Edition: July / September 2016
CLASS ACTIONS 1
Ten out of ten, so far
As it celebrates the first decade of operation since its launch,
UN PRI can boast meaningful achievements globally and not least in SA.
Much more is expected in the advance of ’responsible investment’
and accountability. Pension funds’ involvement is critical.
The Principles for Responsible Investment
(PRI) initiative, supported by the United
Nations, is an international network of
investors working together to put into practice the six
PRI principles (see box) as a significant contribution
to the development of a more sustainable global
Its goals are to:
- Understand the implications of sustainability for investors, and
- Support signatories to incorporate these issues into their investment decision-making and ownership practices.
In early 2005 the then UN secretary-general,
Kofi Annan, invited a group of the world’s largest
institutional investors to join a process that would
develop the principles. A 20-person investor
group, drawn from institutions in 12 countries,
was supported by 70 experts from the investment
industry, intergovernmental organisations and civil
society. The principles were launched in April 2006 at
the New York Stock Exchange.
SA’s Government Employees Pension Fund
(GEPF) attended the launch. It became a founding
The principles are voluntary and aspirational.
They indicate that ‘responsible investment’ is a
process that must be tailored to fit each organisation’s
investment strategy, approach and resources. The
principles are designed for compatibility with the
investment styles of large, diversified, institutional
investors operating within a traditional fiduciary
PRI today has more than 1 500 signatories from
more than 50 countries representing over US$59
trillion in assets. The initiative has quickly become
the leading global network for investors to learn
about responsible investment -- and to collaborate
with peers, companies and policymakers to generate
sustainable, long-term investment returns for clients
Strong growth of the PRI initiative shows
that investors have become increasingly aware
of environmental, social and governance (ESG) factors. They seek to incorporate these factors before
they invest as the ongoing, active owners of shares
and bonds as well as other securities and assets.
THE SIX PRINCIPLES
The growth of responsible investment is being driven
- Recognition of the financial materiality of ESG issues for individual companies and the market as
- Acceptance that integrating these factors forms part of an investor’s fiduciary duty to its clients
- Concerns about the impact of short-termism on company performance, investment returns and
- A desire to see companies owned and managed in a way that more holistically assesses long-term
drivers of risk and return;
- Increasing public-policy measures requiring
investors to exercise their rights and responsibilities as owners, including expectations around voting and engagement.
Many PRI signatories view their initial decision
to formally apply to become a signatory as the first
step in publicly demonstrating their organisation’s
commitment to responsible investment.
The PRI initiative also provides a high-level
framework for integrating ESG issues into investment
decision-making and ownership practices within
the boundary of investors’ fiduciary duties. It offers
a comprehensive range of tools and resources
to support signatories, including local regional
networks such as in SA.
PRI uptake in Southern Africa
The PRI SA Network was launched in May 2009
with endorsement of the GEPF. The network is
a platform for PRI signatories in the region to discuss
ideas, share experiences and collaborate on a range of
ESG issues material to investment decision-making.
There are 60 signatories in Africa of whom 52 are in
SA. The latter comprise six asset owners, 35 investment
managers and 11 professional service providers.
PRI also has a number of network-supporter organisations in Africa. These include the Association of Savings & Investment SA (ASISA), the Institute of Directors SA and the Zimbabwean
Association of Pension Funds. PRI network supporters are generally non-profit industry organisations that publicly express support for the PRI within their constituencies.
This partnership enables network supporters to
work with the PRI to raise awareness of responsible
investment and the PRI within the investment
community in different regions and sectors, and to
access PRI resources and support.
The GEPF continues to play a lead role in growing
the network. Linda Mateza, head of Investments &
Actuarial at the GEPF, was recently appointed to
chair the PRI’s southern Africa network. The GEPF
further assists the PRI globally as GEPF board chair
Renosi Mokate serves as the PRI board member for
Africa and the Middle East.
Due to the efforts of then principal executive
officer John Oliphant, the GEPF was also
instrumental in bringing the PRI annual signatories’
event to Cape Town in 2013. ‘PRI in Person 2013’ was
attended by more than 400 participants representing
some 220 organisations from 25 countries.
