South African businesses are required to show how they have transformed under BEE – but it’s getting complicated

Over the last few years, companies listed on both the primary and secondary market of the Johannesburg Stock Exchange have been obliged to comply with increasingly onerous and often unclear reporting obligations in respect of the status of their transformation.

The B-BBEE Commission has offered some clarity on these obligations, however, there are still uncertainties that need to be addressed for many listed companies to overcome reporting challenges, said law firm ENSAfrica.

The firm noted that currently 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.

In addition, the B-BBEE Regulations of 2016 prescribe the manner in which a reporting entity must report on their B-BBEE compliance. These 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;
  • Reflect how each element contributes to the outcome of its scorecard.

Complications

While this was a fairly simple process, ENSAfrica noted that in 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.

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 following details on such shareholders:

  • Race classification;
  • Gender;
  • Age;
  • Location; and
  • Disability indication.

“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,” ENSAfrica said.

“It is also not often possible to extract such information from Black shareholding recognised from mandated investments.”

2o21 notice 

On 3 February 2021, the B-BBEE Commission issued a further explanatory notice which takes effect on 1 April 2021

It attempts to provide clarity on the manner in which to complete the reporting Matrix, ENSAfrica said.

“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 natrix, such reporting entity will be in contravention of the Broad-Based Black Economic Empowerment Act.

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,” ENSAfrica said.

“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.” it said.

It added that while the 2021 notice has gone some way to clarify what reporting entities are required to do, it still has not gone far enough and which could lead to further challenges with annual B-BBEE compliance reports.

  • Commentary by Sanjay Kassen (executive) and Parusha Desai Valodia (senior associate) at ENSAfrica. 

Read: Tax hikes for South Africa this month – do we have any more room?

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South African businesses are required to show how they have transformed under BEE – but it’s getting complicated