IOL Money Dec 2021

IOL

MONEY DECEMBER 2021

INVESTING FOR SUSTAINABILITY

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CONTENTS FEATURES ESG: The 3 pillars of responsible investing

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Investing responsibly is the way of the future

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Cop26: the role of investors

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Stewardship: the quiet way in which investors are changing the world

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Companies failing to adopt ESG risk losing investors – PwC survey

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REGULARS Rands and Sense with Fran Troskie

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Money Basics with Martin Hesse: How you can contribute to a better world

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Fact File: UN principles of responsible investing

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Planning Perspectives with Palesa Tlholoe

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Important contacts and links

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FROM THE EDITOR

In the 21st century, I think the heroes will be the people who will improve the quality of life, fight poverty and introduce more sustainability.

– BERTRAND PICCARD

American playwright and screenwriter

CONTACT US PUBLISHER Vasantha Angamuthu vasantha@africannewsagency.com MONEY EDITOR Martin Hesse martin.hesse@inl.co.za DESIGN Mallory Munien mallory.munien@inl.co.za PRODUCTION Renata Ford renata.ford@inl.co.za BUSINESS DEVELOPMENT Keshni Odayan keshni.odayan@inl.co.za SALES Charl Reineke charl@africannewsagency.com ENQUIRIES info@anapublishing.com

In her fascinating book, Anthro-vision – How Anthropology Can Explain Business and Life, Gillian Tett, editor-at-large of the Financial Times, devotes a chapter to responsible investing. She suggests that the ESG movement (which is driving companies to consider environmental, social and governance issues) can be put down to a simple phenomenon: companies and the people that invest in them are moving from tunnel vision (focused purely on profits) to embrace lateral vision.

This is not a new revelation. A famous poem by the 16th century English poet John Donne, familiar to schoolchildren down the ages, reminds us that in whatever we do, there are consequences for others: “No man is an island entire of itself; every man is a piece of the continent, a part of the main ... any man's death diminishes me, because I am involved in mankind. And therefore never send to know for whom the bell tolls; it tolls for thee.”

Companies often ignore wider, longerterm negative consequences of their activities because they are so focused on short-term profits. They can’t continue doing that. The global investment community is demanding change and regulators are enforcing it. But above all, executives themselves are waking up to the fact that being socially and environmentally responsible and becoming more sustainable, apart from being good for the world in the broader sense, is actually good for the bottom line.

Martin Hesse

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ESG: THE 3 PILLARS OF RESPONSIBLE INVESTING The traditional capitalist notion that profit is all a company should worry about – as advanced by US economist Milton Friedman and proponents of his free-market approach in the 1970s and 80s – is dead. A softer, more “caring” capitalism has taken its place, which sees companies in the broader context of the human and natural environment in which they operate. The responsible investing movement, whereby investors are driving change, is based on three pillars: environment, social factors, and governance.

1. ENVIRONMENT A company must consider its impact on the environment and, if harmful, reduce it to within accepted norms.

The current focus, because of the urgency of climate change, is on carbon emissions, where almost all companies can make cuts.

But environmental impact goes much further: chemical pollution of rivers, degradation of natural wildlife habitats, deforestation, plastic pollution in our oceans ... companies need to take responsibility and “clean up” their act.

2. SOCIAL FACTORS A company has responsibilities to various groups of people, not just its shareholders. There are the company’s customers, its suppliers, its employees, and the people in the community within which it operates, who may be indirectly affected in some way or another by its actions. Most corporates in South Africa have social upliftment programmes in less-privileged communities, although a cynic might view these as little more than a PR exercise. More attention could be paid to how these companies treat their employees.

3. GOVERNANCE This relates to how a company is managed and governed – by its executives and ultimately by its board. South African companies are guided by the King IV Report on Corporate Governance of 2016, which calls for, among other things, honesty and transparency in dealings with stakeholders, fair remuneration of employees, transparency of accounting, and ethical business practices.

Institutional investors see governance as a critical area in which they can be influential in doing good.

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INVESTING RESPONSIBLY IS THE WAY OF THE FUTURE The pandemic has given a boost to the “responsible investing” movement and shown that companies that score high on sustainability are more likely to be better positioned for long-term growth.

SUSTAINABLE investing, depicted by some as a trade-off between profit and moral ideals, is increasingly demonstrating that one needn’t sacrifice returns when investing with these ideals in mind.

This is not to say that investing in sustainable companies will always yield higher returns, but it does suggest that the trade-off is narrowing.

Behind this kind of thinking is the realisation that sustainabilityrelated events on a global scale, such as climate-related disasters or pandemics, are an everpresent consideration, affecting all companies.

