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September 07, 2010
South Africa Proposes Code for Sustainable Investment by Institutional Investors
    by Robert Kropp

If adopted, South Africa will become only the second country to require attention to environmental, social, and corporate governance (ESG) by institutional investors.

South Africa was the site of one of the great triumphs of active ownership, when sustainable investors joined with university endowment funds and other entities to force companies to stop doing business with the country's apartheid regime by means of a widespread divestment campaign. By 1990, investment by US companies in South Africa decreased by $1 billion, leading to significant devaluation of the rand. Four years later, South Africa elected Nelson Mandela as its first black President.

Since then, South Africa has become one of the leading countries in the world in implementing principles of sustainable investment and corporate governance. The King Committee on Governance has required companies to issue sustainability reports since 2002, asserting, "It is vital that companies focus on integrated performance."

In June of this year, the
Johannesburg Stock Exchange (JSE) began requiring its more than 450 companies to produce integrated reports, and announced its collaboration with four other South African organizations in forming the Integrated Reporting Committee (IRC) to issue guidelines on good practice in integrated reporting.

Now, the role of institutional investors in furthering sustainable investment has come into focus in South Africa, as the
Committee on Responsible Investing by Institutional Investors in South Africa has issued a Draft Code for Responsible Investing by Institutional Investors in South Africa.

The only other country with a code for institutional investors is the UK, where the
U K Stewardship Code was adopted in July of this year.

According to John Oliphant, chairman of the stakeholder committee that drafted the Code in South Africa, "Institutional investors have a critical role to play in making the overall corporate governance system effective, because they are in a position to influence and encourage the voluntary application of sound governance principles and practices by the companies in which they invest."

The Code consists of four principles. It requires institutional investors to develop policies for assessing a company's environmental, social, and corporate governance (ESG) fundamentals, as well as policies for implementing active ownership. It encourages institutional investors to promote implementation of the Code through collaboration, and requires institutional investors to report, on a quarterly basis, the extent to which they have adopted the Code.

The two-month comment period ends on October 31.


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