Banks top overall latest JSE super sector disclosure ratings

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…Risk Insights and Instinctif Partners release JSE Sector ESG Disclosure Ratings…

ESG (environmental, social and governance) data analytics company, Risk Insights, and ESG business communications firm, Instinctif Partners, today released the latest JSE Sector ESG disclosure ranking and scores for all sectors. The ranking evaluates every company on the JSE, but for the purposes of this report, discloses ESG performance of each of the 18 JSE super sectors as a whole.

Anashrin Pillay, CEO of Risk Insights says, “Our research using unstructured data has established, through statistical methods, a strong correlation between company disclosure and sustainability. Therefore, we believe that it is important for South Africa’s economy – and the national agenda – that companies continue improving their disclosure to take into account the requirements of all their respective stakeholders. This will ensure that transparency is driving accountability and sustainability, enabling corporates to attract capital and lower the cost of funds. Sustainability disclosure and ESG strategies will result in deeper capital markets through impact investing thereby building resilience into the South African economy.”

The ratings are based on TF-IDF2 scores that are completely independent and can be used by investors, corporates and other stakeholders to identify key ESG risks and opportunities for listed JSE counters. The Risk Insights ESG database and platform is enriched with data for all listed companies on the JSE from 2016 to date, rated by sector for a particular financial year. As companies integrated reports are published together with other voluntary and mandatory reports, ESG GPS uses algorithm to gather and rate institutions. The retrospective rating provides a forward view of the companies’ sustainability. ESG rating and disclosure reporting are embedded into strategy and not a point in time statistic.

Kim Polley, Managing Partner, Instinctif Partners comments, “In my 20+ year career I don’t think I’ve ever seen or felt disruption quite like 2021. Before the pandemic, we were already seeing segments of society taking action – led by characters such as Wangari Maathai and Greta Thunberg – but the awakening to the inter-connection of all the worlds systems was highlighted starkly by Covid-19. Investors took notice, and expectations have shifted from ticking the right boxes to having a clear and authentic purpose. Stakeholders are expecting to see measurable impact, driven by meaningful action. Words are no longer enough.

The JSE is in the top 20 listed exchanges globally, with its own market capitalisation of approximately R9.9bn. The research was conducted across the 18 super JSE sectors shares which were specifically rated according to total ESG (environmental, social and governance) disclosure.

Environment

In terms of the environmental factors the basic resources sector comes out on top followed by chemicals and the banking sector. The laggards are the technology, media and investment instruments sectors.

Kim Polley adds, “Over the past decade, the resources sector – most especially mining – has been under increasing scrutiny regarding transparency around ESG responsibilities. This is particularly important as both stakeholder pressure and the ability to attract investment have become key commercial drivers for miners to implement stronger ESG measures. However, for many in the mining sector, especially for junior companies, slow or inadequate progress may threaten their ability to access capital in an increasingly tight market. The good news is, it’s never too late to do better!”

Environmental
Company NameAverage ESG – TF-IDF*scoreRanking
Basic Resources8 4421
Chemicals5 4242
Banks4 9963
Healthcare2 9024
Food & Beverage2 2245
Personal & Household Goods1 9506
Travel & Leisure1 7137
Insurance1 6268
Retail1 3209
Oil & Gas1 28210
Telecommunications1 27811
Industrial Goods & Services1 19012
Real Estate1 07113
Construction & Materials99014
Financial Services63315
Technology25716
Media19117
Investment Instruments8518

Social

Sectors that perform well in terms of social disclosure are the basic resources, chemicals and banks. Employee diversity and inclusiveness, wellness, training, health and safety protocols and community development are some of the key metrics under the “S”, that the top performing companies are paying attention to. Social factors in ESG management are a risk mitigation variable to create inclusive societies in the capital markets.

Companies in the top performing sectors are recognising the importance of brand and reputation management in their pursuit of operating resilience. However, at core, it is important to remember that ESG is no longer just about reputation, it is about the bottom line and effective risk management too. In today’s rapidly changing business climate, attention to ESG issues is becoming critical to long-term competitive success,” notes Polley.

Social 
Company NameS- average TF-IDF score Ranking
Basic Resources7 5341
Chemicals6 8482
Banks5 3753
Healthcare5 1924
Personal & Household Goods4 1075
Construction & Materials3 9576
Telecommunications3 2397
Real Estate2 8558
Industrial Goods & Services2 7699
Insurance2 73010
Food & Beverage2 42511
Travel & Leisure2 34412
Retail2 11913
Technology1 94714
Financial Services1 84515
Media1 76816
Oil & Gas1 68217
Investment Instruments70618

Governance

Governance dominates disclosure in all sectors, with board governance in terms of gender diversity and inclusivity bearing more significance. The sectors that have the best disclosure in terms of governance are the banking, basic resources and insurance sectors. The financial services and investment instrument sectors are the laggards in this regard.

Anashrin Pillay remarks, “Governance is not a standalone factor, when companies report well on governance it should be natural that other ESG factors such as Social and Environmental would be given significant attention as well. These risks have risen drastically globally. South African companies need to invest in their social and environmental reporting disclosure.”

Governance 
Company NameG – average TF-IDF* score Ranking
Banks52 1571
Basic Resources25 3682
Insurance23 2793
Chemicals22 3014
Personal & Household Goods18 5295
Telecommunications13 4906
Construction & Materials13 0287
Industrial Goods & Services12 8298
Food & Beverage11 6089
Healthcare11 51510
Real Estate11 42311
Retail11 26312
Travel & Leisure10 68813
Oil & Gas10 01614
Technology9 99915
Media8 54316
Financial Services8 22417
Investment Instruments3 46718

Overall Ranking

Based on relativity, the banking and resources sectors have the best disclosure in terms of overall disclosure ranking, with media and investment instruments being the laggards.

While it is not surprising that banks and resources come out tops, it is concerning that the media sector fares so poorly. It should be acknowledged that the media landscape is changing rapidly, and that a lack of homogeneity across the board means that it is difficult to define material issues that are relevant to all companies in the sector. However, there is some opportunity to rally around key tenets of media accountability, social impact, governance and investment in people,” Pillay concludes.

Total ESG  
Company NameESG – average TF-IDF scoreRanking
Banks62 5281
Basic Resources41 3452
Chemicals34 5723
Insurance27 6354
Personal & Household Goods24 5865
Healthcare19 6096
Telecommunications18 0077
Construction & Materials17 9758
Industrial Goods & Services16 7889
Food & Beverage16 25710
Real Estate15 34911
Travel & Leisure14 74412
Retail14 70213
Oil & Gas12 98114
Technology12 20315
Financial Services10 70216
Media10 50217
Investment Instruments4 25718

1  Findings for this report are derived from Risk Insights’ proprietary ESG GPS rating tool that uses AI and machine learning algorithms to transform disclosure reporting both voluntary and mandatory reporting into ratings for environmental, social and governance metrics. The ESG GPS Rating Tool uses disclosure as part of its rating methodology.

Term-Frequency Inverse-Document-Frequency. This represents the relevance of each B’word  as a numerical value. 

3 A variable generated from the laws of the land and the policies that govern a particular sector. These are used to measure the relevance of the disclosure on ESG factors by searching for the term in the company reports