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JSE’s new Disclosure Guidelines deal with Sustainability Development Goals

The Johannesburg Stock Exchange in Sandton. Picture, Timothy Bernard.

The Johannesburg Stock Exchange in Sandton. Picture, Timothy Bernard.

Published Jul 18, 2022

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By Corrie Kruger

INVESTORS are increasingly interested in sustainability issues as this pertains to all their investments, irrespective of whether they are large or small, equities or bonds, listed or unlisted, across all sectors.

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Different measurements are made to determine the condition of the atmosphere. The primary variables are barometric pressure, temperature, humidity, precipitation, wind speed and wind direction. Meteorologists study these readings to help forecast the weather.

Most of the atmosphere is composed of nitrogen. In addition to 78% of nitrogen, 21% is oxygen. The remaining 1% is composed of argon, carbon dioxide and other gases -- with 99% of the atmosphere being found within 32km of the surface of the Earth.

Half of the atmosphere’s weight is above the earth’s surface to 5.5km.

Ozone is found at 10-50 km above the Earth’s surface and is particularly important to life on Earth. It absorbs harmful UV radiation but is being destroyed by chlorofluorocarbons (CFCs) in human products, such as aerosol sprays.

The stratosphere is home to the ozone layer. In the stratosphere, the chemical bonds between oxygen atoms in molecular oxygen break and in the ozone break when the molecules absorb ultraviolet radiation.

Re-forming those bonds releases heat energy so the temperature increases with altitude in this layer. The troposphere is the region of the atmosphere closest to the Earth and is the region of all weather events. This layer is heated by the Earth’s surfaces, which in turn is heated by absorbing visible and infrared electromagnetic radiation from the sun.

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Are global warming concerns based on solid scientific proof?

The obvious question is how can carbon dioxide trap so much heat if it only makes up 0.04% of the atmosphere? Aren’t the molecules spaced too far apart?

Before humans began burning fossil fuels, naturally occurring greenhouse gases helped to make Earth’s climate habitable. Without them, the planet’s average temperature would be below freezing. We believe that even very low, natural levels of carbon dioxide and other greenhouse gases can make a huge difference in Earth’s climate.

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Today, carbon dioxide levels are higher than they have been in at least three million years. And although they still account for only 0.04% of the atmosphere, that still adds up to billions upon billions of tons of heat-trapping gas.

In this regard, we must consider that it doesn’t take that much cyanide to poison a person. In the case of greenhouse gases, the planet’s temperature is a balance between how much energy comes in versus how much energy goes out.

The role the Johannesburg Stock Exchange plays in this space

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The Sustainable Development agenda sets out a vision for a prosperous future as embodied by the United Nations (UN) Sustainable Development Goals (SDGs).

It is an agenda that matters to all spheres of society and is underpinned by inclusive and sustainable economic development. This is vital for our country, which has one of the highest income inequalities in the world, severe poverty and escalating unemployment.

The Johannesburg Stock Exchange (JSE) was the first emerging market and first stock exchange to form ​​a Socially Responsible Investment Index (SRI Index) in 2004. On June 3, 2015, it announced a partnership with FTSE Russell, the global index provider, to progress the JSE’s work around promoting corporate sustainability practices.

The JSE has issued a Disclosure Guidance for listed companies to bring their corporate reporting and actions in line with best practice across the world.

At the heart of this Disclosure Guidance is the belief, firstly, that sustainability issues are material to enterprise value creation and increasingly provide valuable opportunities for commercial innovation. Secondly, that if we are to transition to a more sustainable economy, then organisations need to deepen their understanding and disclosure of their most significant social, economic, and environmental impacts.

There are strategic levers that investors have at their disposal to accelerate companies’ decarbonisation — a shift of capital, active stewardship, financing of low-carbon solutions and policy advocacy — can incentivise companies to lower their carbon footprints.

The JSE has adopted the FTSE Russell ESG Ratings process to create the following two indices, launched on October 12, 2015:

The FTSE/JSE Responsible Investment Index (​ J113)

  • A market-cap weighted index calculated on an end of day basis - benchmark
  • Comprises all eligible companies who achieve the required minimum FTSE Russell ESG rating as set out in the Ground Rules from time to time​​

The FTSE/JSE Responsible Investment Top 30 Index ​(J110)

  1. An equally-weighted index calculated on a real time basis -- tradeable
  2. Comprises the Top 30 companies ranked by FTSE Russell ESG Rating​​

The SRI index series has evolved considerably since it was launched in 2004, with the arrival of new sustainability initiatives internationally and the King Code on corporate governance locally.

To integrate ESG factors into investment decision-making, portfolio managers tend to use tools like score cards that allow them to use quantifiable metrics. This assessment is then factored into the company’s forward-looking estimates.

The JSE is not the only institution with guidance on ESG, others include:

1) IFRS S1: General Requirements for Disclosure of Sustainability- related Financial Information 3)

IFRS S2: Climate-related Disclosures 4) European Sustainability Reporting Standards.

Where does all this leave South Africa?

Coal is the mainstay of the South African energy system, meeting around 70% of installed power generation capacity.

However, the 2019 Integrated Resource Plan sets out a long-term diversification of the power mix by 2030 and moves towards lightening the carbon footprint of the energy sector while meeting growing energy demand and ensuring a socio-economically-just transition.

Eskom is spending R10m per hour to burn diesel, the diesel is used in gas turbines, which generates power and in the 10 years leading to 2019, Eskom spent R47,4bn on diesel alone. The world is switching to electric cars. Are we burning diesel to create electric cars to save diesel? This does not make sense.

Corrie Kruger is an Independent Analyst.

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