According to a report by investment bank Morgan Stanley, during the market volatility brought on by the onset of the coronavirus pandemic in 2020, companies that focused on environmental, social and governance (ESG) factors weathered the year better than their non-ESG peers.

The report, which surveyed more than 3 000 US mutual and exchange-traded funds, showed that sustainable equity funds – those that invest in companies that rate highly on ESG factors

– outperformed their traditional peers by a median total return of 4.3% last year. Before the onset of the pandemic, in 2019, sustainable equity funds outpaced traditional peer funds by a median of 2.8 percentage points. In any given year from 2004 through to 2018 they say, sustainable funds' median total returns were in line with that of traditional counterparts and provided more protection against capital loss, especially during periods of increased market volatility.

"There are an increasing number of studies proving that the performance of investments using an ESG framework as being on par and sometimes better than traditional agnostic investing," says Famida Singh, Liberty's Divisional Executive for Retail Investment Propositions.

"A number of factors influence this. The consideration of ESG and the desire for long-term sustainability are at the forefront of many quality businesses globally.

These companies have adopted and invested in sustainability drives in an effort to contribute to socioeconomic benefits and positive

impacts on the climate. These companies have aligned their business models and sustainable investment philosophies and are delivering quality returns to shareholders," she says.

Top stocks in the US with leading ESG ratings now include companies such as Microsoft and 3M. "This rise in awareness has been driven by a number of factors, including increased legislation and the ongoing heightening of awareness and action from investors, asset owners and managers, industry bodies and other stakeholders.

And the worldwide need to address climate change is obviously another factor," says Jeanne Fourie, Liberty Lead Specialist for Sustainability.

"The screening of investments for exposure to specific factors such as child labour or illegal practices may lead to the exclusion of certain investments, and many fund managers will now include a list of exclusions as part of their process.

Some funds will go as far as explicitly outlining these exclusions in the fund mandate or objective.

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"As the concept of responsible investing has developed over time, fund managers are actively playing a role in considering ESG factors in their investment decision making," Fourie says.

Singh believes investors should see ESG with a long-term lens: "We think the companies of the future are the ones that are taking care to protect the future. This is why some of our investment portfolios offer clients the opportunity to invest in companies that fit into our broader view of creating a sustainable future."

It has also become clear that a growing number of millennial investors are likely to expect a well formulated ESG approach by asset managers.

This may include the use of artificial intelligence and alternative data extraction techniques, which can reduce reliance on voluntary disclosure by companies on ESG criteria.

"The best investment approach is an informed, evolutionary one.

ESG continues to evolve, and in all probability something like the Covid pandemic, for example, will in itself influence the nature of ESG standards. In all fairness, it's work in progress, but the desired end result does suggest a very real financial reward for embracing these commitments," Singh says.

Supplied by Liberty

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The recent COP26 conference has raised awareness among investors about how their financial choices can help the planet

COP26: THE ROLE OF INVESTORS IN DRIVING ENVIRONMENTAL REFORM WITH the UN bringing world leaders together at the COP26 conference in Glasgow, Scotland in November, the finance sector played an integral role in the discussions for the first time, with net zero emissions at the centre of climate talks. Central to the discussions at COP26 was the debate regarding a transition to net zero carbon emissions that is supportive of developing markets.

A survey by asset manager Ninety One found that 71% of investors felt that richer countries should be helping poorer countries to transition to net zero. However, there was a lack of confidence in the outcomes produced by COP26: 57% of respondents did not believe they would lead to global alignment on tackling climate change.

The lack of high-profile leadership from China and Russia has made it even more difficult to achieve, according to 69% of investors surveyed.

Hendrik du Toit, founder and

chief executive of Ninety One, says: “There is a sobering and incontrovertible fact about the drive to net zero: any effort that does not work for the world’s 7.9 billion people, most of whom live in emerging markets, will fail everywhere. To really save the planet we must help emerging markets go green. After all, emerging economies are not responsible for the bulk of emissions to date.

Rather, OECD member countries are responsible for three-fifths of cumulative historic emissions. That’s seven times more than the rest of the world on a per capita basis.”

The survey found that investors prefer to follow an inclusive transition approach to achieve net zero emissions instead of simply divesting from high-emitting countries and industries. In fact, 45% of all investors prefer for their investments to help companies, sectors and countries transition away from a reliance on carbon,

with only 36% supporting divestment. However, these preferences have hardened slightly since an earlier survey, where only 30% preferred divestment.

Du Toit said: “To divest is irresponsible and simply demonstrates a lack of either understanding, awareness or transparency regarding the climate crisis. We must focus on long-term transition plans consistent with net zero by 2050 for companies and countries, not near-term reductions.”

