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The Guptas, Steinhoff and the Cape Town water crisis

Local challenges are influencing the way South Africans invest.

At the turn of the century it might have been acceptable to invest based only on financial metrics. However, given what South Africans have been through in the last few years, that approach now seems incredibly naïve.

If you’re not asking how companies are making their profits, where they are making those profits, who is involved and who is affected, you are taking significant investment risk. If you are not highly conscious of the sustainability of the financial figures you are looking at, you are falling short of a proper analysis.

It seems apparent that most local investors are aware of this. The recent Global Investor Study by international asset manager Schroders has found that South Africans are serious about taking environmental, social and governance (ESG) factors into account when making investment decisions.

“South Africans have quite a sophisticated investment understanding and a thoughtful approach then it comes to sustainable investing,” says Jessica Ground, global head of stewardship at Schroders. “It is much more evolved than we see in some other countries.”

Appreciating the importance

A large part of the reason for this appears to be that these issues are very real for the average local investor. Whether due to state capture or the collapse of the Steinhoff share price, South Africans have seen the impacts of poor corporate governance. The Cape drought has also made environmental issues extremely tangible, while #FeesMustFall and the land debate have highlighted the imperative of social change.

Ground points out that if one looks at broad national attitudes towards sustainable investing and then compares them to see where those same countries sit on indexes that measure issues like corruption or inequality, there are often clear correlations.

“Those countries that tend to have day-to-day exposure to challenges as measured by those indexes see more value in sustainable investing,” she says. “If you are aware of them, you are perhaps thinking more holistically in terms of how you can have an impact.”

It is therefore not surprising that there has been a rapid increase in local interest in sustainable investing.

“If we look in South Africa, 88% of people say sustainable investing has become more important to them in last five years,” Ground points out. “That is among the highest in the world. It seems that countries at the forefront of some sustainability challenges become really interested in this area when things like the water shortage in Cape Town impact them directly.”

Sophisticated understanding

What is additionally significant is how South African investors view the concept of sustainable investing. For a majority it is not about excluding firms that are controversial for some reason, such as tobacco or mining companies, but rather maximising returns by identifying companies that have more sustainable operations.

Source: Schroders Global Investor Study 2018 (click to enlarge)

“We are really encouraged that 62% of South African investors felt it’s about companies that are likely to become more profitable because they are more proactive,” Ground says. “They are seeing the challenges posed by issues such as water shortages or demographic changes and positioning their businesses accordingly.”

For many local investors, however, their appetite to invest sustainably is not being matched by what they are being offered. Schroders found that 70% of investors feel that they are not being given enough information about sustainable investments.

Source: Schroders Global Investor Study 2018 (click to enlarge)

Lack of information

“Of the 350 investors in South Africa who took part in the survey, 35% said the biggest barrier is a lack of information on how fund managers are engaging with companies and what they are doing,” says Ground. “That is a huge call out to the industry to be more transparent about how they are holding companies to account.”

A second significant problem is a lack of advice on sustainable investing. Advisors are less positive in general than end investors, and, as a consequence, are often less informed.

“I wouldn’t want to single out only South African advisors because this is a trend we see globally,” Ground says. “It is an area where we want to do more research on how we can educate advisors, but also better understand what their reluctance is.”

She feels there is a business opportunity here that advisors may be missing.

“Millennials are particularly interested in sustainable investing,” Ground points out. “So for advisors looking to grow their business, this could be a key future area of growth.”

What is also significant is that Schroders found a direct correlation between people’s sense of their investment knowledge and their likelihood of investing in sustainable investments. The more people feel that they know about investing, the more likely they are to feel sustainability is important.

Source: Schroders Global Investor Study 2018 (click to enlarge)

“The overall picture from South Africa is that there are high levels of engagement on this topic,” says Ground. “Investors are quite sophisticated and taking a broad view when it comes to the issues. They understand what sustainable investing is and that it’s part of the solution to challenges they see in their day-to-day lives.”

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This issue of sustainability of my investment has been haunting me for some years now. I manage this investment myself, I provide my own water and sewerage works and I am self-sufficient. So, I am not exposed to fraud or a lack of municipal services. My biggest concern, the largest risk to the sustainability of my investment, is my government. My government, whose only task it is to keep law and order, is the source of criminality and disorder.

I arrived at the following conclusion – It is very dangerous(unsustainable) to be a capitalist in a socialist country. My fellow citizens are not bad people. Personalities across the globe are the same. My problem is definitely not our people, it is our social en economic system that is a catastrophe.

As described by August von Hayek in “The Road to Serfdom”, in all collectivist/socialist societies it is the worst people, the scum of society that rises to the top. He wrote this book during the second World War after his experiences with National Socialism in NAZI Germany. He makes the following point that explains, describes and even predicts the corruption in our ruling party. The more sophisticated, and better educated individuals, are able to form their own opinions independently. They don’t need someone to tell the what to think or what to believe. It is not easy for any leader to gather this “enlightened” group under one umbrella. They don’t stand together.

Those who do stand together, who can easily be mobilized for a common purpouse, are the uneducated and unsophisticated individuals who are unable to form an independent opinion. So, what type of personality strives to lead people of lower ability by means of indoctrination and lies? It is the worst sample in that community that rises to the top. The most unscrupulous and self-centered individuals who see an opportunity to rise to power and attain wealth by lying to poor people, becomes the leaders under such circumstances.

Von Hayek described the NAZI party and the rise of Hitler, but is as valid for the ANC and the EFF.

So, yes, our social/political system is a threat to the sustainability of my local investment.

An excellent post Sensei but like the liberals, Jews, Roma, handicapped and other minorities or vulnerable people during the rise of Hitler, their bones were ground into the dust. Our bones won’t be here (I don’t think so) but our capital will. Plan accordingly of course. The absolute crux of the matter is that in SA the “uneducated and unsophisticated individuals” grow at rate that is simply swamping the very small first world infrastructure that SA has. They are easy cannon fodder for a skillful demagogue like Malema. They want him, they will get him and they will thoroughly deserve the consequences!

Yet almost every fund has BATS and AB INBEV as ‘defensive’ stocks. In fact both are listed on Moneyweb as a BUY.

Yet both these companies are responsible for millions of deaths every year and untold billions of dollars in medical expenses.

So how do you define ‘ethical’ and ‘sustainable’?

its impossible not leave a trail of destruction with these thing. At the end its about what site batter on your head.

Is it the under paid over worked FOXCONN employees to get the beautiful Iphone
Kids of fatherless miners extracting that beautiful diamond ring.
American dollar which is earned by generating wars all over the world and refugees.
Genetically modified food that is spilling cancer left right and center.

The 3 topics in the headline are self inflicted – “fool me once, shame on you, fool me twice, shame on me”.
South African investors are very aware what is unsustainable, hence the flight from ZA inc.

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