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The arduous task of investing responsibly

Putting South Africa’s asset managers to the test on their responsible investment claims.

What started out as an exercise in mapping investment options became an unsolicited exercise in testing South Africa’s asset managers on their Responsible Investment claims and on their willingness to adequately and transparently answer the questions of a stakeholder interested in moving their money.  


At a time when citizens are being called on to use their voice for change, a frank discussion around our relationship with capital, one of the most powerful levers for change, has been largely missing. 

It’s possible, even likely, that many of you reading this would have been invested in Lonmin at the time of Marikana; in Volkswagen as it cheated its emissions tests; in BP during the DeepWater Horizon oil spill, or more recently in Net1 – CPS’s parent company – when vulnerable welfare recipients were (are) suffering under its predatory business model.  

Read: Allan Gray: We need change at Net1

Why does this matter? If the primary purpose of saving is to secure a better future, and if a better future also requires having a stable, sustainable and equitable society and economy to live in, then it could be argued that it is our right and our responsibility to invest our savings into assets that contribute to such a future.

More recently, “Responsible Investors” are integrating Environmental, Social and Corporate Governance (ESG) criteria into their investment decisions and working with companies to improve performance over time. Investment portfolios that integrate ESG perform as well or better than their non ESG counterparts – they have greater visibility into a wider set of potentially material risks and opportunities. 

In a quest to align my own savings with 21st Century realties, I emailed the list of South African asset managers that have willingly and publically committed to integrating ESG factors into their investment practices – the signatories to the UN PRI. Among the six principles, a PRI signatory states that it “will incorporate ESG issues into investment analysis and decision-making processes”. I excluded infrastructure and pure private equity funds. But what started out as an exercise in mapping investment options became an unsolicited exercise in testing South Africa’s asset managers on their responsible investment claims and on their willingness to adequately and transparently answer the questions of a stakeholder interested in moving their money.  

The email stated that I was a retail investor (a single person, not an institution) looking to move my assets to a fund that either takes ESG issues into account or that’s specifically focussed on sustainability. I clearly asked for two pieces of information: for their ESG integration process and for details of any funds that match my preferences. I added that I’d also be interested to know about any ESG funds available to institutional investors (while I was at it). The former request should have promoted responses from all asset managers; this list was one of self-selected ESG integrators.

Twenty seven South African asset managers received my email. Of these, 13 replied after the first email. The other 14 got a follow up email. Six responded after the second email, some with apologies. 

This means eight PRI signatories didn’t respond at all to two emails asking them, essentially, about how they integrate the principles they have committed to. These were Meago, Mvunonala Asset Managers, Mazi Capital, Absa Capital Alternative Asset Managers, Argon Asset Managers, Stanlib Asset Management, Mergence, and Sanlam. 

The 19 responses were broadly and unscientifically divided into either useful or non-useful responses. 

 ‘Non-useful’ responses 

Investment Solutions and Investec replied that there were no ESG funds available to retail investors, though Investment Solutions added they were working on this. Neither explained their approach to ESG integration more generally. Lacking, but not infuriating or humorous. 

Cadiz’s reply – perhaps the best of the lot – simply stated that they “don’t take ESG principles into account when managing money”. The Principles for Responsible Investment are still live on Cadiz’s website (infuriating).

Momentum – albeit in an otherwise polite email –  asked for “more details regarding the term ESG” as it was not one they were familiar with (humorous).

Ashburton referred to two “ESG hedge funds”, the fund fact sheets of which made no mention of any ESG at all.

After a non-starter reply from Absa, I asked why Absa isn’t offering any funds with ESG integration given that it’s a signatory to the PRI (I included the principles in the email). I was told to contact a financial advisor. I assured her I was not asking for investment advice but rather information on their status as a responsible investor, after which there was only silence.

Afena Capital simply stated that they do integrate ESG into their investment process but do not have any ESG specific funds, and linked me to their Responsible Investment Policy.

