Informing Responsible Investment Practices through Environmental, Social and Governance Analysis: A Perspective from South African Broad-Based Black Economic Empowerment and Transformation Disclosure

Abstract

Thesis (MPA)--Stellenbosch University, 2016.

ENGLISH SUMMARY: This research aims to provide greater insight into responsible investment (RI) practices in South Africa and abroad. Specifically, the research aims to contribute to the fields of sustainability and RI, explore best practices and frameworks informing RI practices, to highlight the obstacles to RI in South Africa, to explore the disclosure of a purposefully selected sample of Johannesburg Stock Exchange (JSE) listed companies, and to improve the disclosure of listed companies in South Africa in order to inform the process of environmental, social and governance (ESG) inclusion in investment decision-making.
 The need for this research stems from the limited body of literature which is available on RI practices in South Africa including good stakeholder engagement and the understanding or interpreting of ESG data. The need for the research is further driven by the fact that, other than publications dealing with levels of Broad-Based Black Economic Empowerment (B-BBEE) compliance, there is little deeper analysis on transformation towards improved ESG performance across listed companies that investors can draw on to inform engagement with these companies. In particular, this is the case for the Top 100 listed companies on the JSE. There is also little research that highlights financial, reputational and license to operate risks resulting from transformation towards improved ESG performance.
 The objectives are to increase RI awareness amongst institutional investors like the Government Employees Pension Fund (GEPF) to include ESG consideration in the decision-making process by selecting only those companies actively progressing in the ESG fields; and to prompt companies to focus efforts on ESG disclosure with the aim of improving their disclosure.
 A literature review was utilised to investigate the RI practices in South Africa, the obstacles to RI, and how these obstacles could contribute to a disconnect between ESG disclosure and ESG consideration in investment decisions. This study focuses on two of the most pertinent obstacles to RI as identified in the literature, that is the 1) qualitative nature, poor quality and inconsistency; and 2) incomplete and non-disclosure of ESG data available in the market. An evaluation matrix was utilised to provide greater insight into the ESG disclosure of South African companies (covering the top 40 JSE listed companies for 2013), with specific emphasis on key aspects of social performance, namely B-BBEE and transformation.
 The main findings of this research indicated that the analysis of the impact of ESG issues on company performance is problematic when companies are selective in their ESG disclosure; disclosure is a pre-requisite for quality performance analysis; and the approach to, and absence of, disclosure highlights investment risks that cannot be evaluated. An analysis of the top 40 JSE listed companies’ disclosure was completed to provide a view of the companies’ approach, disclosure and related risks around B-BBEE and transformation.
 Among the group of top-tier performing companies, forty-six per cent listed the topic of transformation and B-BBEE as material issues/strategic objectives and extensive information was provided addressing all B-BBEE elements. These companies expanded on plans to address transformation and B-BBEE within the company as responsible corporate citizens. Eighty-three per cent of companies produced integrated reports and seventy-one per cent produced sustainability reports. Verified B-BBEE certificates (eighty-eight per cent of companies) and scorecards (twelve per cent of companies) were publically available on a listed company level. GRI disclosure indexes were available for fifty-four per cent of companies and the companies reported, in addition to other GRI indicators, on all of the LA and HR GRI indicators selected for this study.
 All of the bottom-tier performing companies briefly mentioned the topic of transformation and/or B-BBEE in their company reports or websites while providing little or no context. Seventy-five per cent of these companies publically disclosed their B-BBEE certificates, however no scorecards were available. No GRI disclosure indexes were available; however, the companies reported on some of the LA or HR GRI indicators.
 The companies in the B-BBEE non-disclosure group did not mention the topic of transformation and/or B-BBEE in their reports or on their websites. Thirty-three per cent of companies produce integrated reports and sixty-six per cent produced sustainability reports. No B-BBEE certificates or scorecards were publically available; however, one company disclosed its verified detailed ownership scorecard on its website. Only eight per cent of companies disclosed a GRI disclosure indexes and reported on the LA or HR GRI indicators selected for this study.

