The Johannesburg Stock Exchange (JSE) is proud to announce its improved 2018 ESG Rating, thereby entrenching its place in the FTSE/JSE Responsible Investment Top 30 index. The rating is conferred by FTSE Russell, the JSE’s index partner who assesses qualifying companies in relation to environmental, social and governance (ESG) issues.
The FTSE ESG Ratings and data model allows investors to understand a company’s exposure to, and management of, ESG issues in multiple dimensions. The ESG Ratings are comprised of an overall Rating that breaks down into underlying Pillar and Thematic Exposures and Scores. The Pillars and Themes are built on over 300 individual indicator assessments that are applied to each company’s unique circumstances. In addition to being rated in the Top 30 companies from an ESG Rating perspective, index constituents must also pass various eligibility screens around liquidity, market capitalization and minimum free float.
The JSE pioneered the Socially Responsible Investment Index in 2004, the first of its kind in the world for an emerging market, before partnering with FTSE Russell in 2015 for the Responsible Investment Index. The JSE does not, however, perform the rating itself. “The FTSE data model is based on global best practices and constantly adapts to what is happening in the ESG space and the decision to use only publically disclosed information in the assessments is to encourage disclosure to all stakeholders,” says Shameela Soobramoney, JSE’s Senior Manager: Group Strategy and Sustainability.
In conjunction with Evalueserve, FTSE Russell conducts research and assesses qualifying companies using information that is available in the public domain, including annual reports and websites. FTSE Russell has introduced a peer to peer comparison service, which will ensure that all companies rated for the purpose of that index have the opportunity to see how they rank against their top 5 peers in their sector globally.
Being rated and included in its own Responsible Investment Index is a great accomplishment for the JSE, and highlights the role it continues to play in shaping and advancing South Africa’s own progressive business practices through thought leadership both in sustainability and in governance. Not only is South Africa’s level of ESG disclosure one of the highest rated in the world among emerging and developed markets assessed by FTSE, but the practice was already prevalent before migration to the FTSE model.
This positive trend in relation to South Africa’s level of ESG disclosure supports investor confidence in knowing that these companies are more holistically assessed and that the process contributes to getting everyone along the curve to improve their practices, increase disclosure and raise awareness in relation to ESG issues. Most importantly, considerations of environmental, social and governance issues have become more pertinent as investors across the world become more cognisant of the financial benefits of making sound investment decisions that include ESG factors. “Besides the fact that ESG awareness and integration has been proven to yield better returns, there has been growing consensus over the last number of years that environmental, social and governance issues are becoming more important for investment decision-making. Investors are increasingly looking at ESG rating tools to see which companies are doing better,” Soobramoney adds.
“With evidence showing that investors are using the information more, the JSE’s role is to create a more solid relationship and engagement between issuers and investors. Furthermore, there’s a lot more that the JSE does in terms of being astute and enabling an environment in which a more sustainable economy can prosper through products (such as the green bond), advocacy, engagement (such as the annual ESG investor showcase), and our governance rules” concludes Soobramoney.