BUSINESS LAW & TAX ESG no longer a pleasant nice-to-have

Verushca Pillay

Baker McKenzie

Environmental, social and governance (ESG) has been incorporated into PE funds’ general investment considerations for several years now, but it’ s fair to say that it is no longer a nice-to-have Projects focusing on clean energy, community healthcare, green transport, sustainable water, wildlife protection and low-carbon developments, for example, are attracting much attention Investors have been prioritising investments that meet acceptable ESG standards Energy efficiency, staff training and qualifications, greenhouse gas emissions, highest standards of governance and best business practices, social impact and litigation risks are some factors they have been considering

Alongside the increased equity investor focus on ESG, some lenders are also prescribing particular ESG principles that a company must meet to receive funding

There have been, among other things, ongoing concerns about the extent to

Empowerment Commission publishes an BBBEE trends report that considers, among other things, whether there has been an improvement in black ownership of assets in the country

Its report for 2021 showed a decline in compliance and a drop in black ownership of businesses

The ownership information was based on data derived from annual compliance reports submitted to the commission by JSE-listed entities, organs of state and public entities, and verifications certificates voluntarily submitted by verification agencies state of affairs is actually unclear

The commission also highlighted that a potential cause could be the effect of the Covid-19 pandemic and that it would conduct a separate investigation into this of BBBEE violations by establishing a specialised tribunal which broad-based black economic empowerment (BBBEE) implementation has made a meaningful change to the representation of black people in the economy

Each year, the BroadBased Black Economic

However, the commission indicated that there had been a decrease in the submission of compliance reports and that its report was not based on sufficient information

So while it has indicated there has been a decline in black ownership, the true

It also expressed the view that a contributing factor to the noncompliance is the fact that the BBBEE Act does not provide for consequences in the event of noncompliance with reporting requirements

As a result, the commission has recommended that the BBBEE Act be amended to include administrative penalties and criminal sanctions for noncompliance

Separately, it also wants to provide speedier resolution

Taxing Matters

The amendments suggested by the commission are not expected to have an effect on investment in SA They are fairly limited in nature and aimed at compelling compliance with the regulations and also resolving BBBEE disputes more quickly

If other amendments are proposed, one would have to consider the potential impact on investment

Generally speaking, investors are already well prepared for black ownership requirements when investing in SA In fact, it is seen as a positive by most investors who prioritise sustainability

A study conducted by Ruhr University, namely ”The Impact of Black Economic Empowerment on the Performance of Listed Firms in South Africa” (Bussea et al), examined how BEE affects turnover, profit and labour productivity of companies listed on the JSE

Overall it was found that BEE had a positive impact on firms’ turnover and a positive but not robust effect on labour productivity

BEE is a particularly SA ESG factor which continues to require sustainable forms of implementation to have an effect and to in turn assist businesses to increase their turnover and ensures that they are sustainable