FTSE/JSE Responsible Investment Index (SRI)

Corporate Governance

• Focus is to show an understanding and discuss the impact of corporate governance and social responsibility.

Corporate Governance

• The King Reports include any new developments.
• Triple Bottom Line Reporting is also known as integrated reporting and sustainability; it includes environmental responsibility for future generations, human health, and well-being.
• Principles of good governance include: transparency, independence, accountability, integrity, responsible management, discipline, social issues, and fairness in dealing with stakeholders.
• The duties and responsibilities of directors are key.
• Creating an ethical business culture, good business performance, adequate and effective control, and trust are important factors.
• Learn to apply AND explain (vs. apply OR explain).

FTSE/JSE Responsible Investment Index

• Focus on intent, purpose, and benefits.

GRI (Global Reporting Initiative)

• Focus on intent, purpose, and benefits.

Key Relationships

• Understand the relationship between management ethics and social responsibility when explaining corporate social responsibility.
• This understanding is important for both business and communities.

Social Responsibility (CSR) Explained

• CSR is more than just ethical issues like honesty and integrity.
• CSR protects and promotes the welfare of all stakeholders (financial and otherwise).
• Stakeholders include any individual or group with an interest in or affected by a business.

Corporate Social Investment (CSI) Defined

• CSI involves actual resources invested in stakeholders like money, manpower, products, machinery, or premises.
• Financial performance is important to owners and management.
• Social performance is equally important to external stakeholders like customers, suppliers, government, and society.
• The King II Report advocates moving from "Bottom Line Reporting" (profit only) to "Triple Bottom Line Reporting," which includes economic, environmental, and social aspects.

Economic (Profit) Explained

• A company must ensure it earns its income in ethical, fair manners.
• It must make a profit to be responsible to its investors/shareholders so they make a ROI

Environmental (Planet) Explained

• A business's impact on the natural environment and ecological systems with the goal to do the least harm with the most benefit.
• Sustainable development means that once a company has engaged in a business activity: people need to be better off, the planet must not have degraded and that the company's economic position has been strengthened (3 x Ps).

Environmental Sustainability Pillar Explained

• Refers to those business activities which are concerned with the degradation of the environment: carbon emissions, soil depletion, deforestation and pollution.
• FFI: As businesses go in search for more resources they may impact negatively on the emvironment. Companies can focus on preserving the environment in their everyday activities by considering the 4P's of sustainable design: -Product/Service: Finding less harmful ways to produce these. Consider the use of recycled materials and cutting down on waste.
• Processes: Assessing the activities that form part of the company's value chain both internally and externally. e.g. Production, transport,warehousing, waste removal etc.
• Practices: Includes daily activities, operational activities, organizational culture/attitude towards sustainable design, waste disposal (ethics) andeffective use of energy.
• Premises: Assessing the way in which the buildings and surrondings are designed (eco-friendly).

Social (People) Explained

• For clothing business's, the "People" element means ensuring fair labor practices.
• This includes fair wages and safe working conditions, promoting employee growth and well-being.
• Actions demonstrate a commitment to positive social impact and responsible business practices.
• Promote fair and beneficial business practices in the community where the company operates by not dumping or exploiting resources and demonstrating CSR towards the community.

Defining Sustainability

• Sustainable projects ensure the process continues.
• Merely donating food fulfills only a short-term aim.
• Structures should be set up to enable the community to become self-sufficient.
• Sustainable methods involve teaching job skills, training, and education.

Stakeholders Listed

• Owners, customers, society, government, community, employess, suppliers and lenders

Stakeholder Examples

• Employees want remuneration/ good working conditions and have interest in the business’s financial performance.
• Suppliers want payment on time which may conflict with a business delaying payment to create better cash flow.
• Consumers look for quality, value, and safety in products including the environmental impact of disposal.
• Competitors require no counterfeiting, patent copying, or unfair advertising. This encompasses businesses not selling counterfeit goods.
• The World Trade Organisation (WTO) defines Intellectual Property as “rights given to individuals over the creations of their minds”.
• The rights may be attached to a work of art, literary works or industrial or commercial marks such as trademarks (a name or picture to identify a manufacturer).
• Government uses taxes to benefit citizens through infrastructure, healthcare, education and stimulates operations. Government objectives promote social responsibility through legislation like BBBEE.
• The broader community expects contributions such as: ecological control, nature conservation, sports sponsorships, infrastructure creation, skills training to improve literacy.