What is clear is that many investors feel that reducing carbon emissions will produce compelling investments, with 40% stating that they are happy for their money to influence decarbonisation while also expecting a competitive financial return.

“Although the private sector cannot solely provide the kind of incentives needed, we must drive the early momentum of the intended transition and provide

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green finance at scale. For governments, policy makers and capital allocators, this is the longer path to take. It is also the right path, and the investment opportunity is in the tens of trillions of dollars. With a fair and inclusive transition, the whole world wins,” Du Toit said.

Role of asset managers Old Mutual Investment Group (OMIG) says that, globally, asset managers can play a decisive role in redirecting institutional and retail investors’ capital towards achieving the decarbonisation goals set by the recent COP26 conference.

“As one of the largest asset managers on the African continent, our focus goes beyond identifying and funding impact opportunities, to understanding how climate impact and transition risk affect the companies we invest in,” says Robert Lewenson, head of stewardship at OMIG. A positive outcome from COP26 was that the Green Climate Fund

(GCF), which was created to support developing countries in responding to climate change, announced some large value transactions, which benefit South Africa.

In the first few days of the conference, a financing partnership totalling US$8.5 billion was announced between South Africa and a consortium consisting of France, Germany, the UK, the US and the European Union.

The partnership aims to support South Africa’s just transition to a low carbon and climate-resilient economy and society.

“The GCF’s recent decisions reinforce the shared, but differentiated, responsibility between developed and emerging economies; namely that countries that were historical polluters should provide access to capital and intellectual property, while emerging market economies seeking growth should do so the on basis of green economic principles,” says

Jon Duncan, head of responsible iInvestment at OMIG. “This climate funding is a great opportunity for South Africa to reset our approach to climate governance across the markets, but it also presents us with an opportunity to imagine a new reindustrialisation pathway for the South African economy.

“Investors should start thinking about decarbonising their listed equity portfolios; but they should also consider the real-world decarbonisation impact that comes from investments in infrastructure such as renewable energy,” Duncan says. South Africa will have to clear some tough socio-economic hurdles to achieve a just transition away from fossil fuels.

However, these hurdles can be overcome with a combination of reallocating capital from areas with high fossil fuel exposure towards renewables and ongoing engagements with listed companies on their transition plans.

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PERSONAL FINANCE | 4 TH QUARTER 2021

SPONSORED CONTENT Discovery.indd 48

2021/11/08

8 16:09

WEA LTH • I NVESTME N T •P R O S P E R I TY 11

UNDERSTANDING YOUR FINANCIAL BEHAVIOUR HELPS YOU MANAGE YOUR MONEY WELL

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bout 65% of people don’t know what they spend their money on in a month* and more than half underestimate how much* they spend, which means most people are not thinking through their financial decisions.

Part of managing money well, is knowing exactly what you’re spending money on, where you are possibly overspending and following a set budget.

Using advanced analytics and data processing, Discovery Bank has announced the launch of Vitality Money Financial Analyser, which gives personalised details into monthly income, savings and spending.

It enables Discovery Bank clients to place their expenses into more than 166 pre-set categories or to personalise and re-order categories for anything from holidays to home improvements, with a predictive search functionality.

With weekly insights on spending trends in each category over time, clients can see what they are saving by following and keeping to their budgets, and they can set limits in categories to prevent overspending and so earn more rewards for managing their money well, including 5 000 Vitality Money points for engaging with Vitality Money Financial Analyser – that also links to Smart Vault to store important receipts or documents related to important transactions.

“The newly launched Vitality Money Financial Analyser gives clients a realtime view of their finances and trends in their spending habits. What’s more is, given the fact that 50% of people find manual budgeting complex, the Bank automatically creates budgets for clients

Akash Dowra, head of client insights at Discovery Bank based on these behavioural trends, and sets intelligent reminders and personalised alerts on clients’ financial goals and progress,” says Akash Dowra, head of client insights at Discovery Bank.

As a shared-value bank, Discovery Bank is designed to share the value clients create by managing their money well back with them through unprecedented interest rates and rewards. The Bank does this through the AI-driven Vitality Money programme. The better clients do, the higher their Vitality Money status and the better their rewards. *Sources: Intuit Mint Life Survey, 2020; Exception Is the Rule: Underestimating and Overspending on Exceptional Expenses; Journal of Consumer Research, 2012.

P E RSONA L F I NA NC E | 4 TH QUA RTE R 2 02 1

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Rands & Sense

How you and I can invest for the good

Fran Troskie

RETAIL investors, by selecting portfolios, asset classes or asset managers that are focused on sustainability, have the option to ”‘invest for the good”.

