Business

Credibility of ESG reporting and information below the highlight


The outcomes of a brand new research trying into the reporting of environmental, social and governance (ESG) points by listed firms disclosed a number of attention-grabbing tendencies – essentially the most outstanding of which is that there’s little or no widespread floor when totally different businesses touch upon which firms take ESG significantly and that are missing of their reporting.

An in-depth research by Nedbank on ESG tendencies amongst JSE-listed firms discovered that totally different firms use totally different definitions of their ESG reporting, and businesses that measure their efficiency additionally use totally different definitions.

The outcomes are slightly complicated for buyers who want to put money into sustainable firms. For occasion, Bloomberg ranks Mondi, Gold Fields, Impala Platinum, Harmony and Glencore as the highest 5 firms by way of ESG reporting on the JSE, whereas Infinitive ranks British American Tobacco, Glencore, Mondi, Kumba and BHP Group as the highest 5.

The Nedbank research discovered that different businesses that goal to offer route to buyers get totally different outcomes too. These included MSCI, the not-for-profit charity CDP, S&P Global and Sustainalytics.

Read: South Africa stands tall on ESG amongst international friends

Divergence in rankings

While a number of firms are seen as doing very nicely when taking ESG into consideration by greater than one of many businesses, the rankings differ tremendously.

Top 10 JSE firms by way of ESG reporting in response to totally different businesses

Bloomberg CDP MSCI Refinitiv S&P Global Sustainalytics
Mondi Mondi Old Mutual Batsa Batsa Imperial
Gold Fields Nedbank Vodacom Glencore Gold Fields Curro
Implats Clicks Mondi Mondi Anglo American Hammerson
Harmony AB Inbev Nepi Rockcastle Kumba Iron Ore Hammerson Richemont
Glencore Amplats Mr Price BHP Group Investec Investec Property
Sasol Batsa Multichoice Tiger Brands AngloGold Ashanti Nepi Rockcastle
ARM Richemont Prosus Investec Investec plc Redefine
Absa Redefine Naspers Mediclinic Exxaro Mondi
Massmart Vodacom Bidvest Anglo American Amplats Datatec
Aspen Growthpoint Standard Bank Hammerson Implats Truworths

Source: Nedbank ESG Insights 2022

Of curiosity is that mining and useful resource firms – often seen because the worst offenders by way of their affect on the surroundings, and sometimes on the receiving finish of vocal criticism with reference to social duty – rating excessive.

Mondi seems on 5 of the six lists and gold and platinum miners are additionally listed on a number of lists.

Jones Gondo, creator of the Nedbank report, says it’s noticeable that the supplies sector (largely minerals and mining) offers the best set of information throughout all of the ESG pillars.

“This reflects the fact that these companies have had to contend with greater scrutiny over the environmental and social footprints in the jurisdictions they operate in and their accountability to a wide stakeholder audience including local communities, labour unions, the government, NGOs and activist groups,” he says.

“It does not mean that technology companies do not provide quality disclosures, only that the volume of their disclosures is less than that of other sectors.”

No set requirements

Gondo factors out all through the report that the absence of standardised reporting necessities is problematic, as proven within the divergence of businesses’ conclusions.

This is nonetheless altering.

“Corporate sustainability reporting is evolving at a brisk tempo, as G20 nations proceed to undertake international requirements and practices geared toward bettering the credibility and transparency of ESG efficiency information and reporting. Moreover, that is anticipated to raised channel monetary capital in the direction of precedence investments concentrating on local weather mitigation and the adoption and achievement of UN Sustainable Development Goals.

“Questions remain around the adequacy of ESG index benchmarks to accurately reflect sustainability impact, avoid greenwashing and at least track the risk-return profiles of traditional investment yardsticks. We think these challenges are particularly pronounced in South Africa and other developing markets that do not yet have the market depth, liquidity, consistent and comparable ESG data and the diversity of listed asset coverage to deliver the full gamut of risk-return options that meet the disparate set of investor preferences around sustainability,” says Gondo.

