Copyright© JSE Limited 2008
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Corli le RouxHead of SRI Index
2009 Review
Socially Responsible Investment IndexCompany briefing
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Highlights of Index evolution
Established May 2004
• Crystallise debate
• Enable SRI
• Identify companies with good sustainability practices
• Aspirational benchmark
Broad sustainability assessment
• Triple bottom line
• Corporate governance
2007 introduction of automatic assessment and international data provider
• Automatic universe expanded in 2008
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Value proposition
Highlight imperatives of sustainability
• Globally aligned
• Locally relevant – close the loop for companies around local concerns
Framework for –
• internal risk management
• comprehensive reporting
Enhanced reputation
Framework/reference for awards, investment, ratings tools
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Eligibility
Base Universe: FTSE/JSE All Share Index
• For 2009 review: All Share as at March 2009
Automatic assessment
• 2008 SRI Index constituents
• Top 40
• Mid Cap
Voluntary assessment
• Small Cap
If excluded from All Share at any time during process or after review, not eligible for SRI Index
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Eligibility (cont.)
Companies with structural complexities
• Holding companies
• Holding company policies and influence over holdings as guiding principle
• Full consideration of holdings above revenue threshold (to be determined)
• Board practice and other governance issues at holding company level
• Property investment funds and companies without staff
• Appropriate approach still being investigated
• For the time being, assessed with basic approach or similar to holding companies
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Criteria overview: General
Full sustainability approach structured along ESG lines
Criteria as for 2008
Core and desirable indicators
• Core indicators reflect what should be regarded as minimum by companies (even though index does not at present require meeting all core indicators)
• Desirable indicators reflect aspirations – as Index becomes more demanding, desirables will gradually become core
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Criteria overview: General (cont.)
Policy, Management and Reporting
• Policy statements and documents, strategies and undertakings – ideally publicly available
• Management and performance cover implementation of systems, programmes, targets, objectives, includes monitoring and measuring of performance
• Reporting – content areas specified by indicators, should ideally be publicly available, Index does at present still accept internal reporting – aim to move towards public only in 2010
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Criteria overview: Environment
Aligned with FTSE4Good
Impact classification
• High, medium, low - activity-based, assessed by EIRIS in relation to five key issues: climate change, air pollution, water pollution, waste, water consumption
• Overall classification based on highest impact
• High impact in one key issue or medium in more than four = high
• Medium impact in at least two issues = medium
• Rest = low
Thresholds based on impact and coverage of environmental policies, systems and reporting
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Criteria overview: Social
Thematic approach
BEE and HIV/Aids
• Applies only to companies with South African operations
Threshold at two / three levels, all of which must be met
• Majority of all indicators (core and desirable) – half plus one
AND
• One third of indicators met must be core
AND
• SA companies only third level requirement: at least one core in each of BEE and HIV/Aids
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Criteria overview: Governance and related sustainability concerns
Thematic approach
Covers basic corporate governance and listings requirements
Covers economic issues and indirect impacts
Threshold at two levels, both of which must be met
• Majority of all indicators (core and desirable) – half plus one
AND
• One third of indicators met must be core
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Criteria overview: Additional issues - roadmap
Climate change
• Intention to include specific criteria in 2010
• Climate change questionnaire included to help gather data for benchmarking
• Engagement will take place during the year to set level for SRI Index criteria
Reporting
• Move towards core indicators met by public data only
• To be implemented 2010 – bear in mind for upcoming reporting
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Process: Timelines
Review comprises second half of the year
Phase 1: EIRIS review of public information – commences in July
Profile mailings to companies in three tranches:
• Tranche 1 – end July
• Tranche 2 – mid-August
• Tranche 3 – end August
Phase 2: All companies have three weeks from receipt of preliminary profile to respond (extensions considered on merit by EIRIS)
EIRIS submits results to JSE mid-October for JSE QA and borderline engagements
Advisory Committee meeting mid-November
Results announced end November
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Process: Phase 1
EIRIS review of public information
• Most recently available public information
• Web sites, most recent annual report, brochures, etc.