It has become increasingly clear that how we invest has a wide-ranging impact – touching on the environment, on society, on inequality, and on governance. Sustainability has become a buzzword, and it is plain business savvy.

There is that lovely adage: “Give a man a fish, and he eats for a day.

Teach a man how to fish, and he eats for a lifetime.” We should perhaps add to this: “Teach a man to fish sustainably, and not only he, but his children eat for a lifetime.”

Investing is similar Retail investors are often dazzled by investments or by asset managers with high short-term returns, only to find that the stellar performance fizzles out over the medium- to long-term.

This is because these investments or asset managers, in some form or another, are not practising sustainable investment. They are likely investing in asset classes or in companies that may impact negatively on the environment, society, or governance (ESG). They may make use of carbon-intensive production processes, which are likely to become obsolete or increasingly costly to maintain as the world moves to a greener energy-mix. They may have exploitative labour practices, which are likely to result in difficulty in maintaining and retaining an effective and motivated workforce. Myopic and/ or corrupt executives in the company may choose to pocket the lion’s share of any profit, neglecting to invest in the business and its people.

Companies that fail to consider broader objectives, and that are run with an “extract-and-exit” mindset, ultimately fail from the perspective of the collective. Executives and shareholders may initially profit, but the company will eventually run itself out of business. Sustainability is essential and the key to ensuring that solid

investment returns can be maintained in the long-term. As elsewhere, funds with an explicit ESG focus are coming to market in South Africa. Old Mutual launched the first local actively managed ESG equity fund last year, thereby expanding its existing suite of responsible investment products available to retail and institutional investors. Other equity asset managers apply proprietary ESG scoring systems in their stock selection process. It implies that their portfolios ultimately have a “better” ESG footprint – their portfolio may have a lighter carbon footprint, if the asset manager avoids oil stocks, or it may have a bigger impact in terms of job creation, or it may mean that a company exhibiting poor governance receives less money. Alternatively, asset managers may choose to actively engage with the companies they invest in, pushing them to make ESG a more important consideration.

While many asset managers pay lip-service to ESG, the implementation and the follow-through on the scoring and engagement process needs critical assessment. Asset managers should, when required to do so, be able to provide evidence where stocks have been rejected, based on ESG considerations, or of their engagement with management. In South Africa, ESG policies and practices have been increasingly under the spotlight, and will continue to be.

Other than investing in shares, retail investors can also look to other asset classes to “do good”. The South African “green bond” market is relatively young, having been launched in 2017. Green bonds are fixedincome instruments that are specifically earmarked to raise capital for climate and environmental projects. Now, more than ever, the appetite for these types of sustainable investment vehicles is growing, and retail investors can take advantage as early movers in this space.

Fran Troskie is head of investment research at RisCura.

W EA LT H • I N V E ST M E N T • P R O S P E R I TY

RECOVERING AN EXCESS IN A

CAR INSURANCE CLAIM If you are the innocent party, your insurance company will try to recover all losses from the guilty party, including your excess, writes Martin Hesse.

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f you have a car accident in which the other driver (the third party) is in the wrong, you still need to pay your excess on your vehicle insurance claim.

However, your insurer will typically try to recover the excess amount from the third party on your behalf.

This, according to a blog by Anika de Kock and Zinhle Mdluli, associate and candidate attorney at Norton Rose Fulbright, published in the law firm’s Financial Institutions Legal Snapshot newsletter, is because of the principle of subrogation, which means the substitution of one party (you, the policyholder) for another (the insurance company) as creditor.

In fact, De Kock and Mdluli say, the law allows the insurance company to take this action in your name “whether you like it or not”.

They say that in South Africa, subrogation is an “implied term” in an insurance indemnity contract under which: 1. The party in the wrong is not entitled to benefit from the fact that you (the innocent party) were insured.

2. You may not be enriched at the expense of the insurance company by receiving both your insurance payout and claiming directly against the third party.

3. The insurance company “replaces” you, the policyholder, in claiming a loss from the third party, either in its own name or in your name, without having to be given the right of action.

De Kock and Mdluli says subrogation only applies in insurance indemnity contracts that are designed to compensate the policyholder for damages caused by insured perils.

The principal applies to recovering both the damages and the excess from the third party.

De Kock and Mdluli explain the process as follows: • Once your insurer has compensated you in full for the damage to your car, subject to the terms of your insurance contract, the company is entitled to institute legal action against any third party legally liable for all losses suffered by you and not only your insured losses. (In other words, losses including the excess you had to pay your insurer.)

• The insurer “steps into the shoes of the insured” and becomes in charge of the claim against the third-party wrongdoer.

• Where a policy contains an excess clause, it remains the responsibility of you, the policyholder, to pay your insurer the excess. You are entitled to recoup the excess only once the insurer has recovered all your losses from the third-party wrongdoer.

