Nedbank Green Index to be rebalanced to reflect improved green performance by SA companies
According to Nerina Visser, Head of Beta Solutions for Nedbank Capital, while this is excellent news for South Africa’s fledgling green economy, it also means that the rules governing inclusion of SA companies in the Nedbank Green Index need to be adjusted if the Index is to continue delivering on its dual mandate of serving as an effective benchmark for environmentally conscious investors, while encouraging more SA companies to raise their commitment to responding to climate change.
“Companies are selected for inclusion on the Green Index based on their commitment to, and performance on, responding to climate change, as well as their levels of disclosure concerning their activities,” Visser explains, “which means that as the overall levels of performance and disclosure by SA organisations improves, the Index needs to be rebalanced to ensure it is still stretching the environmental commitments of those companies selected for inclusion in it.”
Amy Underwood, a transactor in Global Markets at Nedbank Capital agrees, and points out that stretching the requirements has resulted in a number of changes to its constituents – most notably the future exclusion of MTN, Arcelor Mittal, Liberty Holdings, Murray & Roberts, Northam Platinum, PPC, Spar and WBHO.
“Had the Index rules remained the same, only one of these companies would have been dropped,” she explains, “however, the more stringent prerequisites for inclusion mean that they will now need to further improve their disclosure and performance levels in order to be reinstituted as Index members.”
Replacing these organisations on the newly rebalanced Index are African Rainbow Minerals, Absa, African Bank, Discovery, Grindrod, Royal Bafokeng Platinum and Lonmin, which returns after being the only company dropped last year.
Despite the more stringent Index rules, Underwood points to a number of constituents showing marked carbon performance improvements, most notably African Bank, Anglo American, Grindrod and Tongaat Hulett – all of which have risen by two or more performance bands on the Index.
According to Nico Kruger, executive for renewable energy and sustainability at Tongaat Hulett, the improvement in the standing of the organisation on the Nedbank Green Index is an important validation of the hard work and commitment that the business has put into enhancing its environmental sustainability efforts over the past three years.
“Tongaat Hulett is continuing its sustainability journey with transparent measurement and reporting of its performance. The setting of new targets across the business’s key sustainability dimensions is further enabling Tongaat Hulett to improve its performance in this very important area”.
At the top of the Index, we have also seen the bar being raised with the number of companies achieving an A in performance rising from two to six. This is at the same time as CDP has raised the requirements for achieving an A. Gold Fields, Mondi, Anglo American, Barloworld, FirstRand and Woolworths have all attained this high standard.
Justin Smith, head of sustainability at Woolworths explains that while the organisation’s sustainability commitments are not aimed at achieving Index membership, being included on the Nedbank Green Index offers its stakeholders compelling proof of Woolworths’ continued dedication to sustainability leadership.
“It’s really important that investors have an opportunity through the Nedbank green index to support companies that are trying to manage long term risks and opportunities through their sustainability programmes.”
The effectiveness of the Index as a vital guide for environmentally conscious investors was confirmed by the recent Responsible Investment for Carbon Change and Water study conducted by WWF-SA, which showed the Nedbank Green Index as having a carbon footprint that is 15% smaller than that of the FTSE/JSE top 100 companies and highlighted it as one of the “few sources of credible, publicly available data for passive investors to use in developing sophisticated investment strategies.”
The primary tool by which investors can access the Nedbank Green Index is the BGreen Exchange-Traded Fund offered through Beta Solutions. The Fund recently celebrated its first birthday after being listed on the Johannesburg Stock Exchange during COP17.
According to Visser, this type of feedback from the Nedbank Green Index members and independent research bodies, serves as an affirmation of its continued effectiveness as a focal benchmark for responsible investment and a valuable incentive for South African organisations to continue building on their environmental sustainability commitments.
“While the need to comply with increasing amounts of environmental legislation is undoubtedly a driver of the ongoing performance improvements by SA businesses,” she says, “by balancing rules-based compliance with a desire-driven incentive like inclusion on the Green Index, this will undoubtedly encourage even greater environmental performance and disclosure improvements going forward.”
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