Animus Sustainability Magazine speaks to Corli Le Roux; Head of JSE SRI Index

Ronald Chawatama is the Editor/Network Manager for the Animus Sustainability Magazine

Corli joined the Johannesburg Stock Exchange’s Legal Counsel and Strategy Division in August 2001 following four years as legal advisor to SAFEX (The South African Futures Exchange).

Over the years, Corli’s responsibilities have expanded into various strategic arenas, and as a result she has since 2002 been responsible for the development and operation of the JSE’s Socially Responsible Investment (SRI) Index, a pioneering initiative through which the JSE has been providing critical thought leadership around sustainability and responsible investment.  Since February 2012, Corli has moved into the Strategy and Public Policy Division of the JSE, from where she oversees the SRI Index and the development of a strategic sustainability framework for the JSE.

Corli has authored articles in various local and international publications, and speaks locally and globally regarding responsible investment, the SRI Index and its development, and sustainability concerns generally.  She represents the JSE on various committees, including the Integrated Sustainability Task Team for the Third King Report on Corporate Governance 2009, the Integrated Reporting Committee of South Africa as well as its working group, and is currently the Vice-Chair of the World Federation of Exchanges’ Sustainability Working Group.  During 2011 she was a finalist for South Africa’s Most Influential Women in Business and Government Awards 2011/2012.

What is the background to the creation of the Socially Responsible Investment (SRI) Index?

The development of the SRI Index was initiated in 2002 when South Africa hosted the World Summit on Sustainable Development. There was a recognised need for guidance to companies particularly on sustainability practices, with specific reference to giving the investment community insight into the strides that companies were making, and to be able to engage with companies around these. The SRI index was created in 2004 in response to these needs, and has been running for 10 years.

The index was the first of its kind to be created in the world by a stock exchange and it was also the first in an emerging market.

It is also unique in the sense that the criteria is a combination of a wide range of global best practice indicators and issues imperative in the local context, such as black economic empowerment (BEE), skills development and HIV/AIDS.

We do an annual assessment of companies and have a service provider that researches the data of FTSE/JSE All Share Index companies, looking at the annual reports and websites for everything they report around sustainability practice against our criteria. Companies receive a preliminary profile and get the opportunity to comment and provide further information. The feedback from the companies is then incorporated and the index constituency finalised.

Once the company is in the index they are in at their full free float market capitalisation.

Given the background and history around the index, how does it influence behaviour and what has been the impact since 2004?

The SRI index has been prominent in benchmarking at a time when sustainability has been growing in prominence throughout the world.

It has been an extremely useful tool to influence companies’ awareness of sustainability issues, and giving them some guidance on what the issues are that they need to look at.

In terms of impact, we have witnessed companies make significant strides in developing policies and practices and importantly improving on their reporting. For the last couple of years our focus was on promoting greater transparency about what companies are doing. Companies are increasingly moving toward an emphasis on materiality. This is largely spurred by the shift toward integrated reporting, which the JSE has helped to bring about by including the need for integrated reporting in its Listing Requirements, on an apply or explain basis in line with King III.

We have really seen impact in the sense that many of the issues that companies previously were doing but not necessarily reporting on, are now being reported on  and not only in sustainability reports but also integrated reports. The content reported on is becoming much friendlier to the investor community for their assessments of companies’ ability to create value in the long term.

The JSE’s ten years of active involvement in the sustainability arena and multifaceted approach to sustainability thought leadership bode well for its ability to keep facilitating the journey for all its clients and to continue driving increased attention to responsible investment into emerging markets like South Africa.

Inclusion in the SRI Index provides companies with additional opportunities to engage with investors and to continue to tell their stories. The JSE actively promotes this.

Does SRI have impact on companies trading on the local JSE bourse?

We haven’t been able to carry out empirical research about whether the index has impacted on price movements on the stock exchange specifically.

Obviously, when you have significant events, we have seen that affect companies’ share price, such as significant environmental events and negative governance issues, typically that may affect perceptions about the company and consequently its share price on the index.

In the South African market which is fairly condensed, we have the bulk of our large cap companies in the index, which makes it very difficult to draw correlations between sustainability management and share price movement.

What we have seen certainly is increased engagement from the investor community and an increased awareness that sustainability issues do have the potential to impact on a company’s ability to create value.

What is the use-ability of SRI by investment vehicles and their respective downstream clients?

The SRI Index is a fully tradeable index that is calculated live, therefore funds can track it. But even though it is directly investable we see that people mostly use it to compare between mainstream indices and then engage with some companies that might not have qualified for the SRI index, so it is being used more as an engagement vehicle or base for stock picking or research by investors.

We ascribe this to the close correlation between the SRI index and our mainstream indices particularly the Top 40 and the All Share index. There is a strong overlap in the constituency, and because it is a market cap index the value tends to track the mainstream indices.

Therefore we haven’t seen a significant shift in investments out of our mainstream investments into the SRI index, simply because investors are typically already invested in most of the companies in the index

If a company is to be removed from the index, what message does it send to the company to ensure it behaves responsibly in future, what are the measurable cost?

Not being on the index definitely sends a message. We have tried not to name and shame companies when a firm has not qualified or has been excluded for some reason be it controversial or any other, but the media and others who follow the index often pick up on who is there and who is not there.  In our experience it is often when prominent companies are involved that the media tends to pay more attention to it, especially where there are controversial events. From a company’s perspective therefore reputational implications are something to consider.

Whether this has impact on investment decisions is not something that we have been able to really measure. However, as mentioned earlier, certainly in terms of the engagement with the companies (particularly resulting from them not being in the index), indications are that the impact has increased and investors are increasingly engaging with the companies, and would want to understand why they are not in the index anymore, what are they doing to try and get back on.

