In South Africa, which is regularly touted as the most unequal country in the world, regulators and investors should be concerned about the differences in pay between senior executives and those in the lower salary ranges of an organisation.
Excessive executive remuneration has become a global symbol of inequality. The vast pay packages of boardroom bosses have stoked public anger and shareholder discontent, especially when these packages appear to be disconnected from the performance of the companies they run.
Fair and responsible remuneration
King IV emphasises that “the remuneration of executive management should be fair and responsible in the context of overall employee remuneration. It should be disclosed how this has been addressed. This acknowledges the need to address the gap between the remuneration of executives and those at the lower end of the pay scale”.
Disclosures providing information about directors’ remuneration would be much more useful if they were provided in the context of overall employee remuneration. This context would also enable shareholders to determine whether the remuneration of the lowest paid workers is a “real living wage”, allowing them to maintain a dignified standard of living.
What is a living wage?
A living wage can be defined as a socially acceptable minimum wage that seeks to ensure that employees are able to live in dignity. This includes being able to afford a balanced diet and provide children with a decent education. This is different from a minimum wage which is defined as a statutory minimum that all employers must pay.
Why advocate for a living wage?
A minimum wage can create a class of the “working poor”, i.e. people who are employed, but who do not earn enough to provide decent and dignified lives for themselves and their dependents. Failure to pay a living wage perpetuates the cycle of poverty.
Climate change is possibly the greatest challenge of our time. Just Share is catalysing and supporting the use of investor power to build awareness of climate change risks, to stimulate shareholder action to address them, and to accelerate South Africa’s transition to a low-carbon economy.
Why climate change?
The United Nations secretary general, Mr António Guterres, recently described climate change as “the most systemic threat to humankind”. Its impacts are already being felt across the globe, and while climate change will affect all of our lives, these impacts fall disproportionately on the world’s most vulnerable populations.
Tackling climate change and its effects requires globally co-ordinated action and a global shift in thinking. It is particularly in the energy sector that this shift needs to occur, given the sector’s substantial contribution to global carbon dioxide emissions. Put simply, we need to drastically reduce our reliance on fossil fuels.
The Paris Agreement
Recognising the need to respond to the global threat of climate change, representatives from across the world entered into the Paris Agreement on 2 December 2015 1. The Paris Agreement’s aim is to keep the global temperature rise this century to well below 2°C above pre-industrial levels, and to pursue efforts to limit the temperature increase even further to 1.5°C. Today, 175 out of 197 parties have committed to taking action to help curb global warming 2.
The contributions that each country should make to achieve the worldwide goal set by the Paris Agreement are determined by each country itself and are called “Nationally Determined Contributions” (NDCs) 3. South Africa’s Intended Nationally Determined Contribution (INDC) provides that “South Africa’s emissions by 2025 and 2030 will be in a range between 398 and 614 Mt C02-eq, as defined in national policy”. South Africa’s INDC does not set out an absolute trajectory, though it does refer to an intention for emissions to start to decline from 2035.
In reality however, South Africa is forging ahead on a GHG trajectory that is incompatible with the 2°C global goal, let alone the Paris Agreement’s 1.5°C limit. Following the current trajectory, South Africa is aligning with a 3-4°C rise in temperatures 4.
The role of the investment industry
Despite the clear goals of the Paris Agreement, and the urgent need for each country to put in place the necessary plans to curb its emissions urgently, our current pace of progress is too slow and the threats of climate change are becoming ever more critical. It has become clear that we cannot sit back and rely on political will alone to address this threat: the world’s financial institutions, pension funds, asset managers and individual shareholders have a vital role to play.
There are many reasons why progress has been slow. Much of our lives is built around a system that extracts and uses fossil fuels in a particular way. Many of the world’s most powerful companies are fossil fuel extractors. Vested interests, both economic and political, and insufficient individual action, ensure that the status quo is maintained, preventing the transition to a low-carbon economy at the rate that we need it to happen to avoid catastrophic climate change.
A lot of work has gone into determining what the Paris Agreement means for the world’s existing and proposed coal plant projects. In 2016, Climate Analytics 5 calculated the global coal plant budgets from 2017 to 2050 for the 1.5 and 2°C scenarios under the Paris Agreement.
To meet the 1.5°C scenario, all current coal plant developments must be cancelled and much of the existing fleet must be retired before reaching 40 years of age.
Even under the less ambitious 2°C scenario, higher cancellation rates for coal plants in the planning and construction phases is required, and there must be accelerated retirement of coal plants 40 years of age or older 6.
Research published in the journal Nature found that a third of oil reserves, half of gas reserves and over 80 per cent of current coal reserves should remain in the ground in order to meet the target of 2°C 7. This would mean abandoning new fossil fuel development.
Despite South Africa’s abundance of renewable energy sources, our electricity grid is fed almost entirely by electricity generated from coal-fired power stations (90% of South Africa’s electricity) 8. If South Africa is to meet its commitments under the Paris Agreement, the country must urgently transition away from its reliance on coal.
The financial system has a crucial role to play in this transition. Financing or investing in coal exposes banks and shareholders to high-risk projects which may well become “stranded assets” in the near future (i.e. incapable of meeting their economic life as a result of regulatory, economic, or physical changes associated with climate change and a transition to a low-carbon economy) 9. Energy planning that is not commensurate with the global mitigation goal and that irrationally seeks to perpetuate reliance on coal, simply because we have the ‘resource endowment’, must be challenged by investors.
Just Share catalyses investor power to accelerate the transition to a low-carbon economy. This campaign connects investors and financiers with the information needed to make informed and responsible investment decisions that promote long-term value creation. We support shareholders in their engagement with asset managers and the companies in which they invest, through research, advocacy, shareholder resolutions, and, where necessary, litigation to compel systemic change.
- http://climateactiontracker.org/countries/southafrica.html (“Fair share”)
- Christine Shearer et al, Boom and Bust 2018: Tracking the global coal plant pipeline, page 7, available at: https://endcoal.org/wp-content/uploads/2018/03/BoomAndBust_2018_r6.pdf
- Lucy Baker, Post-apartheid electricity policy and the emergence of South Africa’s renewable energy sector, at page 1. See also: http://ieefa.org/south-africas-state-utility-company-self-styled-extinction/
Diversity & Transformation
Despite two decades of regulatory attempts to improve corporate diversity, including JSE Listing Requirement 3.84 which requires listed companies to develop policies to advance race and gender diversity at board level, the boards of listed companies in South Africa continue to be dominated by white men.
Employment equity is a human rights imperative, and it is critical for the achievement of sustainable development, economic growth and equality. With increasing calls for business to play a greater role in creating a more inclusive economy, boards must address the inequalities that persist in their organisations.
Economic benefits of diversity and transformation
Research shows that that there is a positive correlation between gender diversity in top management and organisational excellence, return on equity, operating results and share appreciation, and that leadership diversity strongly influences organisational performance and effectiveness.