Preliminary profile of company compiled
• Contains general overview of business, environmental impact classification and assessment of public data against criteria
Profiles mailed to companies in three tranches:
• No longer by year-end date, but intending to allow longer time for assessment of new or extensive data
• Tranche 1 – mostly companies failing in 2008
• Tranche 2 – best performers, unsuccessful companies with more progress
• Tranche 3 – established constituents and companies not publishing large amounts of data
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Process: Phase 2
Company response to profile assessment
• Respond directly on profile
AND/OR
• Complete survey questionnaire in full or in part
Directly on profile
• Typically where reporting is more advanced and most indicators met
• Mark up changes particularly to provide evidence for areas that still have to be met, to improve on met areas or update with new information
• Refer to surveys for guidance on type of information requested
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Process: Phase 2 (cont.)
Survey questionnaires
• Complete to the extent necessary in relation to areas that still have to be met, or to improve on met areas
• Useful where reporting is limited, to provide detail
Attach additional information that is relevant
• Return to original researcher
EIRIS incorporates new information in analysis and updates profiles
• Final profiles only sent to companies after results announced
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What information?*For policies –
• Send the document
• If no text, proof of commitment/undertaking (e.g. Board resolution/minutes)
For management systems –
• Adequate supporting evidence and information indicating that all relevant aspects of system exist
• E.g. training, managerial responsibility, identified targets/goals, monitoring against performance indicators, regular review, extent of coverage, feedback/correction mechanisms
Reporting –
• Public document with evidence of publication
• Evidence of consideration by relevant internal reporting mechanism
Confidentiality?
• Any document can be provided for consideration by EIRIS
• If confidential, mark clearly as such
• Only analysis included in profile, not raw data
* Source: EIRIS FAQs
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Borderline companies (BLs)
Companies that meet most areas but fail marginally on one area
Process:
• EIRIS submits final analysis to JSE
• JSE engages on that specific area with BL companies
• Deadline of a few days provided
• JSE decides whether to include or not
Repeat borderline issues:
• Ground Rules (to be approved by Advisory Committee) will limit number of times company can be considered for BL inclusion
• Must show commitment to improve after second BL status
• If no actual improvement, excluded from Index
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Best performers (BPs)
Companies that meet
• Relevant environmental threshold
• All core indicators in social
• All core indicators in governance and related concerns
Disclosed by environmental impact
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Controversial issues / major news stories
EIRIS conducts news search flagging specific issues
• Environmental violations, health & safety issues, major competition incidents, human rights violations
• First comprehensive search completed by end July, subsequent spot search end September
JSE considers which issues warrant further engagement
• Severity of issue, local impact
Engagement with company regarding handling of issue
• Will take place during course of review
• JSE may exclude company if deemed sufficient impact on broader sustainability
Ground Rules (to be approved by Advisory Committee) will deal with process for re-entry by excluded company
• E.g. must show improvement or commitment to avoid
Ground Rules already provide for exclusion in between reviews
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Results correspondence
Cover letter
• Indicates individual company result and salient matters, e.g. relevant controversial stories that were considered
Summary sheet
• Indicates overall performance in relation to each pillar
• Environment overall met/not met
• Social and governance indicates number of indicators met relative to possible number
Final profile
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Salient issues
Publication of results
• Press release
• Names of successful constituents and best performers
• Quotes by constituent companies
• No naming and shaming
Value of research data
• Profile – guidance for companies on areas of improvement
• 2008 saw milestone collaboration with GEPF for data based on JSE criteria
• Further opportunities for research distribution – under discussion with EIRIS
• Creation of further products currently under development
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Contact information
JSE
• Corli le Roux +27 11 520 7104
• Makhiba Mollo +27 11 520 7022
EIRIS
• Shelley McCluskey – Project Leader
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