Some SA investment houses not embedding CRISA in their business
The Code for Responsible Investing in South Africa (CRISA) was launched in July 2011. However, despite this, some asset managers are still to embed such principles in their businesses.
This is according to Felix Ubogu, Head of Asset Consulting at Liberty Corporate, who says that unless the ultimate owners take a more active stance on the matter, some investment houses are likely to make modest progress into fully incorporating the principles contained in the code into their investment process. “The aim of CRISA is to encourage a greater emphasis among institutional investors and their service providers regarding the issue of long-term sustainability and ESG (Environmental, Social and Governance) factors.”
However, Ubogu notes that the core objective of a fund is to safeguard and grow the retirement benefits of its members. “Ultimately, achieving superior long-term investment returns is the most important objective – the assets being managed must grow sufficiently in order for the members to be able to maintain a reasonable lifestyle in retirement.”
“The principles promoted by CRISA are supportive of the ultimate objective of a pension fund. For example, one could view the active exercise of ownership rights as a means to ensure that companies in which one is invested continue to be run as efficiently as possible”
Ubogu notes that a number of asset managers actively engage with listed companies on governance matters and make their voting records available to beneficial owners. “Most role players in the industry do agree with the principles behind CRISA and the change that this code is trying to embed in South Africa’s corporate culture to ensure sustainability.”
“Having said this, although the investment process followed by most managers is likely to already take sustainability into consideration in one form or another, a few well known investment houses are still to endorse the principles contained in the code, perhaps partly because of the difficulty in incorporating all the principles contained in the code into their existing investment process..”
He says that trustees, as representatives of the members, have an important role to play. “Investment firms will vote at AGMs on behalf of the shareholders whom they represent, As such, beneficial owners who subscribe to sustainability principles are able to encourage the companies in which they have an ownership interest to adopt a consistent approach.”
Ubogu notes that while much of the onus may be placed on the trustees, the investment responsibility is often outsourced to expert asset consultants, who assist the trustees in formulating an appropriate investment strategy and will regularly engage with the asset managers on the fund’s behalf. “Asset consultants play an important role in the selection of investment managers and should consider an investment manager’s approach to CRISA and whether or not sustainability considerations are incorporated into the investment process as part of the due diligence assessment. ”
He says the fact is that many well established companies are already playing a role in similar areas, having adopted good governance principles in some form. “Good governance ensures that there is a balance between non-executive and executive directors and that appropriate standing committees, including a remuneration committee, are established.”
“For now, CRISA is a voluntary code and it is likely to remain so for some time. Similar codes of responsible investing have not been introduced as a legislative requirement in other regions and CRISA is also unlikely to be established as such in South Africa. However, it is possible that at some point in the future, regulators may step in to make some form of compliance mandatory.”
