We showed the world, but must do it for ourselves now
August 10, 2010
By Humphrey Borkum, Chairman of JSE
There has been much pontification in the media on the legacy of the World Cup
soccer tournament. One lesson that I believe we have learnt from bringing in the
stadia and the Gautrain on time was that government, in tandum with the private
sector, is capable of successfully undertaking huge construction and
infrastructure projects. These projects are highly beneficial to those living on
the breadline as they employ vast numbers of people.
The World Cup also gave SA a sense of patriotism we have not felt before. If
we are to sustain this feeling we should already have identified the next
projects. For example, many of our national roads are in appalling condition and
fixing these would also offer employment to many semi-skilled labourers. Then we
can put on our project management hats for housing, schools and hospitals which
are fundamental to the future viability of our country
I would like to see no more of the excessive budget overrides we experienced
with the World Cup and the labour movement must be brought in at the start so
there can be no possibility of the unions holding the country to ransom once
again with threatened strikes.
As far as the JSE was concerned most of the benefits accrued before the first
ball was kicked. The shares of the listed construction companies involved went
through the ceiling before and during the construction phase but declined
noticeably when the projects were completed. These companies are now looking for
business in the Middle East and in all likelihood Brazil, the next tournament
There can be no doubt that the World Cup improved the image of our country
and as a result tourism will increase and hopefully this will also lead to the
JSE featuring more prominently on the computer screens of international fund
Socially Responsible Investment
Socially Responsible Investment (SRI) and sustainability seem to be the new
buzz words in investment circles particularly as we are propelled into a new
green world of climate change and trading in carbon emissions. The jargon in
this field appears to be even worse than that at the height of the dotcom
At the JSE we define SRI as companies fulfilling a wide range of
environmental, social and corporate governance criteria. Under the broad banner
of SRI we have ethical investment which usually means avoiding the so-called sin
shares such as liquor, gambling and cigarettes or in some cases sidelining
companies that damage the environment. In SA this can extend to companies that
don’t have sound BEE strategies.
The jury is out on whether SRI companies deliver better returns than non-SRI
companies. However the confluence of a number of factors including BP’s oil
spillage woes, the growth and influence of environmental lobby groups, human
rights and political pressures on job creation makes this a hot topic at the
The mainstreaming of sustainability practices has been underscored by the
over 700 signatories to the United Nation’s Principals For Responsible
Investment (UNPRI) representing funds in excess of R137 trillion. There are
currently 28 local institutional signatories to UNPRI including the JSE and
South Africa’s largest pension fund, the Government Employees Pension Fund, with
assets of approximately R800 billion.
In 2002 the second King Report on corporate governance urged companies to
embrace the triple bottom line (economic, social and environment) as a
sustainable method of doing business. The JSE under the aegis of the SRI
Advisory Committee then set about developing criteria to measure triple bottom
line performance as a guideline for the companies on our FTSE/JSE All Share
Index. The SRI Index was launched in May 2004
The JSE was the first bourse in the world to launch its own responsibility
index. The two major ethical indices, the London Stock Exchange’s FTSE4 Good and
the US’s Dow Jones sustainable group index, were both put together by parties
outside the exchanges.
Annually we automatically assess the Top 100 companies listed on the JSE
together with the previous year’s SRI constituents. The remaining constituents
of the All Share Index (the Small Caps that are not SRI constituents) can elect
to be assessed.
The JSE does not release company specific results publicly since the SRI
Index is intended to showcase all companies that have been included and in this
way reward them for their effort. We do however make disclosure of Best
Performers by environmental impact classification.
Reviews take place annually during the second half of each year with results
usually announced at the end of November. In the 2009 review 67 of the 109
companies reviewed succeeded in becoming constituents of the index. Of these
companies 34 were Top 40, 30 Mid Caps and three Small Cap companies together
representing more than 85% of the JSE’s market capitalisation. Eleven companies
made it onto the index for the first time.
Last year 30 companies were identified as Best Performers environmentally and
10 made the Best Performer List for three years running (2007 – 2009). They
were: Absa Group, Anglo American, Anglogold Ashanti, Aveng, Gold Fields, Group
Five, Illovo Sugar, Merafe Resources, Standard Bank Group and Tongaat
What impressed me about the progress our listed companies are making towards
increased sustainability is that in our last review (2009) all fourteen mining
companies that were assessed, qualified for the index. I’m told that the
innovative technologies they are using to manage environmental impact are at the
cutting edge of world standards.
The compilers of the index are continually engaging the mines on safety
standards and as mines have a limited lifespan, consideration must also be given
to possible environmental damage after mine closures.
Initially when the index was launched banks and financial institutions did
not feel that they could have much impact on environmental standards. However a
number are now in the forefront of inhabiting green buildings and include
sustainability criteria as part of their lending terms and conditions.
Our SRI Index is always evolving. This year climate change criteria will be
introduced into the review for the first time. Moreover as a member of the
National Business Initiative’s Climate Change Working Group and other related
forums, the JSE is investigating the role market instruments can play in
reducing carbon emissions and supporting national objectives in this regard.
We are therefore looking at the option of a South African Carbon Market as we
already have the platform (based on our existing commodities trading platform)
and know-how to support this trading in an efficient manner. Trading in carbon
emissions is internationally big business and according to the World Bank
reached approximately R1 trillion in 2009. A carbon credit, which is the
instrument used to trade on a carbon market, is given when a company saves the
equivalent of one ton of carbon dioxide.
This article first appeared in Business Report