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Corporate governance ‘supports social investment’
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Sanchia Temkin
Business Day
Thursday, April 29, 2010
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A greater awareness of corporate governance principles could lead to more investment being channelled by South African pension funds into socially responsible investments that benefit communities.
Andrew Canter, chief investment officer of Futuregrowth Asset Management, said earlier this week that “when investors and companies both start focusing on more than just the financial, we will start seeing true alignment that will have (an) exponentially beneficial effect on sustainability”.
At present, socially responsible investments amount to about R28bn of the R20-trillion invested by South African pension funds.
Canter said that in SA, socially responsible investment requirements had to focus on the basics.
“Here, our infrastructure needs include water, electricity and roads, telecommunications and housing, whereas in more developed countries in Europe and the US, socially responsible investment is more focused on environmental, social and corporate governance issues, particularly reduction of greenhouse gases and a company’s carbon footprint.
“As asset managers in SA, while we believe such areas may provide good opportunities for clients, we are bound to invest only in those areas mandated by the asset owners,” Canter said.
“When it comes to investing in SRI (socially responsible investments), we can demonstrate the benchmark-beating performance of top SRI funds, for instance, but in our experience there is still a reluctance within some pension funds to develop an appropriate SRI policy.”
Canter said investors in SA had not been demanding enough on screening or sustainability issues. He said that retirement fund trustees should consider their fiduciary duty to clients by putting investment performance and sound risk management above social impact.
The King 3 report on corporate governance, which became effective for companies on March 1, highlights the “unbroken chain that links ethical leadership, company strategy and sustainability”.
The report describes sustainability as the primary moral and economic imperative and indicates that incremental changes towards sustainability are not sufficient. It calls for a fundamental shift in the way companies and directors act and organise themselves.
One of the new requirements of the King 3 report is the need for an integrated annual report focusing on the sustainability performance of the company in the economic, social and environmental spheres.
“By moving the recommendations of King into the new Companies Act, it normalises such thinking and actions. However, fund managers can’t do anything until the asset owners ask them to, ” Canter said.
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