Sustainability Investment Guidelines

Socially Responsible Investing

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Socially responsible investing (SRI) is an investment strategy combining both financial return and social good. In general, socially responsible investors favour corporate practices that are environmentally responsible, support workplace diversity, and increase product safety and quality. Some also avoid businesses involved in alcohol, tobacco, gambling and weapons. SRI is a strategy followed by a rapidly increasing number of investors and is fast becoming a norm. It is estimated that SRI assets amount to $4 trillion globally.

In 2005 the United Nations Environment Programme Finance Initiative (UNEP FI) and the UN Global Compact drew up the Principles for Responsible Investment (PRI), to which institutional investors are asked to lend their support. The 6 principles, which are voluntary, are:

  1. To incorporate environmental, social and governance (ESG) issues into investment analysis and decision-making processes.
  2. To be active owners and incorporate ESG issues into ownership policies and practices.
  3. To seek appropriate disclosure on ESG issues by the entities in which investments are made
  4. To promote acceptance and implementation of the principles within the investment industry
  5. To work together to enhance effectiveness in implementing the principles.
  6. To report on their activities and progress towards implementing the principles.

Currently there are over 20 South African signatories, including Investec, Investment Solutions, Cadiz Holdings, Stanlib Asset Management, Prudential Portfolio Managers, PIC, Sanlam Investment Management and Coronation Fund Managers.

Socially responsible investment in South Africa has been limited according to a recent survey conducted by UNISA's Centre for Corporate Citizenship. 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.

There are numerous SRI indices published by stock exchanges. One of the most prominent is the FTSE4Good Index Series, launched in 2001. Companies are admitted to the index based on their ability to meet social responsibility criteria. According to the FTSE Group, the inclusion criteria have been designed to encourage the maximum amount of change in corporate behaviour.www.ftse.com

The JSE launched its SRI Index in 2004 - the first in an emerging market - which assesses the environmental, social and economic sustainability practices and corporate governance of listed companies. In 2004, 51 companies met the stated criteria out of 74 entrants. In 2008, 61 companies became index constituents out of the 105 companies reviewed. In 2009, 67 out of 109 companies assessed made it into the index and in 2010, 74 companies out of the 106 assessed made it into the index. www.jse.co.za

In South Africa, the state-owned Public Investment Corporation (PIC) has set out its policy concerning investment decisions in "Corporate Governance and Proxy Voting - Principles, Policies and Practical Application". The document sets out its expectations as a custodian of pension funds and recommends actions and structures to embed the best economic and social practice in organisational structure and implementation.

In March 2010, South Africa’s largest pension fund, the Government Employees Pension Fund (GEPF), released a Responsible Investment Policy Statement. The Statement contains GEPF’s policy to integrate environmental, social and governance issues in investment decision-making and ownership practices. www.gepf.gov.za

Download the documents:

South Africa’s Responsible Investing Code

The final Code for Responsible Investing by Institutional Investors in South Africa was released in Johannesburg on Tuesday 19 July 2011. The Code seeks to encourage institutional investors and their service providers (asset, fund managers and consultants) to put in place measures aimed at ensuring responsible investing. The Code is voluntary on an “apply or explain” basis. The Code consists of five principles and related recommendations. This makes South Africa the second country after the UK to have a code for institutional investors.
To download the Code click here >>    
To read the Finance Minister’s speech click here >>

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SRI is an investment strategy combining both financial return and social good


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