AFRIKAANS OPSOMMING: Hierdie navorsing poog om insig rakende verantwoordelike beleggingspraktyke in Suid-Afrika en in die buiteland te voorsien. Die navorsing is spesifiek daarop gemik om ‘n bydrae te lewer tot die veld van volhoubaarheid en verantwoordelike belegging, om beste praktyke en raamwerke wat verantwoordelike belegging belig te verken, om die struikelblokke tot verantwoordelike belegging in Suid-Afrika uit te lig, om die openbaarmaking van ’n doelbewuste geselekteerde steekproef van maatskappye gelys op die Johannesburgse Effektebeurs (JE) te verken, en om die openbaarmaking van gelyste maatskappye in Suid-Afrika te verbeter ten einde die proses van omgewings-, sosiale, en korporatiewe beheer (OSK) in beleggingbesluitneming te belig.
 Die behoefte aan hierdie navorsing het ontstaan uit die beperkte literatuur rakende verantwoordelike beleggingspraktyke in Suid-Afrika; insluitende behoorlike betrokkenheid van belanghebbendes en die begrip of interpretering van OSK-data. Die behoefte aan die navorsing word voorts gedryf deur die feit dat, anders as publikasies wat handel met gehoorgewing aan Breë-Basis Swart Ekonomiese Bemagtiging (B-BSEB), is daar min diepere ontleding van transformasie vir verbeterde OSK-prestasie in gelyste maatskappye wat beleggers kan gebruik om gesprekke rondom betrokkenheid met hierdie maatskappye te voer. Dit is veral die geval vir die Top-100 gelyste maatskappye op die JE. Daar is ook min navorsing wat finansiële, reputasie-, en lisensie-om-te-hanteer-risiko’s beklemtoon wat ontstaan uit transformasie vir verbeterde OSK-prestasie.
 Die oorhoofse doel van hierdie studie is tweevoudig; om verantwoordelike beleggingsbewustheid onder institusionele beleggers soos die Regeringwerkerspensioenfonds te verhoog om OSK-inagneming by die besluitnemingsproses in te sluit deur slegs die maatskappye te kies wat aktief in die OSK-velde vorder; en om maatskappye aan te spoor om hul OSK-openbaarmakingspogings te fokus op die doel om hul openbaarmaking te verbeter.
 ’n Literatuuroorsig is gebruik om die verantwoordelike beleggingspraktyke in Suid-Afrika te ondersoek; asook die struikelblokke tot verantwoordelike belegging; en hoe hierdie struikelblokke kan bydra tot ’n skeiding tussen OSK-openbaarmaking en OSK-inagneming in beleggingsbesluite. Hierdie studie fokus op twee van die mees pertinente struikelblokke tot verantwoordelike belegging soos geïdentifiseer in die literatuuroorsig; naamlik 1) die kwalitatiewe aard, swak gehalte, en teenstrydighede; en 2) onvolledige en nie-openbaarmaking van OSK-data wat in die mark beskikbaar is. ‘n Evalueringsmatriks is gebruik om insig rakende die OSK-openbaarmaking van Suid-Afrikaanse maatskappye (die Top-40 JE-gelyste maatskappye vir 2013) te voorsien, met spesifieke klem op die sleutelaspekte van sosiale prestasie, naamlik B-BSEB en breëre transformasie.
 Die hoofbevindinge van hierdie navorsing het aangedui dat die ontleding van die impak van OSK-kwessies op prestasie problematies is wanneer maatskappye selektief is in hul OSK-openbaarmaking; openbaarmaking ’n voorvereiste is vir gehalteprestasieontleding; en die benadering tot, en tekort aan, openbaarmaking beleggingsrisiko’s wat nie geëvalueer kan word nie beklemtoon. ’n Ontleding van die top-40 JE-gelyste maatskappye se openbaarmaking is onderneem om ‘n oorsig te verskaf van die maatskappye se benadering, openbaarmaking, en verwante risiko’s rakende B-BSEB en transformasie.
 Onder die groep beste presterende maatskappye (24 maatskappye) is bevind dat ses-en-veertig persent die onderwerpe van transformasie en B-BSEB gelys het as materiële sake/strategiese doelwitte. Die maatskappye het uitgebrei op hul planne om transformasie en B-BSEB binne die maatskappye as verantwoordelike korporatiewe burgers aan te spreek. Drie-en-tagtig persent van die maatskappye het geïntegreerde verslae en een-en-seventig persent het volhoubaarheidsverslae geproduseer. Omvattende inligting is voorsien wat al die B-BSEB-elemente aanspreek en geldige B-BSEB-sertifikate (agt-en-tagtig persent) en -telkaarte (twaalf persent) van hierdie gelyste maatskappye is openlik beskikbaar. ’n Globale Verslaggewingsinisiatief (GVI)-openbaarmakingsindeks is beskikbaar vir vier-en-vyftig persent van die maatskappye waar verslag gelewer word oor die GVI-aanwysers, asook alle arbeidspraktyke en ordentlike werk en menseregte-GVI-aanwysers wat vir hierdie studie gekies is.
 Die groep laagste presterende maatskappye (B-BSEB-bydraer vlakke 5-8) het bestaan uit vier maatskappye en die navorsing het bevind dat die onderwerp van transformasie en/of B-BSEB genoem word in al die maatskappy se verslae of op die maatskappye se webwerwe, wat slegs na wetlike toegewendheid of wetlike vereistes verwys. Vyf-en-sewentig persent van die maatskappye se B-BSEB-sertifikate is beskikbaar, maar geen B-BSEB telkaarte is beskikbaar nie. Geen GVI-openbaarmakingsindekse is beskikbaar nie, maar die maatskappye het egter aangedui dat hulle slegs verslag lewer oor sommige arbeidspraktyke en ordentlike werk en menseregte-GVI-aanwysers.
 Die maatskappye met geen B-BSEB-openbaarmaking het bestaan uit 12 maatskappye en die navorsing het getoon dat transformasie en/of B-BSEB nie in die maatskappye se verslae of op hul webwerwe genoem word nie. Geen B-BSEB-sertifikate of -telkaarte van hierdie gelyste maatskappye is openlik beskikbaar nie, en slegs agt persent van die maatskappye het GVI-openbaarmakingsindekse beskikbaar gestel waar hulle oor sommige van die arbeidspraktyke en ordentlike werk of menseregte-GVI-aanwysers verslag lewer.