BY Parusha Desai Valodia AND Sanjay Kassen
Clarity on B-BBEE annual reporting obligations for JSE-listed companies, but more is needed
Over the last few years, companies listed on both the primary and secondary market of the Johannesburg Stock Exchange (“JSE”), have been obliged to comply with increasingly onerous and often unclear reporting obligations in respect of the status of their transformation. On 3 February 2021, the B-BBEE Commission offered some clarity, however, there are still uncertainties that need to be addressed for many JSE-listed companies to overcome reporting challenges.
The B-BEEE Regulations, 2016
All JSE-listed companies are required to:
- submit an annual compliance report to the B-BBEE Commission on its compliance with B-BBEE (if any);
- load its annual B-BBEE compliance report on its website; and
- publish a SENS announcement confirming that its annual B-BBEE compliance report has been published and is available on its website.
The B-BBEE Regulations, 2016 which prescribe the manner in which a reporting entity must report on their B-BBEE compliance, state that a reporting entity must:
- complete and submit prescribed FORM B-BBEE 1;
- reflect the state of compliance with each of the elements of the scorecard; and
- reflect how each element contributes to the outcome of its scorecard.
This was a fairly simple process.
The Reporting Matrix
However, on 20 December 2017, the B-BBEE Commission issued an explanatory notice requiring all reporting entities to provide additional information as outlined in a compliance report matrix in the form required by the B-BBEE Commission (“Reporting Matrix”). This Reporting Matrix requires reporting entities to furnish additional information in respect of various B-BBEE elements, including the percentage of Black shareholders and the:
- race classification;
- location; and
- disability indication,
of such shareholders.
Companies faced various challenges in reporting on all of the information required by the Reporting Matrix, as such information is not required to be verified in the ordinary course of a B-BBEE verification. It is also not often possible to extract such information from Black shareholding recognised from mandated investments.
The 2021 Explanatory Notice
On 3 February 2021, the B-BBEE Commission issued a further explanatory notice (“2021 Explanatory Notice”), which takes effect on 1 April 2021, in an attempt to provide clarity on the manner in which to complete the Reporting Matrix.
To this end, the B-BBEE Commission has advised that if a reporting entity fails to provide the requisite ownership and demographical breakdown as outlined in the Reporting Matrix, such reporting entity will be in contravention of the Broad-Based Black Economic Empowerment Act, 2003.
Notably, the B-BBEE Commission will only permit a reporting entity to record “zero” under “geographical location, youth, women or people with disabilities”, if the reporting entity does not claim any B-BBEE points under the requisite category. While this may seem easy to comply with as entities often do not claim any B-BBEE recognition under many of these categories, it is still uncertain whether a reporting entity can claim Black ownership from, for example, mandated investments without providing the further ownership breakdown required by the B-BBEE Commission.
The failure to comply with the B-BBEE Commission’s reporting requirements as set out in the Reporting Matrix will likely lead to the rejection of the annual B-BBEE compliance report.
A such, while the 2021 Explanatory Notice has gone some way to clarify what reporting entities are required to do, we do not believe it has gone far enough and hope this does not lead to further challenges with annual B-BBEE compliance reports.
Please contact ENSafrica’s B-BBEE practice group if you require any assistance with your B-BBEE reporting.
Executive | Corporate and Commercial | B-BBEE practice group
+27 82 561 1509
Parusha Desai Valodia
Senior Associate | Corporate and Commercial | B-BBEE practice group
+27 82 560 4129