PRI is represented on the Code for Responsible
Investing in SA (CRISA) and the ASISA responsible
investment (RI) committees. This enables PRI to share global developments in RI with SA-based signatories. It also provides local SA signatory inputs into PRI global workstreams and projects for the benefit of the SA investment industry, PRI and its local and global signatory base.
Also in SA, the PRI was a significant initiator and
contributor to the Sustainable Returns for Pensions & Society
Project This was an initiative of the Batseta Council of
Retirement Funds for SA and the International Finance
Corporation. It saw the release in September 2013 of
Responsible Investment and Ownership – A Guide for
Pension Funds in SA, a seminal publication.
The network is actively working towards
increasing SA and African asset-owner membership
of PRI and to extend its footprint in neighbouring
African countries. Presentations and trustee training
workshops, focusing on responsible investment
and PRI, were delivered during 2015-16 in SA,
Zimbabwe, Malawi, Botswana and Swaziland.
PRI is also working towards a global trustee-training
programme in RI. It will complement the PRI
Academy online programme which offers self-paced
online courses in responsible investment.
A review of the list of SA signatories indicates
that the majority are investment managers and
service providers. In fact, the asset-owner category –
reserved by way of example for retirement funds and
insurance companies – comprise fewer than 12% of
all SA signatories.
This contrasts poorly with the rest of the world.
Globally, PRI’s asset-owner signatories represent
just over 25% of the total. PRI is working with its
signatories and industry stakeholders in southern Africa to raise awareness and educate retirement
funds on the importance of responsible investment
and to explain the real benefits of signing up to PRI.
At the top of the investment value chain are
retirement funds. As asset owners, their role is
critical when it comes to mandating their investment
managers to embed the analysis of ESG factors into
their investment activities. By doing so, they ensure
that they discharge fully their fiduciary duty to
clients and beneficiaries.
Asset owners’ beliefs and expectations on how
ESG issues should be managed, to best contribute
to portfolio returns across asset classes over time,
may not always be fully in line with those of their
investment managers. Aligning the interests of both
parties is a fundamental requirement for the delivery
of sustainable portfolio returns over the longer term.
It is also central to a mission of the PRI initiative.
This is to support signatories in helping develop a
more sustainable global financial system.
Reg 28 and RI
A starting point for SA retirement funds is to apply the principles outlined in Regulation
28 under the Pension Funds Act (administered by the Financial Services Board) as well as those of CRISA. Put briefly, fund trustees should make sure when appointing a service provider (such as an investment manager or consultant) that there
are clear expectations; in particular, on how ESG
issues can and should be managed and reported to
the asset-owner client, and are contained within the
PRI has a number of resources available to its
asset-owner signatories. They’re intended to assist
them in discussing this aspect with fund managers.
An early success of the PRI’s coordinating
powers in SA, by means of the local network, was
engagement with the King committee during the
stakeholder-consultation process ahead of the King
III code on corporate governance. The submission
from the network argued for the inclusion of a
chapter on shareholder responsibilities to support
good governance in SA companies.
Discussion between the network and the
committee gave rise to development of CRISA. What
emerged was an intentionally a strong alignment
between PRI and CRISA principles, four of them
being shared. CRISA applies, like King III, on an
“apply or explain” basis whereas PRI is a voluntary
global investor network to which organisations apply
for signatory membership.
Whilst CRISA gives guidance on how the
institutional investor should execute investment
analysis and investment activities, and exercise rights to promote sound governance in SA, PRI provides
implementation support in the form of best-practice
resources to assist signatories implement these
Of immense help to SA asset-owner and
investment-manager signatories to PRI is the annual
PRI Reporting & Assessment framework. It has a
number of questions which intentionally address
CRISA requirements as well as PRI implementation.
Bertrand ... African thrust
This enables the SA signatories easily to report on their application of both the PRI and
CRISA principles to their members, beneficiaries and broader stakeholders using the annual PRI Assessment Report which they receive each year.
“PRI, as a global collaborative investor network, is
keen to continue to establish and deepen its network
of signatories and network supporters across the African continent,” says Africa head Adrian Bertrand.
