22 October 2018 at 1:32 pm
The Centre for Environmental Rights (CER) has called on the JSE to strengthen its requirements for listed companies and their directors to include climate, environmental and social impacts.
Drawing on its extensive work to hold corporates accountable for violations of environmental laws, the CER submitted detailed comments to the JSE Limited in response to its call for input on possible improvements to the regulation of JSE-listed companies.
The CER’s Full Disclosure series of reports has assessed the environmental disclosures of some of South Africa’s biggest polluters. Our research has shown that while companies may publicly claim to advance a “sustainability agenda”, there is little to no robust and independent verification of the claims made by companies. Reporting requirements in South Africa rely extensively on a company’s own assessment of its performance, and companies are given the freedom to report on their environmental impacts and compliance track-record as they see fit.
The CER accordingly recommends that in its review of the Listing Requirements, the JSE pay particular attention to the incorporation of more requirements relating to the environmental and social impacts of companies. The CER also recommends that the roles and responsibilities of the board of directors in relation to environmental and social issues should be more clearly defined.
“The JSE plays an important role in advocating for the enhancement of corporate governance and the quality of disclosures by companies listed on the JSE,” says the CER’s Corporate Accountability Programme Head, Leanne Govindsamy. “However, recent corporate scandals have negatively affected not only the South African financial markets, but also investor confidence, with serious questions being raised about the proper regulation of companies listed on the JSE. There is increasing concern about the ethical standards to which companies are held accountable, and how breaches of such standards lead to reputational harm. Reputational harm affects continued investor support for such companies and can ultimately impact on their profitability, as well as the stability of financial markets.”
The JSE’s Consultation Paper, aimed at improving its regulation of new and existing listings on the JSE, acknowledges the need to improve regulation and enforcement in respect of companies listed on the JSE, both in respect of its own role as a front line regulator, as well as in respect of other regulatory and governance stakeholders.
The CER’s recommendations include:
- support for the JSE’s proposal to emphasise the requirement that new and currently listed companies on the JSE are in good standing with the laws applicable to that company;
- that, in addition to a general statement that new and currently listed companies on the JSE are in compliance with applicable laws, companies must be required to specifically refer to the authorisations required for lawful operation, and be required to confirm that these authorisations have been obtained;
- that the JSE’s Listing Requirements specifically require mining companies to disclose a range of information relating to their financial provision for rehabilitation (i.e. the money that mining companies must set aside to rehabilitate the environmental damage they cause); and
- that climate-related risks, which represent material, financial risks to businesses, are incorporated into financial disclosures, and that the JSE endorse the recommendations of the Task Force on Climate Related Financial Disclosures (TCFD), and that the JSE consider referencing these recommendations in the Listing Requirements.
The CER supports the JSE’s recognition of the role of other regulatory stakeholders, referred to in the JSE Consultation Paper as the “guardians of governance”, which include boards of directors, audit firms, analysts, asset managers and shareholders.
“We commend the JSE for taking steps to amend its Listings Requirements and trust that our recommendations, based on climate, environmental and social concerns, will be taken seriously and incorporated further. The reputational risks which companies face as a result of breaches of human rights (which include environmental rights) are immense. In the current context of global concern over such abuses, it is essential that these issues form part of financial considerations, and that companies are held accountable for their actions,” says Govindsamy.
The CER looks forward to continued engagement with the JSE and these other stakeholders as this consultation process unfolds.
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