In South Africa, sustainability reporting has evolved from being a primarily voluntary exercise to a more regulated requirement, particularly for large companies and financial institutions.
Enhancing reporting quality: transparency and international standards
The Johannesburg Stock Exchange (JSE) mandates listed companies to produce integrated reports, which encompass sustainability disclosures, in accordance with the King IV Report on Corporate Governance. At present, there is a growing trend towards mandatory disclosure, underscores the increasing importance placed on transparency and accountability in South African banks’ ESG practices. Such regulatory shift aims to not only ensure that South Africa remains competitive in the changing global economy but also work to standardise reporting quality and ensure that stakeholders have access to consistent and comprehensive information about companies’ sustainability efforts.
The quality of sustainability reporting by South African banks is paramount and ranks in equal, if not more, importance than the action that the companies take to implement their respective sustainability strategies to address issues related to nature, human capital and broader society, as well as the adeptness of their corporate governance practices. A major step that many banks have taken to produce comprehensive, accurate, and transparent reports that are accessible for all stakeholders to assess the banks’ true sustainability performance is the adoption of both global and jurisdictional reporting standards and frameworks such as the Global Reporting Initiative (GRI), the Task Force on Climate-related Financial Disclosures (TCFD), and more recently the JSE’s Sustainability and Climate Change Disclosure Guidance.
Figure 1 Comparative analysis of banks’ alignment to global sustainability reporting frameworks
The variegated efforts to enhance alignment with international sustainability reporting standards within the banking sector play a monumental role in achieving good global standing and appeal to (international) investors, and in the same breath ensures consistency and comparability; this creates a robust foundation upon which the future of sustainability reporting practices among commercial banks in South Africa can be established.
Transparency in ESG reporting is as crucial for South African banks with ambitions to build trust and accountability as well as maintain a competitive edge, as the aforementioned efforts to align with international sustainability reporting standards. There is substantial evidence which suggests that independent third-party assessments of sustainability reporting can significantly benefit companies working hard to continuously improve the quality of their ESG/sustainability performance and reporting.
The Integrated Reporting & Assurance Services (IRAS) annual report on sustainable data transparency serves as a useful tool for benchmarking sustainability reporting effectiveness. The IRAS conducts an annual review of the ESG/Sustainability reporting of all the JSE-listed companies. The aim of the research is to identify which companies are meeting reasonable transparency and accountability expectations regarding material ESG impacts. The index measures and compares data related to 114 sustainability indicators:
- Standard disclosures − Refer to report assurance, a King IV checklist, alignment with the Global Compact or the Sustainable Development Goals (SDGs), etc
- Economic indicators – Refer to profitability as well as compensation practices
- Governance indicators – Refer to board composition, diversity, and skills
- Labour indicators – Refer to the number of employees, employee turnover, training spend, etc
- Health and safety indicators – Refer to hours worked, number and frequency of fatalities and lost time injuries, etc
- Environmental indicators – Address the consumption of water, energy, and waste and emissions data, etc, and
- Corporate social investment / socio-economic development indicators – Examples are the total rand value of spend, a breakdown in terms of focus areas, etc
Table 1 Results scored by commercial banks
Source: IRAS Sustainable Data Transparency Index Report 2023, p 114
Based on the above indicators, an assessment was made of how well Sustainable Data Transparency Index (SDTI) indicators were reported on by the companies researched. The table above shows the results scored by some of the commercial banks mentioned in this article. Moreover, it is designed to help establish areas of specific concern that may require additional support for companies wishing to enhance not only their reporting, but also their management of key issues.
Conferring with comparative analyses of this nature can in future helps uncover areas needing improvement, and set realistic, competitive goals. This process fosters a culture of continuous improvement and innovation, helping banks enhance their sustainability practices. In a sense, these analyses also offer a performance benchmarking for South African banks. Performance benchmarking is crucial for banks in South Africa as it allows them to measure their sustainability efforts against industry standards and peer institutions. In a rapidly evolving regulatory landscape, performance benchmarking ensures that South African banks remain at the forefront of sustainable banking practices, driving positive environmental and social impact.
The path forward for sustainable banking in South Africa
The sustainability journey of South African banks reflects a broader shift towards integrating ESG principles into the core of business operations, reflecting a deep commitment to environmental stewardship, social responsibility, and robust governance. As these financial institutions continue to enhance their reporting practices and align with international standards, they play a crucial role in driving positive environmental and social change. For stakeholders, this progress underscores the importance of monitoring and holding banks accountable, ensuring that the commitment to a sustainable future is steadfast and impactful.
South African banks’ sustainability efforts are not just a testament to their corporate responsibility but also a critical driver of long-term growth and stability. As the world grapples with environmental challenges and social inequalities, the banking sector’s leadership in ESG practices will be instrumental in shaping a more sustainable and equitable future.
Author
Belinda Carreira CA(SA), CCB.D is CEO at SustainableDNA and Usithandile Zikalala BA Hons (Labour, Economic & Development Sociology) is a consultant at SustainableDNA.