12 had ‘something useful’ to say

Allan Gray and Coronation gave a detailed explanation of their ESG integration process but stated that no retail funds were explicitly tailored to integrate ESG. Drakens Capital, Aeon Investment Management, Kagiso Asset Management and Element Investment managers all gave a detailed explanation of their ESG integration processes and referred to the retail fund/funds that integrate ESG. Prudential gave a detailed explanation of their ESG integration, active shareholder involvement, and industry involvement in enhancing ESG, but did not refer to any funds. (If the distinction between these groups raised an eyebrow, read on.)

COMANCO (jointly owned by trade unions and Old Mutual), Prescient, and Futuregrowth gave no explanation of their ESG integration but attached information about specific sustainability-related funds available to retail investors: The Community Growth Investment Funds, the WWF Living Planet Fund, the Community Growth Guilt Fund (same as above) respectively.   

27Four Investment Managers, as a fund of funds, detailed their engagement with their underlying asset managers on ESG policies, summing up perfectly:

“There is not a wide range of rigorous ESG fund options available to allow us to build risk managed portfolios and there is a lot of window dressing”.

Oasis was the only asset manager to call me to discuss my investment preferences and openly discussed fees, taxes and other logistics around moving my money.

A caveat. An asset manager’s response doesn’t necessarily reflect its commitment to Responsible Investment. “Non-useful” responses may well have been the result of client services departments not being fully up to speed; the Responsible Investment teams in those firms would likely have penned a somewhat different response. Those with thorough explanations of their Responsible Investment practices may be paying degrees of lip service. Despite an impressive verbal commitment to responsible investment, it took intense public pressure for Allan Gray to seriously consider its investment in Net 1, to start engaging with the company’s management on its gross neglect of basic corporate governance principles, or to acknowledge its social and economic implications. 

Given this, here is what we can conclude. 

There is a severe lack of communication, both between the financial industry and the market and within asset management firms themselves, about responsible investment. This renders the quest to become a sustainable investor rather arduous.

How should a saver assess the difference between a “normal” fund offered by an asset manager that integrates ESG into its every day investment process and a specifically labelled ESG fund? While Kagiso explained that “to answer [my] questions; yes [they] believe that rigorous ESG considerations are included in the investment process for all [their] funds” including retail funds, it is not clear if other asset managers consider the same to be true.

In that case, if we are to see specifically-labeled ESG funds as the litmus test for a sustainable investment product, then the lack of options offered to retail investors by South Africa’s Responsible Investors is striking.

Finally, even where a saver choses a specifically-labelled ESG fund or a fund offered by a self-proclaimed responsible investor, if claims of responsible investment don’t necessarily match its application it becomes almost impossible for savers to rest assured that their money is being managed responsibly. Ideally what is required – and I’m confident this will develop over the next decade – is an objective, transparent and comparable rating of the responsible investment practices of our asset managers and the (hopefully increasing) number of sustainable investment options on the market. Kigoda consulting has begun this process by ranking ten of SA’s largest asset managers based on their publically available Responsible Investment information, though it recognizes there’s still a gap between stated RI policies and the sustainability of underlying investments.

The solution, however, is not to point fingers at financial institutions. The current state of sustainable investment in South Africa is the result of supply and demand. South African asset managers simply haven’t had enough requests from retail investors for sustainable investment options. And while there are admittedly significantly more ESG options on institutional platforms, this choice is often not explained to the ultimate savers/beneficiaries of these funds who remain removed from the conversation around how their capital is invested. Both retail investors and savers invested via institutional funds are largely seeing their investments as a “black box”: where sustainable investment options do exist, they are largely not scrutinized.   

It’s time South Africans start asking more questions around what our savings are doing. Those investing with Allan Gray have been using their voice to ask questions about Net 1. But unless we become active, engaged investors on an ongoing basis, our capital is unlikely to contribute to the South Africa we’re calling to fight for. Start with an email to your asset manager or to your organisation’s pension scheme provider. Ask how and where your savings are invested, how your asset manager votes on your behalf and whether this supports or challenges the issues like social inequality, corporate misconduct, environmental sustainability or transparency and ethics. If we have a parallel avenue for voting on the future, we should use it.

