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The official Financial Regulation Journal of SAIFM

Development of Environmental, Social and Governance risk reporting: How is this being handled in the South African market?

By Lee Astfalck and Kate Swart

Environmental, Social and Governance (“ESG”) risks are at the forefront of company strategies and have become a significant boardroom topic across the globe. There is increased scrutiny from shareholders, investors and consumers on how companies deal with and implement effective ESG frameworks and the uptick in ESG litigation. On 9 December 2021, the Johannesburg Stock Exchange (“JSE”) launched drafts of sustainability and climate disclosure guidance consultation papers, which aim to promote transparency and good governance and to guide listed companies on best practice in ESG disclosures. In this article, we provide an overview of the JSE guidance notices and how ESG is becoming a growing significance in South Africa.


Part of the challenge in understanding and assessing ESG is the broad nature of issues that it can encompass. Climate change, energy efficiency, waste management, pollution, water scarcity, carbon emissions, gender and diversity, employee relations, community relations, bribery and corruption, whistleblowing and cyber are just some of the examples which fall under ESG.

Lenders have also started to link credit facilities with sustainability performance measures related to emissions reduction, improvements in energy efficiency and water use. Trustees of South African pension funds are also required to consider ESG factors when making investment decisions, in terms of regulation 28 of the Pension Funds Act, 1956.

Increased importance of attention to ESG risks

From a risk perspective, a leading international broker has announced the launch of a new Directors and Officers (D&O) liability policy in the United States, providing preferred terms of coverage based upon effective ESG frameworks. This is particularly interesting given the hardening of the global D&O market in the last few years, as a result of the significant increase in litigation targeted directly at directors and the huge exposure that insurance carriers have faced in terms of defence costs. This scenario illustrates the importance of ESG to D&O insurance carriers.

In South Africa climate change considerations are being brought to the forefront by activists both through court proceedings and activist shareholder actions. Plans to build the Thabametsi coal power station were ultimately abandoned in 2020 following an NGO’s successful court application to set aside the environmental authorisation on the basis that the serious climate change impact had not been sufficiently considered by the authorities. Various activist shareholders have also tried to force listed companies to disclose various information related to climate change, with varying degrees of success. In 2019, 55% of Standard Bank’s shareholders voted in favour of the bank adopting and disclosing a policy on lending to coal-fired power plants and coal mines, despite the board’s recommendation against the resolution.

The South African government has also shown a renewed focus on climate change, particularly with the formation of the Presidential Climate Commission in February 2021 and Cabinet’s approval of the Draft National Climate Change Bill in September 2021 for tabling in Parliament.

Against this backdrop, directors of South African companies should take note of recent developments pertaining to ESG related disclosures.

The JSE Disclosure Guidance Papers

The JSE have invited the public to comment before 28 February 2022 on its Disclosure Guidance Consultation Papers, being the JSE Sustainability Disclosure Guidance (“JSE Sustainability Disclosure Guidance”) and JSE Climate Change Disclosure Guidance (“JSE Climate Change Disclosure Guidance”).

The JSE’s Disclosure Guidance Consultation Papers are voluntary guidance tools that may be used by listed companies, and which aim to:

  • assist local companies to navigate the global sustainability and ESG landscape;
  • provide for South Africa’s specific sustainability challenges;
  • improve the quality of sustainability and ESG information available to enable more informed investment decisions; and
  • drive improved sustainability performance, accountability and business leadership.

The Disclosure Guidance Consultation Papers are aligned with the King IV Code and draw on various international initiatives on sustainability and climate change disclosure, seeking to help companies in South Africa to navigate the international landscape of reporting standards.

Key points on the JSE Sustainability Disclosure Guidance

The JSE Sustainability Disclosure Guidance aims to improve the quality and availability of information for both investors and stakeholders. It canvasses various reasons why reporting on sustainability is important and good for business, including enhancing access to capital, driving profitability and growth, improving compliance and risk management, and enhancing corporate reputation and stakeholder relationships, and provides tips on tailoring the report to the intended audience.

As investors and stakeholders are increasingly expecting companies to report on their sustainability impacts, risks, and opportunities with the same rigour as they do with financial information, various principles on the manner of reporting are suggested in order to achieve the required quality and proper presentation of the information. Recommended disclosures are listed for the following areas:

  • Governance;
  • Strategy;
  • Management approach; and
  • Metrics, targets and performance.

The sustainability metrics were informed by a thorough review of current sustainability disclosure expectations and emerging best practice and the following categories are canvassed, with specific aspects listed under each heading:

  • Governance Disclosure Metrics;
  • Social Disclosure Metrics; and
  • Environmental Disclosure Metrics.

Key points on the JSE Climate Change Disclosure Guidance

The corporate sector has a fundamental role to play in the country’s response to climate change, and private sector funding plays an important role in achieving the national climate change goals. The JSE climate change disclosure guidance aims to clarify current global best practices in climate-related disclosure.

Globally, climate-related risks and the expected transition to a low-carbon economy affect all economic sectors and industries, and therefore financial markets are increasingly pricing in these risks as well as looking to identify and measure new investment opportunities. Investors are demanding higher quality consistent data to inform strategies and decisions. Trustees of South African pension funds’ obligation to consider ESG factors when making investment decisions arguably extends to taking into account climate-related risks and opportunities. A dramatic improvement in climate-related disclosures is therefore required.

In order to help issuers integrate and communicate climate-related information in alignment with current best practices, the JSE has proposed the following three stage process:

Step 1 – Disclosure diagnosis and context: The first step is understanding the relevance of climate change and taking stock of the organisation’s current disclosure practices.

Step 2 – Integration of climate-related risks and opportunities: The second step is to integrate climate-related aspects into organisations’ risk assessment and strategy development processes.

Step 3 – Disclosure of climate-related practices and data: The third step is communicating the organisation’s understanding through its disclosure of climate-related practices, strategy and objectives to investors and stakeholders.


The publication of the JSE guidance notes is indicative of the growing significance of ESG issues in South Africa.

Directors are responsible for the management of the company and owe a duty in their personal capacity to act in the best interests of the company. In accordance with the business judgment principle, this includes the proactive obligation to take reasonably diligent steps to become informed about a matter. It will not suffice for directors to sit back and ignore the importance of ESG in today’s environment.

Whilst South Africa has not yet seen the introduction of mandatory ESG reporting as a general requirement, the JSE guidance notes are indicative of a move towards such mandatory reporting and provide useful guidance for companies looking to integrate ESG in their reporting frameworks.

The JSE has invited comments on the disclosure guidance consultation papers, which should be submitted on or before 28 February 2022 using an online feedback form which can be accessed here.

The JSE sustainability disclosure guidance can be accessed here.

The JSE climate change disclosure guidance can be accessed here.

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