Johannesburg - Community-based non-governmental organisations (NGOs) have described the JSE’s Socially Responsible Investment (SRI) Index as “nothing more than greenwash” and contend the inclusion of companies such as Sasol, ArcelorMittal SA (Amsa) and Lonmin indicates the business community does not take social and environmental issues seriously.
The index, which was first compiled in 2004, is reviewed annually. In the 2013 review process, about 157 companies were assessed but only 72 qualified for inclusion. Qualification is determined by a detailed analysis of information that firms make publicly available.
Four significant exclusions from this year’s index are Aveng, Group Five, Murray & Roberts and WBHO, all of which were recently fined by the competition authorities for anti-competitive behaviour. Telkom and Tiger Brands were also dropped. No information is provided for the inclusion or exclusion of individual companies, but the JSE’s website has a detailed analysis of the background and selection criteria.
Other possibly controversial members of the index include BHP Billiton, British American Tobacco, Exxaro Resources, Gold Fields and JD Group.
Bobby Peek, a director of environmental group groundWork, told Business Report yesterday that it was difficult to understand how Sasol, Amsa and BHP Billiton could be included in the SRI. “Sasol is trying to get exemptions from the law because it is not able to meet the air-quality requirements at its plants in Secunda and Sasolburg… trying to get exemptions though they know that air is harming people.
“Amsa has lost a long legal battle with communities where it operates who want sight of their environmental Master Plan, they are appealing the court’s decision,” said Peek.
John Capel, the executive director of Bench Marks Foundation, which recently released a damning analysis of Lonmin’s sustainable development reports, said a company’s inclusion in the index appeared to be an award for “story telling”.
Its analysis highlighted the existence of a considerable gap between what Lonmin management believes it is doing to promote sustainable development and the experience of communities who are the presumed “beneficiaries” of these initiatives. The analysis, which covered nine years of reports, revealed inconsistencies in Lonmin’s approach from one year to the next. “From a community perspective, the problem with these sorts of indices and awards is they do not resonate with the people who are most affected by a company’s environmental and social policy.”
The JSE contends its index can help investors aiming to pick companies with a longer-term horizon who are managing risks responsibly.
Corli le Roux, the index head, congratulated the index’s best performers, stating they “affirm that South African companies are committed to being transparent in applying ESG (environmental, social and governance) principles in business practice, and meeting the growing investor demands for transparency in the way companies manage their sustainability impacts”.
Mike Davies of Kigoda Consulting, which specialises in ESG analysis, noted: “Civil society groups have regularly raised concerns over the constituents of the SRI index highlighting that many, including some of the “best performers”, have contravened environmental legislation or [have] been complicit in some other questionable activity. Companies often use inclusion in the index as a public relations tool, but their performance on environmental or social issues does not necessarily measure up.”
He suggested the JSE raise the bar. “Alternatively, the JSE could disclose the assessment used in determining the various constituents so that interested parties can examine where advances have been made and where potential issues might lie.” - Business Report