Retirement reform has emerged as a key theme within the local retirement funds industry, yet at the same time responsible investing has also grown to become a global trend, with South Africa set to follow suit with responsible investing now also at the forefront of investor concerns.
This is according to Vuyolwethu Nogantshi, Head of Institutional and Consulting at Nedgroup Investments, who says the profile of shareholders has evolved over time to cover a broad spectrum of investors represented by institutional investors.
“This evolution means a broader representation of the issues among beneficiaries, and an increased responsibility of institutional investors towards them.
“At the same time, various social and communal issues have raised awareness that, through collective representation, shareholders can be a force for change in a positive manner within companies. This greater awareness of the importance of shareholder activism amongst investors has given rise to an entirely new focus on, and approach to, responsible investing for institutional investors.”
Incorporating environmental and social governance
Nogantshi says although there are a number of bodies worldwide representing the interests of members, they all have a common objective regarding responsible investing: to provide a framework that allows investors to incorporate environmental, social and corporate governance (ESG) issues into their decision-making and ownership practices and so better align their objectives with those of society at large.
According to Nogantshi, one such regulatory body – the United Nations Environment Programme – launched the United Nations Principles for Responsible Investing (UNPRI) in 2006.
“A group of 20 institutional investors from 12 countries devised the principles and both the United Nations Environment Programme Finance Initiative and the UN Global Compact backed the initiative.”
Closer to home, in addition to the ESG direction provided by Regulation 28 to South Africa’s Pension Funds Act, South Africa has also documented its own set of principles, which form the local equivalent of the UNPRI.
“The Committee on Responsible Investing by Institutional Investors in South Africa launched the Code for Responsible Investing in South Africa (CRISA) in 2011. The focus of the code is on ensuring investing in a way that promotes long-term sustainability and, although slightly different from the UNPRI, is an excellent foundation around which organisations can build their responsible investment philosophy,” says Nogantshi.
Nogantshi uses the table below to depict the six UNPRI principles alongside the five CRISA principles:
Nogantshi acknowledges the challenge of successfully implementing responsible investing currently faced by local asset managers and stresses that stakeholders need to find effective and measureable ways of addressing these complexities.
“While a set of practice recommendations accompanies the CRISA principles, there are also other industry initiatives that aim to alleviate the difficulties institutional investors face in aligning themselves to CRISA. Institutional investors will be well advised to take note of these,” he says.