Who’s best at doing well by doing good?

Environmental, social and governance ranking turns up surprises -- and usual culprits, writes Ann Crotty

BARLOWORLD, which was pil- loried in the media for its poor corporate governance in 2007, has emerged in the top position in what is to date the most vigorous attempt to rank the environmental, social and governance (ESG) performance of South Africa’s top 100 listed companies.

The first ever report of its kind, which involved detailed research by Legae Securities, reveals a disappointingly low commitment to ESG issues by corporate South Africa. This suggests that, despite much talk, few companies are actually taking such issues seriously.

Poor disclosure in terms of environmental factors and “underwhelming attention” to social issues were key findings of the analysis.

Barloworld’s strong showing on environmental issues pushed it to first place with a score of 66.7%, followed by Reunert with 65.05%.

However, only 30 of the 100 companies investigated scored above 50% and a shocking 20 companies scored less than 20%, with Reinet scrapping in with just 4.9%.

Companies that did not have policies on ESG issues or did not disclose these policies got zero marks, which explains the dismal showing by a number of investment holding companies.

Peter Mushangwe, one of the two authors of the report, said that although investment companies are non-operational, it is important that they are not exempted from their responsibilities.

The extremely low scores indicate that management at these companies believe they are exempt from ESG responsibilities.

The poor showing by so many companies is surprising in light of the growing importance of the issues covered by the scorecard.

“It’s not just a matter of being seen to do the right thing,” said Waseem Thokan, the other coauthor ot the report. “The world is changing and there is increasing resistance to companies imposing externalities on their employees or on the communities where they operate.”

This means it becomes important for shareholders to know what a company’s ESG policies are and how its corporate performance actually stacks up against those policies.

“Previously, companies didn’t have to worry about their carbon emissions because there was no charge attached to it. In future, they will be taxed. This has serious implications for shareholders. The use of contract workers is a profitable expedience now, but if the law changes, it might be less profitable,” said Mushangwe.

The Legae scorecard is the second attempt to get a more precise handle on listed companies’ commitment to ESG issues. It was developed in the wake of last year’s implementation of the revised regulation 28, which explicitly requires investors to address ESG issues in their investment analysis.

And with some $34-trillion (R354-trillion) of global funds in the hands of fund managers who have made express commitments to ESG, the cost of being excluded from this growing pool of investors is becoming steadily greater.

As one corporate governance analyst remarked: “In the future, share price performance will be exposed on two fronts: there will be less scope for companies to externalise their costs, and investors will demand more rigorous ESG behaviour or dump the shares.”

Shareholder activist Theo Botha takes pride in his role in helping to secure top rankings for Barloworld, Reunert, Nampak and Liberty. “I’ve attended many of their AGMs and regularly challenged their ESG performance. That creates the sort of public pressure that forces them to up their game.”