He’s confident that -- working with current
signatories, network supporters, regulators and
supportive governments -- it is only a matter of time
before many other African countries follow SA in
terms of its progress in mainstreaming responsible
investment by means of both legislative and bestpractice
guidance for institutional investors and their
Trustees can drive RI uptake
The PRI’s 10-year anniversary provides an
opportunity to reflect on all that has been
achieved in the first decade. It also provides the
opportunity to reflect on the remaining obstacles
and barriers to mainstream responsible investment
practices by institutional investors across the globe.
SA has its own set of ESG challenges which
responsible investors are required to successfully
navigate and manage, not to mention the current
country-specific economic challenges. These can
easily be argued to have arisen, at least in part, from
unchecked and unmanaged ESG issues at country
At the SA launch of the Fiduciary Duty in the 21st
Century report, published by the PRI (in conjunction
with UNEP FI, UNEP Inquiry and the UN Global Compact) last year, the PRI signatories were again reminded that institutional investors need to ensure that their commitments to ESG integration are followed across the entire investment process:
- Investors need to require investee companies to provide robust, credible and detailed accounts
on their management of ESG issues, and of the financial significance of these issues;
- They must engage policymakers on issues relevant to long-term performance;
- Intermediaries – legal advisers, investment
consultants, stock exchanges, brokers and data providers – should analyse and take into account all long-term value drivers, including ESG issues, in their investment practices and processes;
- Recognise in practice that ESG issues are an integral part of codes of professional ethics such
as the CFA;
- Raise market awareness of the investment case for ESG integration.
Policymakers should insist that fiduciaries take
account of ESG issues in their investment processes,
their active ownership and voting activities, and their
public policy engagements. In these, they must be
transparent on all aspects of ESG integration and
Further, they should also support efforts
to harmonise national legislation and policy
instruments (e.g. stewardship codes and disclosure
requirements) on long-term responsible investment.
At the same time, they must work to develop an
international statement or agreement on the duties
that fiduciaries owe to beneficiaries.
SA is a pioneer in having been one of the first
countries globally to incorporate the consideration
of ESG issues when investing as per the revised
Reg 28 as well as CRISA (first emerging-market
stewardship code and second such code globally after
the UK Stewardship Code). However, there remains
room improvement. The 21st Century report, in its
coverage of SA, offers recommendations to both the
Financial Services Board and the CRISA committee.
The FSB should:
- Clarify that compliance with the requirements of Reg 28, in particular those relating to ESG
issues, should be seen as an integral part of the
fiduciary duties imposed by the Pension Funds Act;
- Clarify that responsible investment includes ESG integration, engagement, voting and public policy
- Explicitly address ESG-related competence,
expertise and skills in forthcoming guidance on
pension-fund board education;
- Require asset owners to prepare a public, annual report describing how they have integrated
responsible investment into their investment policy statements, practices and processes, and their investment-manager selection, appointment and monitoring processes.
The report recommended that CRISA committee should:
- Strengthen oversight of the code by conducting more detailed studies of current practices;
- Analyse the investment and other outcomes
resulting from implementation of CRISA principles.
Of critical importance is the report’s conclusion
that failure to look at ESG factors, in terms of
the risk they present to portfolios, is actually a
breach of fiduciary duty. This applies as much to
a pension fund’s board of trustees as it does to the
investment manager(s) appointed by a board to make
investments on a fund’s behalf.
Many leading SA investment managers, like
their international peers, have already committed
extensive resources to understanding ESG risks
and opportunities at individual company and also
portfolio level. Climate change, black economic
empowerment, executive pay, health and safety in the
extractives sector, ‘fracking’ and gender diversity at
board as well as management levels, are examples of
relevant ESG investment issues.
“Now is the time for pension funds seriously to
review their policies in light of Reg 28 and CRISA
requirements,” Bertrand urges. “Trustees must ask
their funds’ asset consultants and managers for
explicit information about their investment processes
and how these incorporate ESG factors, from both an
ESG integration and active ownership perspective.”
* More information about PRI can be obtained
from Adrian Bertrand, Head of Africa, by email at
email@example.com or phone +27 (0)84 500 6474. Also see the www.unpri.org website.