Responsible investing in South Africa

The new Code for Responsible Investing in South Africa becomes effective this month, but not many companies and investors have taken it up.

In his state of the nation speech in Cape Town at the opening of Parliament on Thursday, President Jacob Zuma promised to reduce the barriers to investment and doing business in South Africa, but what role will the new Code for Responsible Investing in South Africa play?

Ansie Ramalho, chief executive of the Institute of Directors Southern Africa (see more below), says compliance with the code is not all downside, adding that it holds benefits for South African companies and those who invest in them.

“If a responsible approach is taken, one can generate benefits,” she said in an interview on Summit TV on Thursday, “but life is not only about financial benefits – if we don’t start becoming more responsible about how we do business, and investors sway business one way or another, we may end up in a situation where there is no planet.”

Ms Ramalho said responsible investing as set out in the code needed a mind shift among business leaders.

“Companies should start with the policy – that clarifies the strategy to implement (the code). It’s about responsible investing and making sure that the companies you invest in as an institutional investor have good governance in place,” she said.

She said a competitive advantage could be gained from responsible investing, as the ultimate beneficiaries of pension funds were becoming increasingly aware of social and environmental issues.

Although critics of responsible investment principles might argue that it leads to poor investment performance, she said it was more about investing in a responsible manner with a long-term perspective.

“Investors are moving away from wanting to generate short-term returns to looking at the full financial, environmental and social impact in the longer term,” said Ms Ramalho.

She also pointed to research that found that the financial returns of investment with a more enlightened approach would follow in the longer term.

“Generating profits in the short term often sacrifices returns in the longer term – it makes sense all round to make a complete mind shift in terms of how businesses generate value,” she said.

Ms Ramalho said uptake of the code had not been as high as she had expected since it was launched last year, but that she was not in favour of regulation. “Being forced to implement is not the way we want to go,” she said, “because then we lose flexibility and the considered application route.”

Although Pravin Gordhan, minister of finance, warned at the launch of the code that if it was not taken up, voluntarily regulation might follow, Ms Ramalho said she was confident that there was willingness on the part of companies and investors.

“The committee that drafted this code was representative of the major players in the industry – the Government Employees Pension Fund, the Public Investment Corporation and representatives of the major asset and fund managers – but implementation is a challenge,” she said.

Institutional investors that want to implement the code make a public commitment to responsible investing through policy statements and guideline documents.

“We saw February 1 come and go,” said Ms Ravalho. “There are many institutional investors that still do not have policies and guidelines up on their websites, but it’s a fairly complicated process.”

Source: Business Day

Institute of Directors Southern Africa

The Code for Responsible Investing in South Africa (CRISA), launched last year, is due to take effect on 1 February 2012. It means that from next month, institutional investors such as pension funds and insurance companies, as well as their service providers (asset and fund managers and consultants) will have to disclose in their reporting to stakeholders the extent to which the code has been implemented.

CRISA aims to promote sound governance by providing guidance as to how institutional investors should embark upon responsible investment policies, practices and engagement with investee companies. Application of the code is voluntary and there is no mechanism for becoming a formal signatory to it. Just like the King III Code on Corporate Governance, it works on an “apply or explain” basis.

However, as Jurgen Boyd, Deputy Executive Officer of the Financial Services Board, points out CRISA is supported by legal measures such as Regulation 28 of the Pension Funds Act. It is also anticipated that stakeholders will feature prominently in persuading institutional investors to follow CRISA’s recommendations. Speaking at the CRISA launch in July last year, Finance Minister Pravin Gordhan warned that if CRISA is not adhered on a voluntary basis, more regulation may be considered.
According to John Oliphant, Chairman of the Committee responsible for drafting CRISA, institutional investors who have not prepared for CRISA may be unable to meet its disclosure requirements.

“Environmental, social and governance matters are mainstream, not peripheral, investment considerations especially at a time when the world is facing serious sustainability challenges. As long-term investors and fiduciaries, institutional investors have the responsibility to ensure that we invest in a way that promotes long-term sustainability.”

Leon Campher, Chief Executive Officer of the Association for Savings and Investment South Africa (ASISA), which represents an industry that holds assets under management of more than R4-trillion agrees. “Generating value on a sustainable basis is no longer about picking investments that ‘shoot the lights out’ in the short term.  Particularly longer-term investment mandates demand sustained performance and an organisation’s ability to create value over the longer term is materially affected by its relationships and impact on all stakeholder groups, including the environment.”

Ansie Ramalho, CEO of the Institute of Directors of Southern Africa (IoDSA), believes CRISA is an opportunity for boards to start aligning their companies with the long-term trends that are transforming the global business environment. “We believe CRISA is a source of competitive advantage. It’s no mistake that its first principle positions this approach as ‘the delivery of superior risk-adjusted returns’,” she says.

As such, CRISA advocates a holistic approach that is both responsible and sustainable. “It is therefore not primarily about ethical investment in the sense of setting aside a portion of the portfolio for this purpose whilst the balance is applied towards generating financial returns,” she adds.

CRISA requires public disclosure of the following:
• Explanation of the extent to which CRISA is applied and if not, why
• Publication of policy on incorporation of sustainability considerations into investment analysis and activities; voting and other ownership responsibilities; management of conflict of interests
• Explanation of how the commitments expressed in the policies are implemented and monitored
• Disclosure of processes implemented to ensure that service providers of asset owners apply CRISA, as well as the requirements of the asset owner’s policies.

The IoDSA, the Principal Officers Association, the Association for Savings and Investment South Africa, the Financial Services Board and the Johannesburg Stock Exchange have endorsed the Code.

Download the Full Code

Source: Institute of Directors of Southern Africa