• You are not entitled to recover the excess directly from the third-party wrongdoer where the insurer has compensated you in full.

• Where the insurer has not compensated you in full and only partially indemnified you, you remain in control of the claim against the third-party wrongdoer and are entitled to recover your excess directly from the third party and not its insurer. De Kock and Mdluli say that in this instance, however, because of the overriding contractual right of subrogation in favour of the insurer, you may need to get the consent of your insurance company before you proceed.

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HOW YOU CAN CONTRIBUTE TO MAKING THE WORLD A BETTER PLACE

MONEY BASICS

with MARTIN HESSE

THIS article was originally just going to be about your finances, and about how, by investing in ESG-focused investments, you can help the world to be a better place. But it dawned on me that it’s not just about how we invest our money; it’s about how we live our daily lives. There are innumerable ways, as consumers of products and in how we interact with society and the environment, in which we can a) immediately make a difference at ground level and b) move the needle in influencing companies to change for the better. After all, it’s ultimately all about a better quality of life, not only for ourselves but, importantly for our children and grandchildren, who will bear the brunt of our collective harmful actions.

15 DAILY LIFE I live in what I regard as the most beautiful city in the world – Cape Town. It saddens me that there are many Capetonians who don’t feel the same way as I do, considering their disregard for the environment and the resultant staggering amount of litter in and around the city.

The first thing we can do to make the world a better place is by not littering and by teaching others not to litter also. And ditch the expectation that others will clean up after us.

There are so many other things: we can walk to the shops instead of using the car, bicycle to work, pick up others’ litter when walking along the beach, recycle glass, cardboard, aluminium cans and plastics...

PRODUCT CHOICES It is through our choices of the products we buy and consume that, collectively, we can probably make the biggest difference to the state of the world. While we need to be careful of “greenwashing”

– where companies pay lip service to green issues without any fundamental change in company culture – we can choose environment-friendly products over non-friendly ones.

We can reduce our use of single-use plastics. We can opt for brands from companies that treat their employees well and that give back to society. We can boycott companies that behave badly or that reward their executives with obscenely high bonuses. We can choose to buy from the small, hard-working local producer rather than the global conglomerate. Don’t underestimate your power as a consumer!

INVESTMENTS Your investments can be divided into retirement-fund investments and discretionary investments.

In both, you have choices and options. ● Retirement funds. If you belong to an employer-linked pension or provident fund, you may have choices about the

underlying investments. If you don’t, as a member of the fund you can approach the trustees or principal officer to find out the fund’s policy towards ESG investing. In a retirement annuity fund (a personal retirement fund not linked to an employer) you are likely to be able to choose specific underlying funds on the investment platform. ● Discretionary investments.

While a handful of South African asset managers have been active in stewardship for a number of years and have incorporated ESG criteria into their investment selection processes, only two so far, Old Mutual and Efficient Select, have taken the step of offering an ESG fund that invests in the JSE: the Old Mutual ESG Equity Fund and the Select BCI ESG Equity Fund. However, investing globally and offshore, you have a wider choice of ESG funds.

Global funds denominated in rands offered by local asset managers include: the Old Mutual MSCI World ESG Index Feeder Fund, the Old Mutual MSCI Emerging Markets ESG Index Feeder Fund, the Satrix MSCI World ESG ETF, the Satrix MSCI Emerging Markets ESG ETF, and the Sygnia Itrix S&P Global 1200 ESF ETF. The London-based asset manager Schroders offers three funds registered to be marketed in South Africa and denominated in US dollars: Schroder ISF QEP Global ESG Fund, Schroder ISF Global Sustainable Growth Fund, and Schroder ISF Global Energy Transition Fund. No doubt this list will grow in the near future.

NOTE: This should not be construed as financial advice – consult a qualified financial adviser before making an investment decision.

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STEWARDSHIP: THE QUIET WAY IN WHICH INVESTORS ARE CHANGING THE WORLD Report highlights behind-the-scenes efforts by asset managers and institutional investors to “move the needle” on environmental, social and governance issues.

17 THE provider of the unit trust or retirement fund you invest in may be doing more than you realise to influence the companies they invest in on your behalf to become more sustainable.

This behind-the-scenes, often unheralded, work by institutional investors to steer companies in the right direction – through both active engagement and proxy voting at shareholder meetings – is known as stewardship, and it’s a crucial part of the ESG (environment, social and governance) movement. A new report on stewardship in South Africa was released recently by investment firm RisCura.Moving the Needle – Stewardship in South Africa is the result of a survey of 52 South African asset managers, with over R3.9 trillion in assets under management.

