Moneyweb on 23 June ran a piece by Hanna Barry titled “Asset managers must invest responsibly, do yours?” While it is great that Moneyweb covers the growth of sustainable and responsible investment (SRI) in South Africa, the question remains: how do you know if your asset manager invests responsibly or not?
As we’ve noted before, South Africa has made great strides in the field of responsible investing through various initiatives. These include the Johannesburg Stock Exchange’s Socially Responsible Investment Index, which has improved disclosure; amendments to the regulations of the Pension Funds Act to require that they give appropriate consideration to environmental, social and governance (ESG) factors; and the establishment of the Code for Responsible Investing in South Africa (CRISA). These frameworks have contributed to South Africa being recognised as a leader in terms of responsible investing.
SRI not working as it should
But this omits another important actor in the sustainable investment ecosystem: the individual investors who, in addition to their investments in stocks or unit trusts, are the ultimate beneficiaries or owners of the assets in pension funds and insurance schemes. The Moneyweb article raises the question of “whether South African investors, asset owners like you and me, understand the issues and want to get involved”. Many South Africans are extremely concerned over issues of inequality (which is linked to executive remuneration), labour rights, environmental pollution and degradation and governance issues such as corruption. We have also seen some positive signs of individual investors starting to raise questions on these issues at company AGMs while, following the international trend, campaigns for divestment from fossil fuels are also taking off. Given the passion that many South Africans show for environmental and social causes, understanding and caring about ESG issues does not appear to be the major factor.
The power of individual investors
Look past the marketing…
…and ask questions
You can also check to see how well the asset managers of your various portfolios, whether within your pension or as part of wider investments, performs on its commitments to CRISA (that is, if it is a signatory). The CRISA Practice Notes calls for public disclosure to make the principles effective. Questions might include:
- Does the asset manager have and publicly disclose its policies on:
- Sustainable investing
- Ownership, such as proxy voting
- Conflicts of interest
- Does the asset manager disclose its proxy voting results and is this disclosure a summary or is it for each resolution? Are explanations or reasons given for the vote? How often are results disclosed?
- Does the asset manager disclose how it engages with the companies it invests in and the nature of each engagement?
If institutional investors are transparent about the content of their policies and how the policies are implemented, as required by CRISA, it should be relatively easy to gauge how well they are addressing the issues relating to sustainable investment. By assessing the quality of disclosure, asset managers can be compared and market leaders can then be identified. It should also be possible from comprehensive voting and engagement reports to build a picture of how an asset manager tackles complex issues ranging from executive remuneration to air quality standards.