Lise Pretorius (pictured below) heads up Strategy at GCX, a sustainability consulting and project development firm.


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One wag recently noted on MW that one should never ask a barber if you need a haircut. The author of this piece is encouraging investors to incorporate ESG criteria into their investment decisions. Basically “sikking” the investors on the asset managers. The question is, of course, if there is a vested interest at stake?

That of course, is less relevant in the scheme of things. What is being encouraged goes under the banner of “social responsibility”. Now if socially responsible investments had a higher return, then then asset managers would snap them up simply due to market forces with their price bid up, the return would fall in line with other investments. What the implication here is, however, that socially responsible investments should be more desirable and thus more expensive (lower overall return) owing to the investors’ collective conscience.

Of course investors are ultimately individuals and what would be categorised as an undesirable investment for one may well sit fine with another. For example, in my opinion, tobacco (used correctly kills 50% of its users) is not such an evil as beer (one of life’s little necessities). I am sure the anti-coal, anti-mining brigade would go home switch on the PC and would not care to look around and find something that was not grown, sucked or dug out of the ground. Is irredeemable debt based money itself not the greatest evil?

The regime has a legal responsibility in terms of negative economic externalities. For example a mining company must incur additional costs by treating waste water before discharging it into the river. This lowers returns. What ESG does is add a social economic burden on top of these by raising the costs of capital for non ESG companies e.g. coal mines by the mere nature of their activity rather than their corporate governance (treatment of staff, suppliers etc). Terms like social inequality are meaningless as one does not define equality of outcomes or opportunity.

Like everything, ESG should be a value judgement and an informed choice made by individual investors. What worries me is the left’s disinformation. This is only the beginning. Soon we will have a name and shame campaign to force companies to divest from that which is not considered desirable.

This comment shows some confusion about the term ESG integration and where it fits into Responsible Investment (RI). There are a number of (RI) strategies. ESG integration does not mean screening out “sin stocks”, fossil fuels, or any other company based on subjective or moral preferences. There are RI strategies that do that, and as you rightly state, those are often based on the value judgement of the individual investor. ESG looks at HOW companies do what they do, not what they do, so we find many ESG funds with BAT, McDonalds, and fossil fuel companies in them, for example. Companies are over-or-underweighted based on their ESG performance, and/or fund managers engage with company management on ESG issues, long term strategies, etc.
There is so much research out there proving that ESG funds outperform the returns of “traditional” funds. If the “left’s disinformation” worries you, perhaps the views of Morgan Stanley, Oxford, Harvard, Deutsche Bank, may make you feel more comfortable. This is simply because fund managers that integrate ESG into their analysis, including engagement with management of companies on these issues, understand a broader set of material risks and opportunities that may affect long term profitability. Often these companies have a LOWER cost of capital because they disclose better data on these issues, adhere to high standards of corporate governance, are more efficient, and are therefore seen as less risky (again, a lot of research on this). In the longer term, this also adds to overall economic stability which is good for everyone’s returns (externalities don’t disappear when companies manage to keep them off their balance sheets, the costs are felt by other sectors, companies, or generations).

For this reason, I would prefer to invest with fund managers, and in funds, that integrate ESG. This exercise was simply about finding out to what extent South Africa’s fund managers are implementing ESG integration principles they have willingly and publicly committed to, and which funds are out there for retail investors.

The brilliance of this article is that it is not based on a lefty desire to shut down mining companies or a call for investors to picket fund management firms. The brilliance lies simply in outing many South African fund management firms that have joined a global movement just to get the tee shirt.

Investors can take whatever stand they wish regarding the condition of the planet. Some care, some don’t. But for an investment company with explicit responsibility to tell the truth, waving a good guy responsibility flag as a ruse is not what investors should expect or accept. These firms deserve to be roasted for what is clear deception.

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