Edition: Sept - Nov 2013
Editorials

RESPONSIBLE INVESTMENT 2

Action stations

All systems go for RI to take off. Regulation is there, and now an officially-endorsed practical guide is too.

Trustees of pension funds and their service providers face an onslaught of information about responsible investment (RI). Necessarily so, for the issue of ‘sustainability’ has quickly moved from theoretical discussion to feasible execution. They avoid it at their peril, not least because in SA it’s become a statutory under Regulation 28.

In October there’s the international PRI conference to be held in Cape Town (see elsewhere in this TT edition). And, on a date soon to be decided, there’s the launch of ‘Responsible Investing: A Guide for Pension Funds in SA’ at the Sandton Convention Centre.

Both events are equally important for different reasons. The former puts SA at centre stage of global RI initiatives. The latter takes the local industry through the steps for planning and implementation.

The guide is aimed primarily at trustees and principal executive officers of retirement funds, secondarily at the consultants who advise them and the asset managers who’ve signed (or still thinking of signing) the Code for Responsible Investing in SA. Part of the ‘Sustainable Returns for Pensions and Society’ joint industry initiative led by the International Finance Corporation and the Principal Officers Association, this guide is the product of exhaustive consultation whose participants included government, organised labour, investment managers and major pension funds.

Endorsed by National Treasury (the policymaker) and the Financial Services Board (the regulator), it recognises that the unequivocal instruction from Reg 28 does not include detailed guidance on how this mandate is to be met: “The majority of SA’s pension funds are at an early stage of the journey towards RI implementation. Many trustees and principal officers are new to the project.”

Numerous reasons are listed for RI’s increasing importance to southern Africa. Amongst them are the role of pension funds in growth and development, the stronger links shown between RI and long-term financial returns, the compatibility with trustees’ fiduciary duties, and newly-developed codes of good practice.



Kamionsky . . . maladministration or
maltreatment?

Five main principles are accepted:

    • Responsibility for RI sits with trustees, not assetconsultants or managers. These service providers can provide valuable support, but accountability remains with the trustee board;
    • There is no prescription on ESG (environmental,social and governance) issues that are material, or on the methodologies to be used in applying them. Each fund has a high degree of discretion on how it factors ESG into its investment decisions;
    • All funds will need to disclose policies and report regularly. Envisaged are public reports;
    • The RI support market should develop competitive innovation. This would include strategy design, ESG metrics, research and analytics, proxy voting and shareholder activism;
    • Pension funds should take a phased approach to implementation. Precise steps will differ from fund to fund. As a general indication, RI should take about four years to implement comprehensively.The guide is an A-Z on RI. It offers tools on how to get started, to develop and implement a policy, and methods for reporting and disclosure. There’s also a recommended timetable for adoption. As such, it’s an indispensable handbook not only for trustees but also for those who advise them and intend to monitor them

    For further information on the conference, and to register, go to www.sustainablereturns.org.za or to www.poa.org.za. Delegates will receive copies of the guide.

    SUSTAINABLE RETURNS PROJECT

    A southern Africa initiative to integrate ESG considerations into the mainstream of retirement-fund investment practice, the project was convened in 2011 by the Principal Officers Association, the International Finance Corporation, the Government Employees Pension Fund and the Association of Savings & Investment SA.

    Its steering committee comprises representatives from National Treasury, Financial Services Board, the Banking Association, Financial Planning Institute, Debswana Pension Fund, Government Institutions Pension Fund of Namibia, Institute of Directors, Pension Lawyers Association, SA Institute of Chartered Accountants, SA Venture Capital Association, Telkom Pension Fund and the UN-supported Principles for Responsible Investment as well as labour federations Cosatu, Fedusa and Nactu.

    The project is welcomed by Finance Minister Pravin Gordhan: “Investment decisions of retirement funds have a direct bearing on pensioners and their society. The size of these funds means they have unprecedented power to secure sustainable longer-term return by insisting on high standards of environmental care, social concern and better governance of the assets in which they invest.”