Broader Community

• Social Issues
• Address air, water, and noise pollution, especially near living areas.
• Corporate social responsibility extends from the corporate sector.

Positives of CSR for Business

• Promotes a positive image and marketing strategy.
• Creates a competitive edge through good publicity/reputation.
• Attracts/retains staff who believe in CSI and attracts conscious investors.
• Tax rebates from SARS and a higher rating on the JSE SRI may be available.
• Aids in addressing socio-economic issues like poverty, theft, and crime.

Negatives of CSR for Business

• Supported communities may not support the business.
• Smaller businesses struggle to implement CSR programs and core functions can become distracted.
• CSI can be paid by reducing selling prices or owner profit share.
• Detailed reports can be time consuming and social spending reduces competitiveness.
• Directors are accountable to shareholders, not necessarily communities.
• Measuring social investment effectiveness is difficult, and managers/staff may lack the experience to run CSI programs.
• Some believe providing goods/services inherently meets consumer needs.

Positives of CSR for the Community

• Creates jobs, bursaries, and improves quality of life and educational facilities.
• May reduce crime and pollution and could receive water.

Negatives of CSR for the Community

• May cause discrimination or encourage dependence on handouts rather than initiative.
• CSR costs can increase prices.
• CSR projects may not be sustainable or benefits may not filter through intended beneficiaries.

CSR in South Africa

• Various factors have contributed to the need: inequalities of the past, Dualistic economy unable to provide adequete housing, medical care or quality education.
• As a dualistic economy South Africa still has a large portion of the population that still lives in third world circumstances. South Africa is still in the process of growth and building infrastructure.
• Years of apartheid directed funds to political issues rather than economic development.
• Prior economic boycotts prevented Foreign Direct Investment (FDI).
• South Africa's water supplies are limited and is often difficult to break the cycle of poverty. There is also a culture of crime and violence and severe effects of Covid-19.

The Principles of Corporate Governance & King Code

• Accountability, transparency, and openness are demanded of SA company directors.
• King Committee made recommendations regarding ethical trading practices.
• The code is not legally binding but a part of corporate culture.
• Companies are favored if they are complying and it is a competitive advantage for tenders, contracts, and other endeavors.
• Bring balance and ensure financial reporting is comprehensive by examining companys commitment to assessing affected communities and planning to eliminate negative impacts.
• In King I (1994), triple bottom line reporting was introduced with a focus on people and the planet.
• King II (2002) describes 7 principles of governance.
• King III (2009) added requirements relating to private / public/non profit along with audit committees, and independent directors.
• King IV (2016) states that the board of a company is accountable for ensuring these broad outcomes are achieved, good ethical culture, effective control, and have a good reputation.

Key Principles

• Fairness means to be treated with equality and avoid bias.
• Transparency does not mean everyone needs to know the details of decisions
• Independence is avoiding undue influence by interested stakeholders.
• Integrity is doing business honestly and truthfully.
• Accountability to take responsibility for action as business showing increases customer confidence.
• Discipline is to always do the right thing.

Social Responsibilty Examples

• Prevent exploitation of natural resources and avoid child labour, and support of skill training and community.

Responsibilities of Directors

• Act with skill and care when formulating policy.
• Ensure transparency in the best interest of business.

JSE SRI (Responsible Investment Index) Objectives

• The JSE SRI identifies companies listed on triple bottom line reporting and sound governance.
• Provide a criteria based tool to align with global and local corporate responsibilities. Contribute to the growth of business practices in South Africa.
• The SRI is based on the principles of the quadruple bottom line. Each company must disclose information to show they have given thought to:
• Companies part of the FTSE/JSE share index will automatically be assessed against the above criteria.
• Environmental, social, economic and governance policies.

GRI (Global Reporting Initiative)

• It's mission is to develop sustainable reporting guidelines assist companies to report on contributions.
• This the development of contributions to a sustainabile environment.
• This reporting model is used to address broad performance and can be used in geographical contexts.