Environmental and social governance article 21. Introduction

Environmental, Social, and Governance (ESG) reporting in South Africa can be complex, especially given the multitude of global frameworks and standards. Despite these challenges, South Africa has been intentional and forward-thinking in adopting voluntary ESG standards (BR-AG, 2024). Several factors drive this proactive stance, including investor demands, influence from international regulations such as the European Union’s (EU’s) Corporate Sustainability Reporting Directive (CSRD), corporate reputational concerns, and pressures from conscious consumers (BR-AG, 2024).

South Africa has already implemented measures like carbon tax, a national minimum wage, energy-efficiency standards, the Climate Change Bill (October 2023), and regulations under the Pension Fund Act (Davids et al., 2024). The Financial Sector Conduct Authority (FSCA) urges incorporating ESG factors into asset evaluation. Other influential voices include non-governmental organizations, impact investors, trade unions, and the National Treasury (SARB) (Davids et al., 2024).

2. Disclosure Submission Requirements

Important recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD) and the International Sustainability Standards Board (ISSB) are being integrated into the Financial Sector Regulation Act (2017), specifically the Governance and Operational Standards for Insurers (GOI). They focus on:

Physical and Transitional Climate-Related Threats

  1. Physical risks: Extreme weather events and related economic consequences.
  2. Transitional risks: Financial challenges in transitioning to a lower-carbon economy (Tshazibana, 2024).

Roles and Responsibilities

  1. Clear directives for Boards and senior management to integrate climate risks into governance, strategy, and targets (Rapson et al., 2023).

Data Generation and Internal Audits

  1. Insurers must produce verifiable climate-related data and may need specialized expertise for audits (Tshazibana, 2024).
  2. Transition plans toward lower-carbon operations are also required.

The Prudential Authority (PA) has advised insurers to reflect climate risks in their Own Risk Solvency Assessment (ORSA) framework, with a minimum three- to five-year modelling period (Tshazibana, 2024). Non-compliance could expose companies to legal risks (Rapson et al., 2023).

Separately, the Companies and Intellectual Property Commission (CIPC) draws heavily on the EU’s taxonomy for ESG disclosures. Reporting is currently voluntary from the fourth fiscal quarter of 2023 but will become mandatory for public- and state-owned enterprises in 2025 (DataTracks, 2024). Additionally, companies must use eXtensible Business Reporting Language (XBRL) for standardized digital reporting, enabling effective cross-analysis (BR-AG, 2024). The Green Finance Taxonomy, published in April 2022, has also been developed as a common vocabulary to identify and classify investments that align with specific ESG standards and can be used in this regard (DataTracks, 2024).

3. Entities Required to Submit Reports

Per the Companies Act (2008) and the Companies Regulations (2011), the following must produce ESG reports:

  • State-owned companies
  • Public companies listed on an exchange
  • Non-profit companies performing a statutory or regulatory function
  • Private companies with a high public interest score or fiduciary assets above R5 million (Mitchell, 2024)

Banks, foreign bank branches, controlling companies, eligible institutions, auditors of banks or controlling companies, and insurers also fall under these requirements (Rapson et al., 2023). JSE-listed companies must follow King IV standards (Anstey, 2024), and the Johannesburg Stock Exchange mandates certain climate disclosures.

4. Generating the Reports

South Africa recognizes the ISSB as a prominent authority, specifically adopting the S1 and S2 standards of the International Financial Reporting Standards (IFRS) Sustainability Taxonomy (BR-AG, 2024). The CIPC’s “2024 Final CIPC taxonomy,” released in October 2024, guides structured ESG reporting (BR-AG, 2024). Locally, many organizations use CRISA 2 and King IV, along with international frameworks such as Global Reporting Initiative (GRI), TCFD, and the Task Force on Nature-Related Financial Disclosures (TNFD) (Anstey, 2024).

5. The Problem with Greenwashing

Greenwashing occurs when companies make unsubstantiated or misleading claims about their ESG initiatives. A notable case involved TotalEnergies, which was found guilty of greenwashing by the Advertising Regulatory Board (ARB) (Doris, 2024).

No single authority in South Africa directly oversees greenwashing. However, the Consumer Protection Act (CPA) allows for challenging deceptive claims, while the ARB and the South African Bureau of Standards (SASB) offer guidelines (Msimang & Tucker, 2023; Rapson & Versfeld, 2022). Companies risk civil liability, fines, and reputational damage for non-compliance or for making unethical claims—potentially up to 10% of annual profit (Msimang & Tucker, 2023).

6. Future Expectations

Banks and insurers are already urged by the PA to integrate climate-related risks into governance, strategy, risk management, and disclosure (Rapson et al., 2023). Insurers carry particular responsibility, given their role in risk assessment, capital stewardship, and potential influence on asset valuations (Rapson et al., 2023). Overall, regulators expect businesses to go beyond mere compliance, aligning themselves with global standards and South Africa’s net-zero commitments (PA, 2024).

Summary

South Africa is steadily moving toward mandatory ESG reporting, driven by investor demands, regulatory developments, and heightened public scrutiny. Key regulators, including the FSCA, the PA, and the CIPC, have introduced guidelines based on leading global frameworks such as TCFD and ISSB. Public, state-owned, and high-impact private companies must disclose climate-related and sustainability risks, with mandatory reporting set to take effect as early as 2025 for certain entities. Insurers and banks face additional obligations under updated governance and operational standards that require thorough climate risk assessment and the integration of ESG considerations into their strategies. Meanwhile, the rise of greenwashing cases underscores the importance of accuracy and transparency in sustainability claims. Overall, South Africa’s ESG landscape is dynamic, with increasing expectations for corporate accountability and alignment with international standards.

Disclaimer: This article provides general information and does not constitute legal or professional advice.

References

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