The companies themselves attach a lot of value to the index and for many of them it has been quite difficult not to be included, for whatever the reason may be, and they make real effort to try and come back and improve in areas of shortfall.


What are the benefits to companies who are listed in SRI; are the benefits accrued financially, brand, reputational, what are the drivers and likely barriers?

The reputational value is stronger than just the brand because often market decisions are also based on perception and given that a lot of investors refer to the SRI Index constituency for their research base or to inform their stock picking, if for example not being on the index means the type of engagement that happens with investors is biased towards questioning why the company is not included, then that is a strong consideration for the company. While this is something that might not be as tangible as share price impact it does influence the company’s drive to be in the Index.

Something that is more tangible is usage of the SRI Index and its criteria for companies’ internal requirements.  A lot of the companies use the index as an internal framework for risk management around sustainability issues and to inform reporting. We are aware that a lot of the company representatives have SRI Index inclusion as a Key Performance Indicator (KPI) for the company or their personal performance, which demonstrates the gravity with which they regard inclusion.

How do you help to mitigate on the misalignment of information ie that either is collected from public domain and submitted by the company with that being collected and presented by respective ministries and other institutions?


At the moment there isn’t any further verification of data. Assurance is a costly process, particularly for smaller entities, and a lot of the information particularly the larger companies report is already verified and assured.

Since we rely on publicly available information, the reputational damage that a company could suffer if discovered that they put out information in the public domain is not accurate or is falsified is significant to them. We therefore rely on their integrity in publishing information that has been verified or is accurate even if not assured, but it’s not a requirement that they have independent assurance conducted.

Can the index get information directly from data custodians such as the responsible ESG ministries?

This is a conversation that has come up previously, whether we could consider third party information sources as well, but it does come with its own challenges. In terms of interrogating what the JSE’s role is in creating the index, it is our view that our role is to encourage companies to be transparent around what they do and to ensure sufficient information is available to the investment community to inform their investment decisions.

We do not feel that we are currently in the position to create a central repository for various sources of information, while that is something that may create value.

Going forward our approach for the index will be to try and expand the guidance that we give to companies, in terms of the information that they make available to investors, and to ensure that the people who are looking for the relevant information can find it. Unfortunately we do not have the capacity to create a repository or to be drawing from a range of different sources where we need to further verify the quality of the data from a third party.

We have seen increasing engagement with the NGO sector particularly around controversial issues that don’t necessary fall within the criteria of the index, for example questions around legal compliance.  While we don’t have the resources or jurisdiction to monitor or verify these issues, these engagements help to highlight further challenges in the disclosure by companies.

When such cases are brought to us, we have a process to engage with companies in parallel to index assessments, so if controversial events happen  or complaints are lodged by certain stakeholders we engage with the company directly.

If we feel the issues are significant enough for us to consider and we are not satisfied with the company’s response on dealing with the matter, then we do have the ability to either downgrade them from best performer or to remove them from the index altogether.


The role of Animus Sustainability Magazine as a repository of information; increasing feasibility to officials such as JSE, enable real time updating information, could our work have impact on the Index?

I think it might in the sense that it may facilitate easier access to information for whoever conducts this research, whether it’s a third party doing it for an index, or for a fund manager or an asset consultancy looking to revise their plans, where they have challenges of finding the information – so to the extent that having information centralised, it may certainly help.

It remains a challenge though due to the fact that one may need to encourage companies to report in a standardised and comparable manner. While we believe that a global standard in sustainability reporting may be some way off, we will continue to encourage companies to report in a way that is investor friendly.

What has been the level of confidence from outside investors as a result of the SRI?

It is not something that is easy to measure. For a country like South Africa investor considerations are bound to have ESG issues incorporated as a matter of course, given the nature of the country’s economy and the types of industries that operate in South Africa.  Therefore, something like the SRI index, and similar initiatives, provide investors with more information about how the local economy is dealing with issues that are of concern to international investors.

More and better quality information will give investors more confidence; we have seen for example that our regulatory approach to governance has supported positive perceptions and engagement with international investors. I wouldn’t say we have been able to gauge similar impacts with the broad range of sustainability issues, but I certainly think with regard to some of the issues we have been dealing with, like labour issues in the mining sector, the interest we have seen from international investors looking at how the companies have been dealing with the issues is certainly growing.

In conclusion can you please highlight one Key success and one Key challenge?

The key success has been the extent to which companies have supported the index and its growth, the constructive engagement we have had with companies over the years, and the support we have had from them in terms of them making an effort to grow with the index, to expand and to meet our expectations,

In the early years, company participation was voluntary. This evolved into a situation where, in 2007, the JSE commenced with an automatic assessment of the Top 40 listed companies. From 2008 onwards, this automatic approach was expanded to the top 100. Small cap companies were still able to participate, but for them, participation was voluntary.

By 2013, the JSE felt that the process had matured sufficiently to allow for the entire FTSE/JSE All Share index to be assessed automatically.  By this time a greater emphasis was being placed on disclosure and transparency with the review only considering publicly available information. As a result, the index in its current form applies assessment criteria across environmental, social and governance (ESG) and related sustainability concerns (as well as certain climate change indicators) to companies in diverse sectors and with varying market capitalisations.

Key challenge

The key challenge remains the investment community’s role.  While the investment community has their own challenges, things like access to information and understanding the impacts of ESG considerations, it has been a challenge to us to successfully engage the investment community in the ESG debate, however this is something we are really starting to see change, and we are hopeful that the challenge will be turned into an opportunity.


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