Code for responsible investing an opportunity to guide change, says Institute of Directors

The Code for Responsible Investing in South Africa (CRISA) was launched at the Sandton Convention Centre on 19 July 2011, making South Africa one of only two countries globally to encourage institutional investors formally to integrate environmental, social and governance (ESG) issues into their investment decisions. The Institute of Directors in Southern Africa (IoDSA) has convened the committee responsible for drafting CRISA and has endorsed CRISA. Other endorsing bodies include the Principal Officers Association, the Association for Savings and Investment South Africa, the Financial Services Board and the Johannesburg Stock Exchange.

Speaking at the launch, the Minister of Finance, Pravin Gordhan, welcomed the new code, saying that the current financial crisis had shown how the world needed to move from a short-term to a long-term investment focus. The Minister argued that the traditional investment metrics of gross domestic product and investor returns had to be broadened to include the benefits generated for all stakeholders within society. ESG issues might not even be broad enough to deal with the challenges facing South Africa, the Minister said, calling for more debate around the issue of a new paradigm for finance and investment generally.

“Voluntary codes like CRISA work perfectly if people own both their letter and spirit, and show that they are making an impact,” he said. “If that does not happen, we will have to look for other solutions—but I hope we won’t have to. CRISA will be a success if you make it one.”

IoDSA CEO Ansie Ramalho takes up the Minister’s point, saying, “All the stakeholders in the investment value chain—the investors as asset owners as well as the asset managers rendering a service to these asset owners—must play their roles.” In particular, Ramalho believes, the pension funds as the ultimate owners of the assets have to lead the way in creating a new culture of long-term thinking.

“CRISA should be seen not as just another hoop that a company has to jump through but an opportunity for boards to begin aligning their companies with the long-term trends that are transforming the global business environment—and so a source of competitive advantage. It’s no mistake that the first principle of CRISA positions this approach as ‘the delivery of superior risk-adjusted returns’,” Ramalho argues. “Companies that are attuned to stakeholder and environmental issues are better positioned to identify risks and opportunities than traditional enterprises. For example, if BP’s investors had been taking this broader, longer-term view, there is a chance that events in the Gulf of Mexico could have played out very differently. This kind of long-term view is not only morally correct, it makes business sense in a world that is increasingly risky and increasingly interconnected. Boards must integrate long-term sustainability into the way their companies operate—or face increased regulation, which would be very undesirable. ”

CRISA is based on five principles:

· An institutional investor should incorporate sustainability considerations, including ESG, into its investment analysis and activities as part of the delivery of superior risk-adjsuted returns to the ultimate beneficiaries.

· An institutional investor should demonstrate its acceptance of ownership responsibilities in its investment arrangements and activities.

· 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.

· An institutional investor should recognise the circumstances and relationships that hold a potential for conflicts of interest and should proactively manage these when they occur.

· 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.

For more information, download the full Code from http://www.iodsa.co.za/, http://www.asisa.org.za/ or http://www.unpri.org/.