion forums. 

Through its participation, the exchange plays a role in stimulating debate and influencing policy decisions and building partnerships in the sustainability arena. Some examples include the JSE‘s active participation in the UNPRI South Africa network, representation on advisory panels of academic chairs in Responsible Investment and Climate Change, as well as on the main King Committee and various subcommittees, and on the recently created Integrated Reporting Committee which will feed into the International Integrated Reporting Committee (IIRC). 

5.     Internal sustainability

As a listed entity and a responsible corporate citizen, the JSE has a number of programmes directly related to its line of business aiming to contribute to social upliftment and empowerment. The company is a signatory to the Financial Sector Charter which aims to meet the country’s transformation goals by empowering the previously disadvantaged.  As a constituent of the eligible universe, it has also qualified for inclusion in the SRI Index annually since 2007. 

Various further social and community initiatives are embedded – many with a strong educational focus to help address skills shortages in South Africa. Examples of this include the JSE/Liberty Investment Challenge, an annual mock-trading competition which has been running for 37 years aiming to educate pupils and university students about the workings of the stock market. The JSE also works closely with government to include financial and investing knowledge in school curricula emphasising practical financial knowledge including budgeting, saving, managing a bank account and investment principles. 

The exchange also hosts an annual travelling exhibition and regular investor showcase events that are open to the general public, aiming to dispel the local perception that investing is for the elite. 

More recently the JSE has sought to better understand and mitigate its impact on the environment through the formation of an internal environmental management committee. Following the recent calculation of the exchange’s carbon footprint, more concrete objectives and targets for managing environmental impacts are being formulated. 


As markets mature, there tends to be a conscious awareness of the impact corporations have on the health, education and livelihood of society. In the words of King III, the world’s future political, economic, social and environmental landscape lies in present day activities, and decision makers need to understand that nature, society and business are interconnected in complex ways. 

Sustainability is an important source of both opportunities and risks for businesses in the twenty first century. We need a fundamental shift in the way we act and organise ourselves. The JSE has progressed significantly down this road, and intends to play a pivotal role in creating opportunities for recognition of progress being made, or incentives to further improve. In seeking to foster such opportunities, the JSE will remain true to its mission of providing world-class, regulated, multi-product services, linking Africa to the global financial markets, in a sustainable manner. 

The JSE’s position as connecting issuers and investors makes it possible to grow the sustainability focus of both groups.  By providing aspirational benchmarks and facilitating investment and engagement, the exchange’s impact on corporate and investment behaviour in relation to the environmental and socio-economic imperatives of South Africa could be significant. 

About Michelle Joubert

Michelle Joubert spent the first eight years of her career analyzing corporate behaviour at South Africa’s leading business publication the Financial Mail magazine, where she was Associate Editor. This was followed by a period at the Financial Times newspaper in London. An MBA at the Universities of Cape Town and Chicago prompted a change of career and Michelle is currently Head of Investor Relations at JSE Ltd, which listed on its own exchange in 2006. She is also Head of Media Relations and plays a role in external communications about the JSE’s SRI Index. Michelle has written about the SRI Index for a range of publications and has spoken locally and globally on the topic. The JSE’s unique role as both listed company and listing platform enables a fascinating bird’s eye view of the impact on corporates of a growing awareness of sustainability-related risk management issues.

About Corli le Roux

Corli obtained the degrees BA LLB from the Rand Afrikaans University (now the University of Johannesburg). In 1997, Corli became legal advisor to SAFEX (The South African Futures Exchange). When SAFEX was acquired by the JSE in August 2001, Corli became a member of the JSE’s Strategy and Legal Counsel Division. In the role of Legal Counsel, she forms part of a professional team of lawyers advising the JSE in all aspects of its business. 

Over the years Corli’s responsibilities have expanded, and for the past seven years she been the project manager on the development of the JSE’s Socially Responsible Investment (SRI) Index. She currently oversees the operation and further evolution of the SRI Index.

Corli has authored articles in various local and international publications on the topics of derivative market regulation and the SRI Index, and has spoken at numerous occasions locally and globally regarding the Index and its development. She represents the JSE on the Advisory Boards to the Unisa Centre for Corporate Citizenship’s Chair for Responsible Investment and the Chair for Business and Climate Change, is a member of the Institute of Directors’ Sustainable Development Forum and the Integrated Sustainability Task Team for King III, and was a member of a group of external advisors on developing a policy on responsible investment for the Government Employees Pension Fund (GEPF).