Code for responsible investing by institutional investors in south africa

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Secondly, several countries are considering regulating the requirement to integrate and report on ESG issues, a significant shift away from the guidelines and other voluntary approaches that have historically been the norm. The impact on country competitiveness of integrating and not integrating ESG issues and reporting on them as a regulatory requirement is key. The European Union EU is at the forefront of this drive which is understandable, as they led the charge on reducing carbon emissions.

A broad range of measures are being considered as outlined in their Action Plan on Financing Sustainable Growth which was released in and which pivots around the achievements of the SDGs and the Paris Agreement on climate change. The proposals also cover all forms of asset managers and financial services players. This trend in the EU is being echoed around the world and in developing and developed countries. There are many international collaborations and at national level individual countries are moving ahead.

The complexity of managing not only these voluntary frameworks, but now also equally diverse national regulation, is daunting. Taking all these issues into consideration, the debate that will ensue during the CRISA consultation process to follow, will need to ask some hard questions about the added value of having a South African specific code. These include whether South Africa should put all its efforts into strengthening international codes, ensuring they converge and normalise and focusing on supporting South African entities in implementation.

The consultation paper states that CRISA must be dynamic and change as the environment in South Africa, and globally, adjust to trends and developments. This eludes to moving CRISA from a code that is intermittently reviewed, to a more formal arrangement with financial and other resource requirements.

The market appetite for funding such an arrangement will need to be assessed, but it could also provide hands on support to smaller organisations and spread the systemic uptake of good practice. Many South African investment organisations are already members of various international bodies such as the Equator Principles and the PRI.

The PRI has dozens of large South African organisations as active members, including pension funds, insurers and asset managers. This shows that they are attempting to demonstrate how global principles can be localised and indeed the CRISA principles are very much aligned with those of the PRI.

However, smaller organisations may be unable to extract maximum value from global bodies like the PRI and may benefit from a local body. This will need careful consideration in a post Covid world. How CRISA can play a role in facilitating and smoothing the transition from voluntary to mandatory and its longer- term validity in light of the coming change, needs debate. Parochial interests at various levels will no doubt be at play, requiring leadership that keeps the ultimate goal in mind of reducing negative and maximising positive ESG risks, for the global good and ensuring South Africa is able to attract investment and grow our economy for the benefit of all South Africans.

Contact Us. The CRISA Principles Principle 1 — An institutional investor should incorporate sustainability considerations, including ESG, into its investment analysis and investment activities as part of the delivery of superior risk-adjusted returns to the ultimate beneficiaries. The Code requires institutional investors to develop policies on how they incorporate sustainability considerations, including ESG, into investment analysis and activities.

Institutional investors should ensure that this policy is implemented and establish processes to monitor compliance with the policy. Principle 2 — An institutional investor should demonstrate its acceptance of ownership responsibilities in its investment arrangements and investment activities. The second principle requires institutional investors to demonstrate a responsible approach to shareholding by, among others, implementing a policy detailing mechanisms of intervention and engagement with companies when concerns have been identified, as well as the means of escalation if concerns raised cannot be resolved.

The Code requires such a policy to also detail the approach to voting at shareholder meetings, including the criteria to be used in reaching voting decisions and public disclosure of full voting records. Controls should also be introduced by the institutional investor to prevent insider trading as defined by the Security Services Act. Principle 3 — Where appropriate, institutional investors should consider a collaborative approach to promote acceptance and implementation of the principles of CRISA and other codes and standards applicable to institutional investors.

Institutional investors are encouraged to work with other shareholders, service providers, regulators, investee companies and ultimate beneficiaries to promote CRISA and sound governance.

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In fact, the original intent of the CRISA Code in to focus particularly on institutional investors, came out of the deliberations around the evolution of the King codes which set the world standard in terms of good corporate governance. The importance of institutional investors in responsible investing cannot be emphasised enough, given their share of the market. It is not however just the market share that is important, but also the fact that institutional investors represent many working-class people, through investments made by pension funds, insurers etc.

With much of the narrative being strongly driven by the climate change imperative, it is essential to recognise that broader sustainability issues also need to be considered, such as job creation, transformation and localisation.

The concept of six capitals and putting value on more than just financial issues, continues this approach. This expands the scope to related sectors and players of all sizes in the investment value chain and to foreign investors active in South Africa. The inclusion of implementation and reporting recommendations gives more detailed and clear guidance to those that apply the code.

Broadening the scope will ensure that investors have a ripple effect and influence adjacent and related market participants. CRISA refers to the increasing need for good governance, particularly in South Africa given some notable governance failures. The emerging need is for investors to scrutinise investments more closely in South Africa and globally, to manage this significant risk. Given that in some cases, the regulatory oversight of investors is less rigorous, the role of self-regulation and stewardship is doubly important.

Putting the comments on the specifics of revisions to the CRISA code aside, there is a bigger question around whether the code itself is adding value to the responsible investor in South Africa. There are two global trends that should be noted with respect to ESG integration and reporting.

Firstly, there is a move towards harmonising ESG reporting requirements at a global level to align the various approaches and reduce the reporting burden on business of the plethora of ESG reporting standards, and their differing requirements.

In , the Carbon Disclosure Project, Climate Disclosure Standards Board, Global Reporting Initiative, International Integrated Reporting Council and Sustainability Accounting Standards Board began to collaborate on developing a joint or at least interoperable corporate reporting system in an attempt to begin this journey. They are also driving simplification and alignment and believe that these metrics will apply regardless of sector, geographic location and economic status. These are two recent initiatives, but there are many others all calling for a rationalisation of ESG measures whether they be voluntary or legislated.

There are obvious areas of differentiation, but the question is whether sector voluntary reporting or sovereign regulation can accept a global norm and manage only the expected differences at a local or sectoral level. The benefit is significant to not only companies that have to report or work across a number of different requirements, but also for investors who can then make easy and normalised comparisons between projects and companies.

Secondly, several countries are considering regulating the requirement to integrate and report on ESG issues, a significant shift away from the guidelines and other voluntary approaches that have historically been the norm.

The impact on country competitiveness of integrating and not integrating ESG issues and reporting on them as a regulatory requirement is key. The second principle requires institutional investors to demonstrate a responsible approach to shareholding by, among others, implementing a policy detailing mechanisms of intervention and engagement with companies when concerns have been identified, as well as the means of escalation if concerns raised cannot be resolved.

The Code requires such a policy to also detail the approach to voting at shareholder meetings, including the criteria to be used in reaching voting decisions and public disclosure of full voting records. Controls should also be introduced by the institutional investor to prevent insider trading as defined by the Security Services Act. Principle 3 — Where appropriate, institutional investors should consider a collaborative approach to promote acceptance and implementation of the principles of CRISA and other codes and standards applicable to institutional investors.

Institutional investors are encouraged to work with other shareholders, service providers, regulators, investee companies and ultimate beneficiaries to promote CRISA and sound governance. Principle 4 — An institutional investor should recognise the circumstances and relationships that hold a potential for conflicts of interest and should pro-actively manage these when they occur.

Institutional investors are encouraged develop a policy on prevention and management of conflicts of interests and establish processes to monitor compliance with this policy. Principle 5 — Institutional investors should be transparent about the content of their policies, how the policies are implemented and how CRISA is applied to enable stakeholders to make informed assessments.

The Code requires institutional investors to fully and publicly disclose to stakeholders at least once a year to what extent the Code has been applied.