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September 19, 2013
South Africa a Global Leader in Sustainable Investment
    by Robert Kropp

Investment research by SinCo informs a new report on global best practice guidebook on sustainable investment and the incorporation of ESG factors by pension funds.


South Africa is considered to be a developing nation, but in several key ways the nation can be considered a leader in the uptake of sustainable investment as well. In 2010, the the Johannesburg Stock Exchange (JSE) began requiring its more than 450 companies to produce integrated reports. The JSE was also an early collaborator in the formation of the International Integrated Reporting Council (IIRC), which seeks to provide a globally acceptable standard of integrated reporting in which environmental, social, and corporate governance (ESG) factors are included in corporate financial reporting.

South African initiatives since then include an updating of the nation's Pension Funds Act to explicitly allow for the consideration of ESG factors in investment decision making, as well as the development in 2011 of the Code for Responsible Investing in South Africa (CRISA). CRISA seeks to encourage collaborative engagement to better incorporate ESG factors in investment.

Most recently, the International Finance Corporation (IFC) and the Principal Officers Association of South Africa published Responsible Investment and Ownership: A Guide for Pension Funds in South Africa, a report intended to guide pension funds in implementing the updating of the Pension Funds Act.

Investment research for the report was provided by SinCo, a South African sustainable investment consulting firm.

“In 2011, the pension fund law of South Africa was amended to expressly adopt RI (responsible investment),” the report states. “This represented a fundamental shift in investment philosophy—no longer can pension fund trustees only assess financial return in honoring fiduciary duties.”

However, the report continues, “The regulatory instruction...does not include detailed guidance.” While the report does not prescribe the ESG issues that are material for southern Africa, it does provide “information and assistance for each fund to start the RI journey with a high degree of discretion.”

The guide includes instructions on developing and implementing a sustainable investment policy, and an outline of best practice for disclosure of the policy. Deadlines for the uptake of specific steps are provided for a three-year period ending in 2016 as well.

“The Guide will empower pension funds to be active promoters of sustainable development in the region, to ensure sustainable financial returns for members, and become global leaders in the shift to responsible investing,” the authors state.

“It is up to institutional investors managing South African pension funds and unit trusts to proactively consider ESG factors,” said Graham Sinclair of SinCo. “Without active stewards, professional asset management has little incentive to test the merits of key ESG issues, like corruption, water scarcity, acid mine drainage, reducing carbon pollution, job creation and enterprise development, or the pros and cons of fracking in the Karoo.”

The United Nations' Principles for Responsible Investment (PRI) has acknowledged the prioritization of sustainable investment in South Africa by locating its annual PRI in Person conference in Cape Town this year.

“Africa is flourishing,” PRI stated. “Life expectancy rose by a tenth in the past decade and foreign direct investment has tripled. Consumer spending will almost double in the next ten years; the number of countries with average incomes above US$1,000 per person a year will grow from less than half of Africa’s 55 states to three-quarters.”

“To celebrate this and to connect to one of its most vibrant regional networks,” the global investor initiative continued, “PRI is holding its annual event in Africa for the very first time.”

 

 
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