GRI and SRI: acronyms for investor success?
Date
2014-03-06
Authors
Labuschagne, Zani
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Abstract
The global move towards sustainability and sustainability reporting, the rise and influence of the Global
Reporting Initiative (GRI) and triple bottom line reporting, together with the launch of the King III Report, and
revision of the Johannesburg Stock Exchange (JSE) listing requirements in South Africa, both requiring the
preparation of an integrated report, have resulted in a uniquely altered information environment, in which
investors are required to make investment decisions. The value-relevance of this new sustainability
information is however to date untested in a South African context.
The introduction of the Social Responsible Investment (SRI) Index in South Africa provides a unique
opportunity to evaluate the value-relevance of such new reporting. This research report tests the GRI, using
the SRI Index as a proxy, to determine whether this accepted reporting standard is recognized as being valuerelevant,
from both a short term and long term perspective, on the JSE over the period 2004 to 2012. The
short term value-relevance is tested using cumulative average abnormal returns in an event study
methodology, while the long term effect was investigated using a 4-tiered portfolio construction technique,
which uses the SRI Index category rankings to define the portfolios.
The results indicate that true to the long term nature of sustainability information, in the short term the
quality of sustainability and sustainability reporting has no effect on the market value of a company. However,
in the long term, a positive effect was found where the SRI listed portfolio, and the SRI best performer
portfolio, significantly outperformed the non-listed portfolio on a consistent basis as measured using relative
performance. The SRI persistent best performer portfolio however underperformed all other portfolios. This is
however due to an overwhelming lack of diversification due to a low number of shares in the portfolio, as well
as the portfolio being severely overweight in resource shares, which tend to be the best reporters, due to their
large environmental impact. The research report therefore concludes that investing in a higher quality SRI/GRI
sustainability portfolio, as opposed to a lower quality portfolio, resulted in excess returns to the investors over
the period 2004-2012.
Description
Keywords
Corporate social responsibility, Global Reporting Initiative, King III report, Sustainability, Reporting standards, Portfolios, Johannesburg Stock Exchange