This represents 70% of South Africa’s total investment pool of R5.5 trillion. RisCura managing director, Malcolm Fair, says institutional investors and asset managers have a huge responsibility to drive change. “Properly engaging with companies about factors that materially affect their longterm sustainability – such as improved corporate governance, better environmental and social practices – can improve their financial stability, reduce risk and become a crucial part of making companies more investable, both by local and international investors. Institutional investors have the opportunity to ‘move the needle’ by actively engaging with the companies they invest in on these important issues,” he says.

The research was a combination of both an online survey, and one-on-one interviews, which focused on three specific questions, namely: 1. How are you moving the needle through stewardship activities towards a better South

Africa and world?

2. How are you contributing towards dealing with the bad actors, individual or corporate alike?

3. How do you rate your proxy shareholder voting systems and processes internally?

“With the many ESG challenges that South Africa faces, asset managers can and should play a vital role as stewards of savings they are entrusted with.

Indeed, they have many tools at their disposal, from engaging with the investee companies through to removing and replacing directors or ultimately driving up the cost of capital through disinvesting,” says Fair.

GOVERNANCE DOMINATES According to the report, asset managers by and large continue to spend most effort engaging with corporates on governance issues (the G in ESG). While there is a focus on environmental issues, specific attention on social issues remains weak.

“With the world facing a global climate crisis, and South Africa predicted to be amongst those more severely affected, the level of attention to environmental issues was lower than expected, especially given the survey was conducted in the lead up to COP26. Social issues hardly featured in the interviews.

This was surprising given the combination of Covid lockdowns, massively increased mortality and social unrest and looting that severely impacted particularly SMEs in South Africa earlier this year. SMEs are the growth engine of any economy,” Fair says.

DEALING WITH BAD ACTORS According to the report, many managers rate themselves relatively highly on actions that they have taken to weed out bad

actors in the market. Yet, their efforts have clearly been thwarted in the past few years with the series of corporate governance failures in South Africa, most notably Steinhoff, African Bank, the Resilient Group, EOH, and Tongaat in the listed equity space.

Of course, the judicial system needs to improve as well, by bringing white-collar criminals to book.

“Bad actors getting away with their misdeeds with limited consequences sets a bad example for those that follow. We need to give more thought to how these bad actors are dealt with and particularly how white-collar criminals are brought to book in South Africa. The industry could do more here to lean in and help clean up,” says Fair.

Stewardship practices are improving. Notwithstanding the above, stewardship practices are improving, the research found.

In 2011, RisCura conducted a similar exercise and produced the report Spoilt Votes.

The current research revealed that, across the board, the quality and quantity of stewardship has improved dramatically since then.

The proxy voting process has also improved.

However, many respondents said that there are systemic issues such as regulatory or judicial hurdles that act as hindrances to better stewardship.

“There have been areas of improvement in stewardship practices in South Africa, but at the same time, we appear to be falling behind our global peers.

Our report concludes with some critical suggestions for how South African asset managers, their investors, and all players in the industry can regain lost ground and move the needle further for the long-term benefit of all savers.”

Supplied by RisCura

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COMPANIES FAILING TO ADOPT ESG RISK LOSING INVESTORS – PWC SURVEY Whether it’s because of the pandemic or increasing concern about climate change, leading investors are demanding that the companies they invest in are making progress on ESG and sustainability issues.

ENVIRONMENTAL, social and governance (ESG) factors increasingly drive investment strategies, and new research from PwC finds ESG has now become a make-or-break consideration for leading investors globally.

Almost half of investors surveyed (49%) expressed willingness to divest from companies that aren’t taking sufficient action on ESG issues.

More than half (59%) also said lack of action on ESG issues makes it likely they would vote against an executive pay agreement, while a third say they have already taken this action.

A large majority, 79%, say the way a company manages ESG risks and opportunities is an important factor in their investment decision making.

The PwC 2021 Global Investor ESG Survey captured the views of 325 investors from around the world – primarily asset managers and analysts with investment firms, investment banks or brokerage firms.

An additional 40 in-depth interviews were conducted globally with investors and analysts having more than a combined US$11.6 trillion assets under management. While most investors are likely to take action if companies are not

doing enough to address ESG issues, most also say that they don’t want a company’s action on ESG to significantly, if at all, impact their investment returns.

The vast majority (81%) said they would accept no more than one percentage point less in investment returns for pursuit of ESG goals.

James Chalmers, global assurance leader, PwC UK, said: “Our research shows investors are simultaneously focused on short-term results as well as the longer-term societal issues that can create both risks and opportunities for their investments.

It is clear that investors expect ESG to be an integral part of corporate strategy. That includes making expenditures to address ESG issues, while clearly communicating the rationale and benefits to the business strategy.

