CORPORATE SOCIAL RESPONSIBILITY AN EXCHANGES VIEW

1
CORPORATE SOCIAL RESPONSIBILITY - AN EXCHANGES
VIEW

• Nicky Newton-King
• JSE Securities Exchange South Africa

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Introduction

• Global trend is towards companies and investors
  embracing the principles of CSR. Recognises
• that to enjoy economic benefits of business must
  demonstrate socially responsible practices
• interrelationship between CSR and long term
  shareholder value
• In South Africa in particular, CSR is in the
  spotlight as
• Nepad prioritises the wise use of Africas
  critical resource base to provide sustainable
  support to development of Africa
• Companies have had to address labour, affirmative
  action and health related issues with more focus
  than internationally
• Corporate governance premium for emerging markets
• WSSD

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Introduction (cont)

• Not esoteric debate
• investors are seeking out companies with good CSR
  records
• leading to rise in socially responsible
  investment and SRI funds
• need to find an objective and accepted method of
  measuring the CSR performance of listed companies
  to enable SRI to happen

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JSE Vital Statistics

• Established 1887
• Market capitalisation (August 2002) 1.6
  trillion
• 15th largest exchange internationally by market
  cap
• 501 listed companies, of which
• 9 plc
• 50 secondary listings internationally
• Also lists warrants, corporate debentures and
  derivative products on equities, bonds and
  agricultural commodities

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JSEs role in the CSR debate

• Globalisation means
• Investors can choose where they want to trade
• We need to fight for every cent of an investment
  dollar to come to and remain in SA
• All SA businesses will need to embrace global
  standards if they want to benefit from increased
  investment
• In the JSEs case, this means providing world
  class primary and secondary markets that allow
  access to international markets
• trade using JSE SETS
• settle using STRATE
• introduced FTSE/JSE Africa Index Series
• internationally comparable listings requirements

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JSEs role in the CSR debate (cont)

• Also, leveraging our position in SA financial
  markets to facilitate debate on CSR best
  practices and encourage commitment to them
• Developing SRI index with FTSE and Advisory
  Committee

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Purpose of the SRI Index

• Benchmark index
• Based on FTSE4Good
• Customised to reflect the complex nature of
  social responsibility in South Africa
• Index will aim to -
• Reflect best practice in CSR
• Highlight those companies with good CSR records
• Measure share price performance of these
  companies
• Provide the basis for financial SRI products

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Structure of the SRI Index rules

• Stated commitment to principles of CSR not enough
• need to demonstrate performance
• Recognise practical challenge for companies to
  integrate CSR principles in existing framework of
  governance
• 3 pillars of the Index
• Principles which companies should be committed to
• Conduct as a tool for companies to demonstrate
  commitment
• Criteria for eligible companies to join the Index

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Principles of CSR

• Identified principles common to a range of
  international and local statutes, charters,
  documents and undertakings in relation to CSR,
  e.g
• SA Constitution and related legislation King
  2002 NEPAD
• Global Reporting Initiative Universal
  Declaration of Human Rights
• Three core principles
• Environmental sustainability
• Positive stakeholder relationships
• Upholding and supporting universal human rights

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Environmental sustainability

• Africas rich and critical resource base has to
  be wisely used to provide sustainable support and
  development to the Continent
• particularly if objectives of Nepad are to be
  achieved
• Companies impacting on these resources should
  develop strategies to -
• Measure their impact
• Implement systems to -
• ensure sustainable use
• prevent, mitigate and control damage
• achieve continual improvement in impact
• protect and rehabilitate
• report on performance

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Stakeholder relationships

• The company is a key component of modern society
  and is often a more immediate presence to
  citizens than the State
• Not only shareholders are affected hence
  stakeholders
• Challenge is to balance performance and
  compliance while taking account of stakeholders
  expectations

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Stakeholder relationships (cont)

• Company should adopt policies and practices
  reflecting -
• Best governance practices to achieve integrity,
  transparency and accountability at all levels
• Linkage of core business strategy to internal
  management systems to build positive stakeholder
  relations
• Dignity, fairness and respect to all stakeholders
• Application of core labour standards, including
  freedom of association and fair working
  conditions
• Promotion of diversity and development of human
  capital
• Employee health and safety practices and
  identification and management of direct and
  indirect impact of HIV/AIDS
• Reliable, relevant and timeous disclosure
• Combating discrimination, bribery, corruption and
  extortion

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Universal Human Rights

• Applies to companies with activities of high
  strategic importance in countries with poorest
  human rights records
• Company policy and practice should -
• Recognise human rights as the cornerstone of a
  democratic society
• Enshrine basic human rights
• Implement corporate values that promote -
• Human dignity
• Achievement of equality
• Advancement of human rights and freedoms

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Model of Conduct

• Certain companies have higher impacts with regard
  to, for example, environmental issues
• Greater stakeholder demands apply in these areas
• Also, focus on some issues has developed at a
  difference pace
• In SA far more focus on human rights than, for
  instance, in Europe
• Criteria for SRI Index should aim to encourage
  and respond to continuous improvement in CSR

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Model of Conduct (cont)

• Practical means to uphold CSR principles
• Relevant governance practices would include
• Understanding of impact
• Policy and strategy to integrate long term social
  and environmental aspects in business strategy
  and to establish broad and specific goals to
  achieve improved CSR
• Management systems at central and operational
  level to ensure implementation of policy,
  management of risks and maximisation of
  opportunities
• Performance monitoring
• Reporting of risk, opportunity and performance
  regularly and timeously
• Consultation continuously with key stakeholders

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Exclusions and Exceptions

• SRI funds typically exclude companies primarily
  operating in areas of particular controversy
• Internationally common exclusions apply where
  major revenue source is -
• Production or sale of tobacco
• Production or sale of whole or strategic parts of
  nuclear weapons systems
• Production or sale of whole weapons systems
• Production or sale of blue asbestos
• Need to consider whether such activities should
  involve total exclusion or rather down-weighting
  in the Index

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Selection Criteria Environment

• High impact companies
• Those in sectors with greatest potential impact
  on environment
• Policy, management and reporting measured against
  indicators such as
• Responsibility at Board level
• Identification, monitoring and audit of impacts
• Global standards
• Presence and quality of sustainability policy
• Outlined action plans
• Environmental management system
• Independent verification
• Stakeholder dialogue
• Reporting for three years
• Performance against targets

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Selection Criteria Stakeholders

• Policy, management and reporting measured against
  -
• Compliance with best governance practices like
  King 2002
• Evidence of equal opportunity systems, training
  and development
• Evidence of health and safety systems, including
  HIV/AIDS measures
• Evidence of social impact in area of business,
  including procurement
• Quantitative data provision, cost projections and
  stakeholder dialogue

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Selection Criteria Human rights

• High impact companies
• Operating in countries with poorest human rights
  records
• Greatest responsibility for maintenance of human
  rights
• Typical measures relate to a commitment to
• Universal Declaration of Human Rights
• International Labour Organisation core standards
• Global Compact
• Global Sullivan Principles

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Issues

• Data collection and verification of information
• Exclusions or weighting
• Other possible exclusions gambling
• Onerous nature of criteria
• Relevance of criteria to South Africa

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Conclusion

• SRI Index has potential for providing a catalyst
  for change
• Incentive for companies to join peers who have
  been identified as having good social
  responsibility practices
• Supports sustainable development of South Africa
  and Africa
• Beginning of process. After WSSD, will
• publish draft Index rules for comment
• Enage in debate with stakeholders on rules
• Then finalise rules
• Index itself only to be calculated during 2003