The Nedbank report notes that The International Organisation of Securities Commissions has really helpful harmonisation of core efficiency metrics and that ESG information suppliers fall below securities market regulation in the identical standing as credit standing businesses, index suppliers and different monetary information aggregators, all in an effort to enhance the standard of information.

“Overall, all these efforts on data and reporting are intended to enable the market to be better able to allocate capital towards climate and sustainability investments and maintain the integrity and commerciality of the asset class as it grows,” says Gondo.

Voluntary

A dialogue of the report leaves one with the sense that ESG disclosures will quickly turn into necessary and measured in response to commonplace codes, not not like worldwide accounting rules.

“We have already seen the JSE ship draft local weather and sustainability disclosure pointers. These are voluntary pointers for now.

“However, we think investor demand for standardised and better-quality disclosures will drive moral suasion and compel faster adoption by listed firms on the JSE,” says Gondo.

The JSE set out voluntary company disclosure pointers on each sustainability and climate-related dangers and alternatives in 2021 in accordance with pointers set by international organisations, such because the World Federation of Exchanges. The concept is to assist native listed firms enhance their ESG reporting and improve transparency and consistency.

“The JSE’s guidelines set out the pillars required for narrative reporting and aim to develop these guidelines into a set of standardised ESG metrics,” says Gondo, including that the JSE has indicated that the metrics will probably be in step with worldwide finest follow whereas considering native facets, such because the National Development Plan.

In quick, firms’ affect on the surroundings gained’t be seen in isolation, however in opposition to the backdrop of financial challenges, job creation and lowering poverty.

Active strategy

The Nedbank analysis discovered that institutional buyers opted for a extra energetic strategy with reference to firms’ ESG reporting, in addition to firms’ actual actions to turn into extra sustainable.

“We have famous that many massive fund managers in South Africa have embraced the energetic engagement strategy with underlying corporations as a result of divestment from carbon intensive sectors ought to solely be a final plan of action, particularly contemplating the systemic nature of carbon transition threat in South Africa.

“Divestment will not make the problem go away, and the consequences of failure to transform (including stranded asset risks) in carbon-intensive industries would be catastrophic for job security and socio-economic stability in the country, given how concentrated the exposures are in the resources industry and its supply chains,” famous the report.

Gondo additionally talked about the apparent downside that fund managers face – investing in solely the greenest firms isn’t all the time doable as there usually are not that many massive listed SA firms to select from.

In addition, he says local weather and carbon transition dangers could be thought-about to be systemic dangers, with “significant financial impact” over the long term.

“Domestic buyers perceive that SA is systemically uncovered to carbon and local weather change dangers … so disinvestments or exclusionary screening in passive methods will not be efficient measures to unravel these challenges with out inflicting additional hurt to society and livelihoods.

“Instead, we think SA investors will remain invested and employ rigorous corporate engagement strategies to drive the transition towards a low-carbon economy and achieve more sustainable outcomes, using proxy votes as one effective tool,” he says.

Nedbank involves the conclusion that home buyers can’t keep away from the implications of local weather dangers by way of inventory choice alone, whereas it’s tough to hedge in opposition to these dangers or just tilt the portfolio away from climate-related dangers utilizing differentiated portfolio weights.

On the constructive facet, Nedbank expects extra funding in environmentally pleasant and socially uplifting infrastructure because of the proposed adjustments in Regulation 28 of the Pension Funds Act, which is able to enable pension funds to speculate extra in infrastructure.

The report particularly notes sectors equivalent to clear power, water and tasks aligned with the nation’s National Infrastructure Plan.

Read:

Listen: Rob Lewenson on Old Mutual Investment Group becoming a member of the Net-Zero Asset Managers Initiative and why it’s proposing is a low-carbon benchmark for SA (or learn the transcript)



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