Copyright© JSE Limited 2005 Corporate Governance focus African Peer Review, 1 December 2005 NICKY NEWTON-KING Deputy CEO Copyright© JSE Limited 2005

Sustainability reporting in RSA SA strong Roman Dutch legal heritage but commercial legislation and regulatory structures borrow heavily from UK and Commonwealth JSE Limited only licensed equities exchange in SA –Front line regulator of listed companies 15th largest exchange in the world – largest in Africa Regulatory responsibly shared –Companies Act – dti –Accounting standards – SAICA and GAAP Monitoring Panel (JSE) –Listings requirements – JSE –Labour legislation – Dept of Labour –Environmental legislation – Dept of Min and Energy, DWAF, DEAT King II

Copyright© JSE Limited 2005 JSE SRI Index Product of extensive consultation Outcome – agreed criteria –Focus on sustainability practices, not ethical screens –developmental approach –reflect principles common to a range of international and local documents Voluntary participation –FTSE/JSE All Share Index constituents

Copyright© JSE Limited 2005 SRI Index Architecture Environment Society Economy Corporate governance

Copyright© JSE Limited 2005 SRI Index Architecture Benchmark index No exclusions Free float market capitalisation Environmental impact classification Sustainability factor in due course

Copyright© JSE Limited 2005 Environmental sustainability Companies Act –No existing reporting requirements –Review of Companies Act considering this aspect Environmental legislation –Reports to relevant Ministries with prescribed content –Accessible to public but not widely published King II –Report at least annually on the nature of its social, transformation, ethical, safety, health and environmental policies and practices JSE –No specific ones bar comply and explain with King II but would require disclosure of material information which could affect price –Mining companies have SAMREC code initial and continuing obligation disclosure requirements

Copyright© JSE Limited 2005 Environmental sustainability SRI Index –Regular, clear and comprehensive disclosure of major environmental sustainability objectives relevant to the company including of performance against environmental targets –Public disclosure of quantitative, comparable data on major environmental issues relevant to the company –Disclosure of major non-compliance, fines, prosecution or incidents relating to the environmental sustainability issues identified in these Criteria

Copyright© JSE Limited 2005 Social sustainability Labour legislation –Annual report on Employment Equity to DoL in fixed format –Accessible to public but not widely published Industry Charters & dti Codes of Best Practice –Still to be promulgated –“Voluntary” –Report on ownership/control, EE, procurement, CSR –Formats still not finalised Companies Act –No existing reporting requirements –Review of Companies Act considering this aspect King II –Report at least annually on the nature of its social, transformational, ethical, safety, health and environmental policies and practices

Copyright© JSE Limited 2005 Social sustainability JSE –No specific ones bar comply and explain with King II but would require disclosure of material information which could affect price SRI Index –Public disclosure of quantitative, comparable data on major social sustainability issues relevant to the company –Performance against targets reported on –Disclosure of major non-compliance, fines, prosecution or incidents relating to the social sustainability issues identified in these Criteria

Copyright© JSE Limited 2005 Economic sustainability Companies Act –Annual reporting requirement in accordance with GAAP –Financial disclosure standards for certain corporate actions –Legal backing for GAAP to be achieved early in 2006 –Review of Companies Act may allow abridged reporting for some companies King II –Report in accordance with GAAP JSE –Report in accordance with GAAP annually –Additional financial disclosure standards for certain corporate actions –IFRS from 2005 for all listed companies –Enforced through GAAP Monitoring Panel – to exist until legal backing achieved

Copyright© JSE Limited 2005 Economic sustainability –Disclosure of major non-compliance, fines, prosecution or incidents relating to the economic sustainability issues identified in these Criteria SRI Index –Public disclosure of quantitative, comparable data on major economic sustainability issues relevant to the company –Regular, clear and comprehensive disclosure of major economic sustainability issues relevant to the company, including of performance against economic targets

Copyright© JSE Limited 2005 Corporate governance Companies Act –No existing reporting requirements –Review of Companies Act considering this aspect King II –Aspirational code for all business entities – not mandatory –Outlines best practice on governance ie. audit committees, split Chair/ CEO, code of ethics –Report at least annually JSE –For listed companies only –Some aspects of King II made mandatory ie chair/CEO split –Disclose annually whether comply with King II and if not, why not

Copyright© JSE Limited 2005 Corporate governance SRI Index –Demonstrated commitment to the achievement and maintenance of internationally recognised corporate governance standards and principles, such as King II in South Africa, in a manner appropriate to the company’s size, business and geographic spread of operations –Demonstrated policy or strategy of stakeholder involvement on key issues concerning the company –Demonstrated policy of ethical conduct –Test: Regular, clear and comprehensive disclosure of major facts relevant to the company, including of objectives and performance against these, as well as of matters of public interest, such as donations to political parties

Copyright© JSE Limited 2005 Focus of SRI Index Policy Performance Reporting First Round focus First and second annual reviews More demanding set of Criteria

Copyright© JSE Limited 2005 SRI Index companies participated in the process 51 companies were part of the first SRI Index –31 Top40 –17 Mid-Cap –3 Small-Cap

Copyright© JSE Limited 2005 SRI Index companies currently constitute the Index –32 Top40 –13 Mid-Cap –4 Small-Cap Higher % of participating companies passed 7 new companies participated for the first time –4 of these qualified Performance recognition –23 high-impact companies met the Criteria –12 medium-impact companies met the Criteria –14 low-impact companies met the Criteria 58 companies participated in the 2005 review

Copyright© JSE Limited 2005 Lessons learnt Companies in SA are doing a lot and should be encouraged Sustainability is multi-faceted and hence sustainability reporting is driven by a number of legislative and other interventions Trends from the SRI Index: –Increase in non-public information disclosure –SA social reporting excellent, environmental lacking imperative –Companies who use GRI or SRI Index criteria to structure reporting generally have better understanding of sustainability and do better on the Index –GRI works better for multi-nationals –Glossy reports not a good indicator of whether companies really understand what sustainability is –Growing awareness and performance amongst low impact companies, particularly finance sector

Copyright© JSE Limited 2005 Going forward 2005/2006 review currently underway A carrot and not a stick for companies and investors Need greater support from the buy-side for the importance of sustainable business practices – mainstream SRI This needs –Vocal championing –Clear understanding that we are not just talking about CSR –Good, clear and achievable guidelines of what companies should do

Copyright© JSE Limited 2005 Focus points Shareholder activism Revolving doors The importance of sustainable development for state-owned enterprises

Copyright© JSE Limited 2005 QUESTIONS & ANSWERS Copyright© JSE Limited

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