WHILE there has been some progress in improving the proxy voting practices of South African asset managers, the overall 30% performance rating achieved in a recent study is staggering and scary, says Prasheen Singh, head of RisCura Consulting.
The global financial crisis has spurred action globally to recognise proxy voting — exercising votes on behalf of clients and thereby steering management decisions — as an essential tool for investment professionals to act as good stewards of their assets and their clients’ assets by having specific and uniform policies and monitoring.
Yet in South Africa, managers’ policies and procedures have been found to differ deeply, costing them international clients.
Some voting policies and guidelines have been found to be only one page long, yet responsible investing has been on the agenda in South Africa since 2007, and is becoming wider and more comprehensive since the Code for Responsible Investing was launched in July last year.
"Trustees must put the ball in the court of the asset manager and say this is inadequate," Ms Singh said this week.
Regulation 28 to the Pensions Fund Act now incorporates environmental, social and governance (ESG) factors, challenging South African managers to adopt this as policy, while trustees eagerly await a toolkit for pension funds on sustainable investing, currently being drafted by an industry steering committee. It will effectively ensure all pension funds apply ESG investing.
A bad proxy voting practice would include total ignorance of, or apathy towards, environmental, social and governance factors in the voting process and therefore never questioning company managers on it. Poor compliance, communication and record keeping of proxy votes and practices are other areas where South African managers fall short.
Often managers in South Africa simply "vote with their feet" by selling shares — with potentially devastating effects on prices as funds hold high proportions of shares — and walking away, never engaging managers on broad areas of improvement or concern.
A comprehensive study last year of South Africa’s major asset managers, sponsored by RisCura — recognised as the most comprehensive and current study yet on the issue — found that while there was an average 30% overall score, most managers achieved a score below 30% when it came to proxy voting practices.
"One of the main reasons for this is that policies are typically presented as a relatively simplistic (and in some cases copied) set of rules, rather than as the cornerstone of the stewardship function that it should be," report author Jimmy Winfield said.
Ms Singh said the report was starting to have an effect, though there was some way to go.
"One large manager has said they can better understand where they fell short in making the necessary changes and so revised their voting policies two weeks ago," she said.
Mr Winfield said "a new investment dynamic is emerging" and genuinely active managers will recognise the link between stewardship and the welfare of their clients’ assets, as well as its benefits for the society and environment in which they and their clients live.
"As these responsible institutional investors are shown over time to outperform the sceptics and cynics, investors locally will follow the international trend and move their assets to those who use their right to vote wisely," he said.
Trustee Fagmeedah Petersen-Lurie said trustees needed to identify steps that managers or their own offices had to implement in terms of assessing investments to look at ESG issues — such as debt being issued for unsecured investing. "This may not be socially acceptable if it means people will go into extensive levels of debt," she said.
Another example would be an investment in low-cost housing debt, where developers could be influenced to install solar water heating. But this would happen only if the investment company or trustee had proper policies in place at the outset.
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