27 Jun 23

ESG Reporting in South Africa – preparing for regulation

ESG Reporting in South Africa – preparing for regulation

ESG reporting is becoming increasingly important for government, business, and consumers in South Africa. Like in other countries, companies in South Africa are under increasing pressure to demonstrate their commitment to sustainability and reduce their carbon footprint. 

Recent floods in South Africa have further highlighted the impact of climate change and the need for government and corporates to pay closer attention to environmental considerations in their decision-making.

In response to this, South Africa is actively promoting ESG reporting and sustainability practices, both through regulatory frameworks and voluntary initiatives. The country has also committed to a Climate Plan which includes reducing GHG emissions to net zero by 2050.

This article aims to provide an overview of the ESG reporting landscape in South Africa and outline current and upcoming reporting requirements for organisations.

Increased requirement for robust ESG reporting

The growing trend of a more robust approach to ESG reporting is driven by an increasing awareness of the need to address the environmental and social impact of business activities and investments, as well as the importance of managing climate risks and opportunities.

Governments around the world are setting more stringent reporting requirements to ensure companies are transparent about their sustainability practices, while businesses are recognising the benefits of disclosing ESG data to attract investors and customers who are increasingly seeking out responsible and sustainable investments. Consumers are also becoming more conscious of the impact of their purchasing decisions on the environment and society and are demanding more accountability from companies.

South African companies preparing for mandatory regulation

The past few years have been very formative when it comes to the ESG reporting landscape in South Africa, especially due to the increasing demand for transparent and accurate reporting on ESG factors. The country's regulations, including the Johannesburg Stock Exchange's (JSE) ESG reporting requirements, have set standards for companies to disclose their ESG risks and opportunities.

The JSE is developing Sustainability Disclosure Guidance, including a Climate Change Disclosure Guidance specifically tailored to the South African context. These guidelines aim to assist JSE-listed companies, institutional investors, and other stakeholders in understanding the climate crisis, identifying risks and opportunities, and linking sustainability disclosures to value creation.

South African companies are being urged to take action on sustainability because it will be mandated by local and international regulators such as the JSE, the International Sustainability Standards Board (ISSB), as well as the US Securities and Exchange Commission (SEC), among others.

Considering the connection of South Africa companies to global markets through commodities and capital markets, and the convergence in ESG standards, companies in South Africa should expect mandatory reporting on ESG issues to be just around the corner, and they should prepare.

ESG disclosure framework for financial institutions

The South African Reserve Bank (SARB), the central bank of South Africa, has implemented several significant changes to promote ESG reporting and a formal ESG disclosure framework is expected imminently. The bank has instructed financial institutions under its supervision to enhance their resilience against climate risks, ahead of new updates on the JSE’s Sustainability and Climate Disclosure Guidance due to be published in 2023.

SARB is advocating a 'hybrid model' of reporting that incorporates both traditional financial reporting and sustainability reporting. SARB has announced that it expects its institutions to identify and disclose material climate-related information to stakeholders, and include this information in their disclosure frameworks. SARB adds that the Task Force on Climate-related Financial Disclosures (TCFD) could serve as an important guideline in this respect.

SARB is also taking into account the financial implications of climate-related shocks, and has announced plans to incorporate climate change indicators, disclosure and taxonomy rules into the prudential framework.

Sustainable finance through the Green Finance Taxonomy project

South Africa is increasing access to sustainable finance and stimulating the allocation of capital to support a development-focused and climate-resilient economy with the recent publication of South Africa’s first Green Finance Taxonomy by National Treasury. Following a two-year consultation and development process, South Africa’s first national Green Finance Taxonomy was launched in 2022 by the Taxonomy Working Group, as part of South Africa’s Sustainable Finance Initiative.

The Green Finance Taxonomy is a classification system or catalogue that defines a minimum set of assets, projects, activities and sectors that are eligible to be defined as "green" in line with international best practice and national priorities. It is designed for investors, issuers, lenders and other financial sector participants to track, monitor, and demonstrate the credentials of their green activities in a more confident and efficient way. It classifies economic activities according to two objectives: making substantial contributions to climate change adaptation, and making substantial contributions to climate change mitigation.

The Taxonomy is intended to have a range of benefits. Amongst other things:

  • Helps the financial sector with clarity and certainty in selecting green investments in line with international best practice and South Africa’s national policies and priorities.
  • Reduces financial sector risks through enhanced management of environmental and social performance.
  • Reduces the costs associated with labelling and issuing green financial instrument.
  • Unlock significant investment opportunities for South Africa in a broad range of green and climate-friendly assets.
  • Supports regulatory and supervision oversight of the financial sector.
  • Provides a basis for regulators to align or reference green financial products.

This Taxonomy is essential to provide guidance to investors on sustainable investment opportunities and ensure businesses are held accountable for their impact on the environment and society. The SA Green Finance Taxonomy is similar to the EU Taxonomy as both pursue climate ambition of a net-zero economy to 2050 as a core environmental objective.

Sustainable Development Initiatives

In addition to the growing focus on sustainable finance and disclosure, there are also significant efforts being made towards building climate-resilient infrastructure and promoting sustainable land planning.

The Cities Support Programme (CSP), located within the inter-governmental relations (IGR) division of the National Treasury (NT) of South Africa, focuses on building metro capability to efficiently plan, finance, implement, and maintain climate resilient projects and programs. By improving cities' capacity for infrastructure delivery and full life-cycle asset management, the CSP aims to unlock investments needed for the transformation of South African cities into more compact, inclusive, productive, and sustainable spaces.

These efforts align with the National Development Plan's emphasis on establishing a competitive infrastructure base to promote investment, trade, and job creation. Through targeted interventions and the integration of climate resilience and sustainability in metro planning, financing, and delivery of capital projects, the CSP aims to strengthen cities' role in the national climate change response. This will ultimately enhance city resilience, response to climate change, and foster inclusive economic growth.

How South African companies can prepare for regulation

It is essential that businesses understand the impact of their activities on the environment and society. It is no longer sufficient to focus solely on financial performance; investors and stakeholders now demand that companies adopt sustainable practices that consider the long-term impact of their operations.

South Africa's regulations, including the Johannesburg Stock Exchange's ESG reporting requirements and the Green Finance Taxonomy, have set standards for companies to disclose their ESG risks and opportunities. By collecting and reporting data accurately, companies in South Africa can not only meet regulatory requirements but also enhance their reputation and competitiveness. Furthermore, accurate reporting can provide investors and stakeholders with insights into a company's sustainability practices, allowing them to make informed decisions and hold companies accountable for their ESG performance.

Finally, to stay prepared for evolving regulations and ensure compliance, companies should also stay up to date with the latest sustainability issues and developments. Staying informed of sustainability framework and regulations allows companies to proactively address environmental and social risks, seize opportunities for sustainable growth, and align with emerging regulatory requirements.

Greenstone and Bidvest Facilities Management

Greenstone has partnered with Bidvest Facilities Management in South Africa to support South African companies on their ESG reporting journey. A member of Bidvest Group, and an industry leader in South Africa, Bidvest FM provides environmental sustainability solutions to enable its clients to address business requirements, targets and commitments. Through this collaboration, Bidvest FM is able to offer Greenstone’s ESG reporting software solutions to its clients to enable them to collect, manage, analyse and report the data required to monitor and disclose ESG performance with accuracy and confidence.