If investors don’t see that commitment, they won’t hesitate to take action, and that can include divesting their position in a company and taking their clients’ money elsewhere.”

ESG EVALUATION AND REPORTING Investors increasingly want to hear more from companies about their ESG-related commitments

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– 83% surveyed said it is important that ESG reporting provide detailed information about progress toward ESG goals. Greater engagement with investors is critical, along with transparent, trustworthy reporting.

Only one third of investors surveyed, on average, think that the quality of ESG reporting they are seeing is good.

A consistent set of metrics for measuring ESG performance would be of significant benefit to investors, according to the survey.

Nearly three-quarters (74%) said their decisionmaking would be better informed if companies applied a single set of ESG reporting standards, and a similar number (73%) said it’s important to be able to compare ESG performance across companies.

Jayne Mammatt ESG Africa leader for PwC Africa says: In Africa and beyond, we believe organisations must integrate ESG considerations into their corporate and investment initiatives and activities, as well as internalise ESG holistically, to build trust and ensure long-term sustainability, agility and competitiveness. Stakeholders increasingly expect organisations to communicate and deliver convincing and measurable strategies

on material ESG matters.”

Renitha Dwarika, PwC Africa Reporting Lead, says: “The survey highlights the need for a single set of globally aligned sustainability reporting standards to improve consistency and comparability.

In the absence of this, ESG investors and other stakeholders are extremely challenged in evaluating ESG matters.”

ESG PRIORITIES Climate was the leading ESG consideration for investors surveyed, with reducing Scope 1 and 2 greenhouse gas (GHG) emissions being the most cited (65%) ESG issue for companies to prioritise.

Ensuring worker health and safety (44%) and improving workforce and executive diversity, equity and inclusion (37%) were other priority ESG considerations identified.

According to the investors surveyed, ESG strategy starts at the top. A high percentage of investors (82%) said ESG needs to be embedded in the corporate strategy, and 66% said they are most confident that ESG issues are being addressed if someone in the C-suite is accountable. More than half of respondents (53%) indicated that it should be the CEO.

FACT FILE

United Nations Principles for Responsible Investment In early 2005, the then United Nations Secretary-General Kofi Annan invited a group of the world’s largest institutional investors to join a process to develop the Principles for Responsible Investment. A 20-person investor group drawn from institutions in 12 countries was supported by a 70-person group of experts from the investment industry, intergovernmental organisations and civil society.

The principles were launched in April 2006 at the New York Stock Exchange.

They have attracted a global signatory base representing a majority of the world’s professionally managed investments. The number of signatories has grown from

100 to over 4 000 – the graph shows total signatories, asset-owner (AO) signatories, total assets under management and AO assets under management. The PRI is the world’s leading proponent of responsible investment.

It works to understand the investment implications of environmental, social and governance (ESG) factors and to support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.

The six principles are: Principle 1: We will incorporate ESG issues into investment analysis and

decision-making processes.

Principle 2: We will be active owners and incorporate ESG issues into our ownership policies and practices.

Principle 3: We will seek appropriate disclosure on ESG issues by the entities in which we invest.

Principle 4: We will promote acceptance and implementation of the principles within the investment industry.

Principle 5: We will work together to enhance our effectiveness in implementing the principles.

Principle 6: We will each report on our activities and progress towards implementing the principles.

Source: PRI website

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Planning Perspectives

The importance of including sustainable investments in your portfolio

Palesa Tlholoe

WORLDWIDE, there’s a growing interest in sustainable investing among institutional and retail investors. What is sustainable investing? Also known as socially responsible investing, it incorporates non-financial factors into the decision-making process when identifying risks and growth opportunities. These factors have been given an acronym: ESG, which stands for environmental, social and governance.

Sustainable investing is about more than turning profits; it’s about supporting initiatives that will benefit the planet and vulnerable communities. This kind of investing is gaining traction in South Africa.

Many local asset management companies, insurance companies and pension funds have adopted the UN-backed Principles for Responsible Investment (PRI) and the Code for Responsible Investing in South Africa (Crisa). These codes are not legislated. Rather, they guide how investors should encourage responsible practices in the organisations they invest in.

Does ESG make financial sense?

That’s the first question people ask.

If a fund or asset manager focuses on sustainable investing, will returns be compromised?

On this, the PRI’s mission statement is clear: “We believe that an economically efficient, sustainable global financial system is a necessity for long-term value creation. Such a system will reward long-term, responsible investment and benefit the environment and society as a whole.”

Accordingly, the PRI has formulated six voluntary investment principles developed by investors to integrate ESG practice into organisations. (Find out more at www.unpri.org.)

