Responsible Investing by Institutional Investors in South Africa 2011
Code for Responsible Investing in South Africa provides in Principle 3 that
"where appropriate, institutional investors should consider a collaborative
approach to promote acceptance and implementation of the principles of this
Code and other codes and standards applicable to institutional investors”. This
correlates with the UN-backed Principles for Responsible Investment (PRI)
launched in March 2006. These principles encourage collaborative engagement to
better incorporate environmental, social and governance issues in
decision-making and ownership practices. There are similar recommendations for
engagement, stakeholder consulting, working jointly, collective action, etc. in
the King Report on Governance for South Africa, 2009; the International
Corporate Governance Network (ICGN) - Statement of Principles on Institutional
Shareholder Responsibilities (July 2007); The UK Stewardship Code (July 2010).
to the danger of "acting on concert” a guidance document was drafted by the PRI
South Africa Network Engagement Working Group in South Africa to provide
clarity on the regulatory framework that govern collaborative engagement. The
guidance was reviewed by the Executive Director of the Takeover Regulation
Ignore Code on responsible investing at your own peril, institutional
The Code for Responsible Investing in
South Africa (CRISA) was launched in Johannesburg today. This makes South
Africa only the second country next to the UK to formally encourage
institutional investors to integrate into their investment decisions
sustainability issues such as environmental, social and governance (ESG).
John Oliphant, chairman of the
stakeholder committee that drafted the Code last year, says CRISA aims to
provide the investor community with the guidance needed to give effect to the
King Report on Corporate Governance South Africa (King III) as well as the
United Nations-backed Principles for Responsible Investment (PRI) initiative.
Both require institutional investors to take ESG issues seriously.
"The Code is the next step in ensuring that institutional investors
actually implement policies that guide their day to day actions when it comes
to responsible investing,” says Oliphant.
Endorsing the Code
CRISA has been endorsed by the Institute of
Directors in Southern Africa (IoDSA), the Principal Officers Association (POA),
and the Association for Savings and Investment South Africa (ASISA). The
principles of CRISA are supported by the Financial Services Board (FSB) and the
Johannesburg Stock Exchange (JSE).
The PRI initiative has also expressed its support for the Code. Dr
Wolfgang Engshuber, chairman of the PRI, says: "We strongly support the CRISA
Code. It is important that pension funds and investment managers operating in
South Africa understand clearly their responsibilities and invest for the
long-term. The successful adoption of this Code sends a clear signal to other
regulatory agencies around the world that they can - and should - play an
important role in encouraging responsible ownership practices.”
CRISA applies to institutional investors such as pension funds and
insurance companies as the owners of assets, and their service providers
including asset managers and consultants. It encourages institutional investors
and service providers to adopt its principles and practice recommendations on
an "apply or explain” basis. The effective date for reporting on the
application of CRISA is 1 February 2012.
Apply or explain
Oliphant, who is also Head of Investments and Actuarial at the
Government Employees Pension Fund (GEPF), points out that responsible investing
and corporate governance guidelines in South Africa are largely voluntary.
"The Code aims to put in place the checks and balances needed to make
this voluntary framework successful. Together with the King Report, which is
also not legislation but rather principles and practices that are adhered to on
an ‘apply or explain' basis, the new Code will seek to encourage best practice
conduct by shareholders and companies.”
Oliphant is confident that the Code will be adopted by institutional
investors, even if it is voluntary. "CRISA will empower the beneficiaries of
investments made by institutional investors like pension funds to ask the right
questions and to select responsible custodians for their investments. And why
would a pension fund in turn want to place money with an investment manager who
has not adopted and applied the policies of the Code?”
He adds that since
the revised Regulation 28 of the Pension Funds Act requires pension funds to
give appropriate consideration to any factor which may materially affect the
sustainable long-term performance of a fund's assets, including ESG,
institutional investors would be foolish to ignore the Code.
Oliphant warns that if the voluntary Code is not taken seriously by
institutional investors, this could result in intervention by the policymaker.
Oliphant stresses that the world is currently facing serious
sustainability challenges, ranging from the devastating effects of the
financial crisis to socio-economic challenges and climate change.
"As long-term investors with fiduciary duties, we simply cannot afford
to ignore the importance of integrating sustainability issues, including ESG,
into long-term investment strategies. As institutional investors we have the
ability to influence and encourage the companies in which we invests to apply
sound governance principles and to care for the environment in which they
CRISA Practice Notes
The Code can be downloaded above or from www.asisa.org.za or