SA investors ahead of the curve in responsible investing
Wealthy seek out companies that tick the right environmental, social and corporate governance boxes
SA’s wealthy investors are putting more of their money in companies with the best track records in environmental, social and corporate governance due to heightened awareness and debate about these issues in the country.
“SA investors had one of the highest engagements on these topics,” said Jessica Ground, global head of stewardship at Schroders, the global investment manager that tracks behaviour and ambitions of the world’s wealthy investors. The company tracks the behaviour of those investing at least €10,000 a year (about R168,000) across 30 countries.
Ground said that while SA investors were very engaged in global sustainability in general, the firm was surprised at their particular attention on matters around climate change. While the Western Cape droughts and flash floods that swept through Johannesburg and Durban in 2017 were likely to have contributed to this heightened awareness, Ground said SA investors’ engagement on the issue was even higher than that of most European countries.
“SA was more aligned with the US and Asia, which can possibly be explained by day-to-day exposure to these challenges.”
Increased importance of sustainability was evident even in terms of asset allocation. Schroders said more than half (55%) of SA investors who formed part of the report often invested in funds that consider and report about sustainability factors – 13% more than the global average. Furthermore, more than three-quarters of SA investors had increased their allocation to sustainable investments over the past five years. Apart from investors, Ground said Schroders had also observed a shift among big companies when it comes to the way they view environmental and social issues. She said diversified mining company Anglo American was one of the companies they engaged with while gathering insights on the importance of sustainability in SA.
“I think people are taking a holistic view on sustainability issues, realising they encompass not only governance issues but also interactions with the environment and society as well,” she said.
It should not be too surprising though since the JSE requires listed companies to include sustainability reports as part of the King code. The JSE was also the first stock exchange to form a Socially Responsible Investment index in 2004, which was later enhanced and renamed the FTSE-JSE Responsible Investment Top 30 Index in 2015.
Sustainability issues are likely to become more important for other SA investors in the near future if the Financial Sector Conduct Authority’s draft directive for sustainability reporting and disclosure requirements becomes law.
The watchdog issued the draft directive affecting pension funds earlier in 2018. If it becomes law, pension funds will have to apply sustainability criteria in their investment strategies and produce investment policy statements to demonstrate the sustainability of their assets.
As companies and investment managers come under pressure to invest more responsibly, Ground said auditors were also facing pressure to keep companies toeing the sustainability and responsible investing line.
“The audit profession is seeing greater scrutiny globally … audit is hugely important. Investors need to have confidence in the numbers.”