THE state of responsible investment in South Africa is rather dismal, according to a new study.
Carried out by Unisa’s Centre for Corporate Citizenship, the United Nations Environment Programme Finance Initiative and Noah
Financial Innovation, the study shows that while most market participants think responsible investment is important and has a material impact on how companies are valued, few financial institutions or advisers are doing much about promoting this kind of investment.
Moreover, more than half of the principal officers of pension funds had little awareness of what responsible investment was and there was a disturbing view that responsible investment meant higher risks and lower returns.
This is despite evidence to the contrary and the JSE’s Socially Responsible Investment (SRI) having been launched more than three years ago.
Neil Eccles, programme manager for the Noah chair in responsible investment at Unisa, said the state of responsible investment in SA was “somewhat confused”. The 32 pension funds, 19 asset managers and 11 investment advisers involved (between them controlling more than R2,4-trillion of SA’s cash) believed that environmental, social and governance issues were material to a company’s value. But most were either doing nothing about responsible investment or had limited involvement.
The major barrier, Eccles said, was a sense of fiduciary responsibility. Because many thought putting money towards responsible investment meant increased risk and lower return, it followed that it would be irresponsible for managers of funds to commit too much cash to these “causes”. Eccles said this was “remarkable” to him because it was fiduciary responsibilities that forced investors to think about socially responsible investment in the first place.
“Responsible investment is not about philanthropy, although society and the environment in general may benefit from the outcomes. Responsible investment is not about sacrificing returns in pursuit of some sort of broader social good. Very simply, responsible investment is investment that incorporates an active consideration of environmental, social and governance issues into investment decision-making and ownership,” Eccles said at a briefing in Johannesburg on Tuesday night. Few respondents in the survey thought that legislation was the way to go. Education and demand for responsible investment practices were two of the factors that people thought could make a difference. Most respondents reported “very little demand” (for responsible investment) from pension fund members and retail investors.
Worryingly, given that it is an issue that could wipe us all out, climate change was almost invariably seen by market participants as the least important of the 10 environmental, social and governance factors having an impact on a company’s wellbeing. Corporate governance and infrastructure development were seen as two of the most important factors.
One way of getting the market into line included having as many institutions as possible sign up to the United Nations’ principles of responsible investment. — businessday.