In South Africa, Crisa is broadly aligned with the PRI principles. The most important custodian of Crisa

is the Association for Savings and Investment South Africa (Asisa).

The Financial Planning Institute of Southern Africa (FPI) recently formed a Social Responsibility and Ethics Committee to promote sustainable investing.

Asisa represents the interests of asset managers, collective investment scheme management companies, linked investment service providers, multi-managers and life insurance companies. Its mission is to promote a savings culture in South Africa, and sustainable investing complements this mission.

On a personal level, at Imvelo Wealth, we promote sustainability by encouraging clients to live within their means and by including ESG in investment strategies wherever possible.

Almost all of South Africa’s leading industry players – companies and individuals who manage institutional and retail client portfolios – are unanimous in their belief that it makes sense to invest in organisations that have a strong ESG focus.

Raine Naudé, an ESG analyst at Allan Gray, sums it up nicely.

“Investors should select an investment manager or fund where the responsible investing strategy best aligns with their needs and values,” she writes. “In addition, by actively managing your fund and engaging with the companies in which we invest, we contribute both to safeguarding your investments and to helping your investments have a net positive effect on society.”

There was a time when companies made huge profits at the expense of the environment and vulnerable people, but that time is over. It’s all about long-term sustainability – for your savings and for life on Earth.

Palesa Tlholoe, CFP, is co-founder and a wealth manager at Imvelo Wealth.

INFORMATION

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click on the links to visit the website

Here are sources that can help you with financial education, give you more information on savings and investments, and afford you recourse if you have a consumer complaint or a complaint against a financial services provider

FINANCIAL EDUCATION Financial Sector Conduct Authority MyMoney Learning Series https://www.fscamymoney.co.za South African Savings Institute #WaysToSave https://waystosave.co.za/ OMBUDSMAN & REGULATORS Ombudsman for Banking Services ShareCall: 0860 800 900 or phone: 011 712 1800 Email: info@obssa.co.za www.obssa.co.za CONSUMER ISSUES National Consumer Commission Toll-free: 0860 003 600 or phone: 012 428 7000 Email: complaints@thencc.org.za www.thencc.gov.za CONSUMER GOODS AND SERVICES OMBUD ShareCall: 0860 000 272 Email: info@cgso.org.za www.cgso.org.za

FINANCIAL ADVICE Ombud for Financial Services Providers phone: 012 470 9080 or 012 762 5000 Email: info@faisombud.co.za www.faisombud.co.za INVESTMENTS Financial Sector Conduct Authority ShareCall 0800 110 443 or 0800 202 087 info@fsca.co.za www.fsca.co.za LIFE INSURANCE Ombudsman for Long-term Insurance ShareCall 0860 103 236 or phone: 021 657 5000 Email: info@ombud.co.za www.ombud.co.za MEDICAL SCHEMES Council for Medical Schemes MaxiCall: 0861 123 267 Email: complaints@medicalschemes.com or information@medicalschemes.com www.medicalschemes.com

CREDIT OMBUD MaxiCall: 0861 662 837 or phone: 011 781 6431 Email: ombud@creditombud.org.za www.creditombud.org.za

RETIREMENT FUNDS Pension Funds Adjudicator ShareCall: 0860 662 837 or phone: 012 346 1738 Email: enquiries@pfa.org.za www.pfa.org.za

NATIONAL CREDIT REGULATOR ShareCall: 0860 627 627 or phone: 011 554 2600 Email: complaints@ncr.org.za or (debt counselling) dccomplaints@ncr.org.za www.ncr.org.za

SHORT-TERM INSURANCE Ombudsman for Short-term Insurance ShareCall 0860 726 890 or phone: 011 726 8900 Email: info@osti.co.za www.osti.co.za

TAX Tax Ombud ShareCall: 0800 662 837 or phone: 012 431 9105 Email: complaints@taxombud.gov.za www.taxombud.gov.za PROFESSIONAL ORGANISATIONS Fiduciary Institute of Southern Africa (FISA) phone: 082 449 2569 Email: secretariat@fisa.net.za www.fisa.net.za Financial Planning Institute of South Africa (FPI) Phone: 011 470 6000 Email: info@fpi.co.za www.fpi.co.za South African Institute of Tax Professionals (SAIT) Phone: 012 941 0400 Email: info@thesait.org.za www.thesait.org.za FINANCIAL DATA ◆For ◆ the latest financial market indicators, go to https://www.iol.co.za/businessreport/market-indicators ◆For ◆ the latest quarterly unit trust performance, go to https://www.iol.co.za/ personal-finance/collective-investments ◆To ◆ look up performance of a particular unit trust fund go to https://www.iol.co.za/ personal-finance/fund-look-up