JSE sustainability index to evolve through FTSE Russell partnership
The JSE has entered a new partnership with global index provider FTSE Russell, which will see the exchange aligning its environmental, social and governance (ESG) disclosure indicators and data-collection methodology with FTSE Russell's evolved ESG approach.
The JSE, the first stock exchange to form a socially responsible investment index (SRI Index) in 2004, advised on Friday that it would now evolve to a different model of monitoring that will progress its work over the last decade around promoting corporate sustainability practices. This initiative was launched on June 3.
As such, the new approach would replace the SRI Index.
The partnership would enable JSE-listed companies to form part of a global universe of corporates whose disclosure practices were assessed against ESG factors and would provide investors with expanded opportunities to integrate ESG considerations into their investments.
Speaking at a sustainability breakfast, hosted by engineering, management and specialist technical services company Aurecon, JSE sustainability head Corli le Roux noted that this transition would not be without challenges.
“There’s a bias [from investors] that if you start looking at sustainable investment, you are going to compromise the return that you can make. This is a misplaced concern, because there [is no evidence] that you will get a negative return.”
She added, however, that the consistent, positive outperformance of sustainability elements was also difficult to prove, which meant that a lot of investors wanted proof that it would have positive investment returns and before that, would not look at these options. “To address this, corporates need to demonstrate what value they have seen. This is where linking financial performance to sustainability actions [needs to come forward in integrated reports] – what cost savings have you seen, what efficiencies have you implemented, how has it improved your relationship with analysts?”
Le Roux also highlighted that there were also systemic challenges, including companies’ persistent preoccupation with short-term performance, the complexity of the investment value chain and agency issues, and limitations of analytical and performance measurement frameworks, as well as incentive mechanisms.
She stated that change could be enabled by reconsidering reporting cycles and incentive bases, as well as making companies aware of the opportunities for expanded investment options in ESG, as well as in expanded client bases and influence.
“Capacity building and skills development needs to happen throughout the financial industry and we need companies who are close to sustainability issues to help with this,” Le Roux added.
"This transition represents the next generation in our evolutionary work to promote ESG disclosure, building on the achievements of the SRI Index and the great strides that South African corporates have made in this regard, and will enable us to respond to the growing need among investors seeking to integrate sustainability considerations into their investments," Le Roux said in an earlier statement.
Both the JSE and FTSE Russell had long records of innovation in the ESG and sustainability sector, and had a long-standing relationship through the calculation of the FTSE/JSE Africa Index Series. "Collaborating with FTSE Russell on expanding our efforts in sustainability offers a number of synergies and benefits for both organisations and our clients, and was thus a logical opportunity for us to pursue," said Le Roux.
The dynamic nature of sustainability required a constant re-evaluation of approaches to support an enabling environment in which listed companies could respond to the growing pressure to report and where investors could integrate issues that were material to their portfolios.
“The JSE is committed to remaining a thought leader in this regard and to continue to find opportunities in responsible investment," she added.
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