INSTITUTIONAL investors managing trillions of dollars will assemble in Cape Town on Tuesday. But this will not be a conventional investment conference. This year, the city plays host to PRI in Person, the annual meeting of signatories to the principles for responsible investment.
The investors, who represent a $34 trillion agglomeration of capital, are seeking to better understand the implications of sustainability. The UN-backed initiative counts more than 1200 institutions as signatories.
They agree to incorporate environmental, social and governance issues into their investment decisions. They commit to be active owners of the companies in which they invest, encouraging best practices.
They pledge to be open and transparent about their own environmental, social and governance efforts.
Their goal is to make the global financial system more sustainable. They recognise that the global economy — and the ecological and social systems on which it rests — face growing pressures. They recognise that these pressures raise financial risks for them and their beneficiaries.
Why Cape Town? South Africa has emerged as a leader in corporate responsibility and responsible investing. The JSE has led the way in sustainability reporting, requiring all listed companies to publish “integrated” reports that combine financial results with non-financial data (or explain why not).
South Africa has also pioneered responsible investment in its pensions regulation. Revisions to the Pension Funds Act, introduced in 2011, require trustees to take into account any factor that “may materially affect the sustainable long-term performance of a fund’s assets, including factors of an environmental, social and governance character”.
And the voluntary Code for Responsible Investing in South Africa calls for investors to incorporate sustainability considerations and active engagement in their analysis, investment decisions and asset ownership.
Of course, responsible investment does not operate in a vacuum. The idea is for investors to encourage the companies in which they invest to improve their environmental, social and governance performance.
And here, too, there is evidence of leading practice to be found in South Africa and the continent more broadly.
The UN Global Compact has just published its Africa Sustainability Barometer, a study carried out with the publication This Is Africa, of the annual reports and sustainability reporting from more than 1000 of Africa’s largest listed companies.
Among other highlights, it finds that a number of South African companies have followed Anglo American in offering their workers testing and treatment for HIV/Aids and tuberculosis. SABMiller has developed world-class water management policies and processes. In supply-chain management, Pick n Pay excels, according to the barometer. It acknowledges that higher and more volatile food and energy prices and potentially less reliable supplies of water will become issues for its suppliers.
These companies are not acting altruistically. They understand that applying these principles reduces risk or directly contributes to returns. Anglo American’s HIV/Aids programme, for example, has reduced the overall cost to the business from the disease by 9%.
But for every company sincerely attempting to address environmental, social and governance risks and improve its performance, there are a dozen that are struggling to understand, track and manage their vulnerabilities in these areas. And these exposures can impose profound costs on companies and their investors.
To give just one example: the unrest that culminated in the Marikana tragedy in August 2012 helped to wipe some 60% off Lonmin’s share price in the months that followed.
Investors in South Africa and beyond are increasingly recognising the value of responsible investment.
Gifford is executive director of the United Nations-backed principles for responsible investment
• This article was first published in Sunday Times: Business Times