In January 2021, an Explanatory Notice issued by the B-BBEE Commission explained that more supporting evidence for B-BBEE claims must be submitted. This was further supplemented by EXPLANATORY NOTICE 02 OF 2021 dated September 2021.
Explanatory Notice 1 and 2 of 2021, entitled “Guidelines for Completing the Compliance Matrix for Submission of a Compliance Report in terms of section 13G(1) and (2) of the B-BBEE Act” were published and follow on from two previous guidelines, Explanatory Notices 02 of 2017 and 01 of 2018, respectively.
The legislative framework
Section 13G of the B-BBEE Act requires government, public entities and organs of state to report on their compliance with B-BBEE in the audited financial statements and annual reports required under the Public Finance Management Act, No. 1 of 1999.
Public companies listed on the Johannesburg Stock Exchange must report to the B-BBEE Commission on their B-BBEE compliance using the prescribed form.
B-BBEE Regulation 12 specifies annual compliance reporting duties. It requires a report by the above entities to the B-BBEE Commission on their verified state of compliance with the key elements of B-BBEE: Ownership, management control, skills development, enterprise and supplier development and socio-economic development. They must also report on any other sector specific element, as well as the extent to which each element contributes to the entity’s scorecard.
The B-BBEE Commission will consider the report within 90 days of receipt and highlight areas of improvement, if any. If the entity is not compliant with the B-BBEE Act, the B-BBEE Commission will notify it, and require the filed report to be corrected and the entity to comply with the requirements of section 13G of the B-BBEE Act within 30 days. If the entity fails to comply with section 13G of the B-BBEE Act, the B-BBEE Commission will reject the report, indicating reasons for the rejection. The B-BBEE Commission may allow the non-compliant entity to appear before it for a private or open meeting, to respond to questions from the B-BBEE Commission as part of the consideration of the report, or to take advice from the B-BBEE Commission.
Section 10(4) of the B-BBEE Act requires enterprises which operate under Sector Codes published under section 9 of the B-BBEE Act to report to the relevant Sector Council annually on the state of their B-BBEE compliance. The sector charter councils report to the Minister of Trade and Industry on the state of compliance. The Minister submits these sector charter council reports to the B-BBEE Commission, which will respond to the Minister on the state of compliance and any required improvements.
Explanatory Notice 02 of 2017 sets out a compliance matrix to be completed by entities (in addition to Form B-BBEE 1), as part of the required annual compliance report. It requires that each category of each measured element (percentage; number; race classification; gender; age; location; and disability, of black persons) must be specified, accompanied by any relevant document, when filing the mandatory compliance report.
Explanatory Notice 01 of 2018 confirms that the main purpose of compliance reports is to monitor B-BBEE compliance in the public and private sectors for the extent and speed of transformation, as well as the extent to which black persons benefit economically from broad-based schemes. This Explanatory Notice requires that annual financial statements should include B-BBEE performance as a section with reference to the annual report forming part of “B-BBEE Compliance Performance Information”. It expands on Explanatory Notice 02 of 2017 and requires disclosure of the value of benefits accrued to black persons.
Explanatory Notice 01 of 2021, “Guidelines for Completing the Compliance Matrix for Submission of a Compliance Report in terms of section 13G(1) and (2) of the B-BBEE Act”, only provides guidance to government, public entities, organs of state and JSE-listed companies for completing the compliance matrix for their annual report. It does not guide Sectoral Education Training Authorities, but the prior two Explanatory Notices do.
The reporting metrics in the 2021 explanatory notices include those of the prior notices as discussed above and drill further into detail around procurement, including identities of B-BBEE compliant suppliers, their B-BBEE status, ownership, nature of procurement and total spend with each entity. Procurement support for exempted micro enterprises and qualifying small enterprises is also highlighted, as in Explanatory Notice 01 of 2018.
The compliance matrix is intended to enable the B-BBEE Commission to determine the extent of B-BBEE implementation, so that it can effectively measure the levels of transformation within the context of B-BBEE.
The B-BBEE Commission stated that if a reporting entity fails to provide the information outlined in the reporting matrix, it will contravene the B-BBEE Act and the annual B-BBEE compliance report is likely to be rejected.
The extent of the detail now required to be provided in the annual compliance report has grown significantly since the initial compliance matrix was published by the B-BBEE Commission under Explanatory Notice 02 of 2017. The market has complained that these additional reporting obligations are onerous and unclear, particularly in relation to the status of B-BBEE compliance of JSE-listed companies.
Explanatory Notice 01 of 2021 stipulates that, “….where the categories in question have been claimed by the measured entity on its scorecard, the information must be provided as that information must be readily available as supporting evidence of the claims.”
The B-BBEE Commission provides an additional check on transformation of entities through this compliance reporting process, supplementing the audit function of verification agencies. Through the compliance reporting process, the B-BBEE Commission is able to draw out transformation trends in the market across each measured element, drilling into demographic detail. It can report on these trends and make recommendations for improvement at entity and market level.
On the prescribed Form B-BBEE 1, all spheres of government, public entities, organs of state and JSE listed entities are required to indicate specific information in line with their B-BBEE scorecard, and in addition to indicate how each element contributes to the outcome of the scorecard submitted. To simplify the requirement, the compliance matrix has been developed to guide the required information. All spheres of government, public entities, organs of state and JSE listed entities are required to provide information on the compliance matrix.
Ownership and Management Control Elements
(a) Breakdown of race, gender and age indicators of the black shareholders, directors and managers as per the relevant scorecard.
(b) The information provided for management control, must be the same information submitted to the Department of Labour for employment equity reporting and must be written using percentages.
(c) Indicate dividends declared in Rand value.
(d) Information relating to ownership is only applicable to JSE listed entities and not to be completed by all spheres of government, public entities and organs of state except if such entities have disposed of part of the government ownership.
Skills Development Element
(a) Value of the 6% or 3% of leviable amount identified for skills development of black people. This amount excludes the skills levy contributed to the Sectoral Education Training Authority through the South African Revenue Services.
(b) Percentage of black persons trained per race classification, gender, disability and value thereof against each category.
Enterprise and Supplier Development Element
(a) Indicate the number of all B-BBEE compliant suppliers, type of enterprise as to whether it is an EME, QSE or generic entity, percentage of black ownership, percentage of black women ownership, percentage of designated group, and total spend with each category.
(b) Number of all black owned or black women owned EMEs or QSEs the measured entity supported under enterprise and supplier development and value thereof in each category, with a breakdown according to level of black ownership and black women ownership.
Socio Economic Development Element
(a) The value the measured entity has spent on socio-economic development.
(b) Number of all black participants supported in terms of race classification, gender, and value thereof.
What to do if you do not have the required information?
In the event that a measured entity (all spheres of government, public entities, organs of state and JSE listed) does not have the information required to categorise according to youth, women or people with disabilities on the basis that it does not claim recognition for such categories on its scorecard, it is advised to record zero under the applicable field.
Where the categories in question have been claimed by the measured entity (all spheres of government, public entities, organs of state and JSE listed) on its scorecard, the information must be provided as that information must be readily available from the supporting evidence of the claims.
Where a measured entity is not able to provide the information required, it must record zero on the matrix and provide a formal written reason for the absence of the information with regard to each such field.
In line with regulation 12 (15), the B-BBEE Commission may conduct a site visit to verify the correctness of the information submitted.
In the event that the B-BBEE Commission suspects violation of the B-BBEE Act, it may initiate its own investigation as permitted by section 13F (1) (d) read with section 13J (1) of the B-BBEE Act to determine if there is any violation of the Act.