Credibility of ESG reporting and data under the spotlight

Study shows hugely different results when competing agencies rank JSE-listed companies.
Institutional investors tend to opt for a more active approach regarding companies' reporting and their actions to become more sustainable. Image: Shutterstock

The results of a new study looking into the reporting of environmental, social and governance (ESG) issues by listed companies disclosed several interesting trends – the most prominent of which is that there is very little common ground when different agencies comment on which companies take ESG seriously and which are lacking in their reporting.

An in-depth study by Nedbank on ESG trends among JSE-listed companies found that different companies use different definitions in their ESG reporting, and agencies that measure their performance also use different definitions.

The results are rather confusing for investors who would like to invest in sustainable companies. For instance, Bloomberg ranks Mondi, Gold Fields, Impala Platinum, Harmony and Glencore as the top five companies in terms of ESG reporting on the JSE, while Infinitive ranks British American Tobacco, Glencore, Mondi, Kumba and BHP Group as the top five.

The Nedbank study found that other agencies that aim to give direction to investors get different results too. These included MSCI, the not-for-profit charity CDP, S&P Global and Sustainalytics.

Read: South Africa stands tall on ESG among global peers

Divergence in rankings

While a few companies are seen as doing very well when taking ESG into consideration by more than one of the agencies, the rankings differ tremendously.

Top 10 JSE companies in terms of ESG reporting according to different agencies

Bloomberg CDP MSCI Refinitiv S&P Global Sustainalytics
Mondi Mondi Old Mutual Batsa Batsa Imperial
Gold Fields Nedbank Vodacom Glencore Gold Fields Curro
Implats Clicks Mondi Mondi Anglo American Hammerson
Harmony AB Inbev Nepi Rockcastle Kumba Iron Ore Hammerson Richemont
Glencore Amplats Mr Price BHP Group Investec Investec Property
Sasol Batsa Multichoice Tiger Brands AngloGold Ashanti Nepi Rockcastle
ARM Richemont Prosus Investec Investec plc Redefine
Absa Redefine Naspers Mediclinic Exxaro Mondi
Massmart Vodacom Bidvest Anglo American Amplats Datatec
Aspen Growthpoint Standard Bank Hammerson Implats Truworths

Source: Nedbank ESG Insights 2022

Of interest is that mining and resource companies – usually seen as the worst offenders in terms of their impact on the environment, and often on the receiving end of vocal criticism with regards to social responsibility – score high.

Mondi appears on five of the six lists and gold and platinum miners are also listed on several lists.

Jones Gondo, author of the Nedbank report, says it is noticeable that the materials sector (largely minerals and mining) provides the greatest set of data across all the ESG pillars.

“This reflects the fact that these companies have had to contend with greater scrutiny over the environmental and social footprints in the jurisdictions they operate in and their accountability to a wide stakeholder audience including local communities, labour unions, the government, NGOs and activist groups,” he says.

“It does not mean that technology companies do not provide quality disclosures, only that the volume of their disclosures is less than that of other sectors.”

No set standards

Gondo points out throughout the report that the absence of standardised reporting requirements is problematic, as shown in the divergence of agencies’ conclusions.

This is however changing.

“Corporate sustainability reporting is evolving at a brisk pace, as G20 countries proceed to adopt global standards and practices aimed at improving the credibility and transparency of ESG performance data and reporting. Moreover, this is expected to better channel financial capital towards priority investments targeting climate mitigation and the adoption and achievement of UN Sustainable Development Goals.

“Questions remain around the adequacy of ESG index benchmarks to accurately reflect sustainability impact, avoid greenwashing and at least track the risk-return profiles of traditional investment yardsticks. We think these challenges are particularly pronounced in South Africa and other developing markets that do not yet have the market depth, liquidity, consistent and comparable ESG data and the diversity of listed asset coverage to deliver the full gamut of risk-return options that meet the disparate set of investor preferences around sustainability,” says Gondo.

The Nedbank report notes that The International Organisation of Securities Commissions has recommended harmonisation of core performance metrics and that ESG data providers fall under securities market regulation in the same standing as credit rating agencies, index providers and other financial data aggregators, all in an effort to improve the quality of data.

“Overall, all these efforts on data and reporting are intended to enable the market to be better able to allocate capital towards climate and sustainability investments and maintain the integrity and commerciality of the asset class as it grows,” says Gondo.


A discussion of the report leaves one with the sense that ESG disclosures will soon become mandatory and measured according to standard codes, not unlike international accounting principles.

“We have already seen the JSE deliver draft climate and sustainability disclosure guidelines. These are voluntary guidelines for now.

“However, we think investor demand for standardised and better-quality disclosures will drive moral suasion and compel faster adoption by listed firms on the JSE,” says Gondo.

The JSE set out voluntary corporate disclosure guidelines on both sustainability and climate-related risks and opportunities in 2021 in accordance with guidelines set by global organisations, such as the World Federation of Exchanges. The idea is to help local listed companies improve their ESG reporting and enhance transparency and consistency.

“The JSE’s guidelines set out the pillars required for narrative reporting and aim to develop these guidelines into a set of standardised ESG metrics,” says Gondo, adding that the JSE has indicated that the metrics will be in line with international best practice while taking into consideration local aspects, such as the National Development Plan.

In short, companies’ impact on the environment won’t be seen in isolation, but against the backdrop of economic challenges, job creation and reducing poverty.

Active approach

The Nedbank research found that institutional investors opted for a more active approach with regards to companies’ ESG reporting, as well as companies’ real actions to become more sustainable.

“We have noted that many large fund managers in South Africa have embraced the active engagement approach with underlying firms because divestment from carbon intensive sectors should only be a last course of action, especially considering the systemic nature of carbon transition risk in South Africa.

“Divestment will not make the problem go away, and the consequences of failure to transform (including stranded asset risks) in carbon-intensive industries would be catastrophic for job security and socio-economic stability in the country, given how concentrated the exposures are in the resources industry and its supply chains,” noted the report.

Gondo also mentioned the obvious problem that fund managers face – investing in only the greenest companies is not always possible as there are not that many large listed SA companies to choose from.

In addition, he says climate and carbon transition risks can be considered to be systemic risks, with “significant financial impact” over the long run.

“Domestic investors understand that SA is systemically exposed to carbon and climate change risks … so disinvestments or exclusionary screening in passive strategies may not be effective measures to solve these challenges without causing further harm to society and livelihoods.

“Instead, we think SA investors will remain invested and employ rigorous corporate engagement strategies to drive the transition towards a low-carbon economy and achieve more sustainable outcomes, using proxy votes as one effective tool,” he says.

Nedbank comes to the conclusion that domestic investors cannot avoid the consequences of climate risks via stock selection alone, while it is difficult to hedge against these risks or simply tilt the portfolio away from climate-related risks using differentiated portfolio weights.

On the positive side, Nedbank expects more investment in environmentally friendly and socially uplifting infrastructure due to the proposed changes in Regulation 28 of the Pension Funds Act, which will allow pension funds to invest more in infrastructure.

The report specifically notes sectors such as clean energy, water and projects aligned with the country’s National Infrastructure Plan.

Listen: Rob Lewenson on Old Mutual Investment Group joining the Net-Zero Asset Managers Initiative and why it’s proposing is a low-carbon benchmark for SA (or read the transcript)



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