Issue: March 2012 / May 2012


Early days for CRISA

On a wing and a prayer, it will take commitment to work. Trustees of pension funds must play their part.

Don't hold your breath just yet for a seismic shift in SA investment practice. It could happen – the operative word being could – with implementation from February of the Code for Responsible Investing in SA (CRISA).

To gain traction will require time and commitment, perhaps also the odd push especially from trustees of pension funds inclined to underestimate the bottomup pressure they can assert. It will also require constant monitoring, both by and of the signatories to this voluntary code, to ensure that it develops stronger potency than a bit of marketing tinsel for feel-good compliance.

Either it will succeed in its stated purpose "to give guidance on how the institutional investor should execute investment analysis and investment activities and exercise rights to promote sound (corporate) governance"; or it will fail by an inability of these investors, asset managers as much as pension funds themselves, to reverse the ingrained habit of chasing and being assessed predominantly on short-term share performance. This is anathema to the concept of investee companies' "sustainability" at CRISA's core.

The road to development of CRISA, the product of exhaustive consultation, is paved with good intentions. They're enshrined in five key principles (see box). That the initiative was led by the Government Employees Pension Fund and the Association of Savings & Investment SA, then supported in final form by the Financial Services Board and the JSE amongst others, complements the potential impetus.

More than this, CRISA is underpinned by a plethora of associated measures designed to enhance stakeholder empowerment. Importantly:

The new Companies Act which advances corporate responsibilities and shareholder rights. The latter include the rights of shareholders to elect directors and approve remuneration policies;

FSB circular PF 130 on good governance of pension funds. It includes the requirement that they produce statements of investment policy;

The revised Regulation 28 under the Pension Funds Act. It includes the need to consider environmental, social and governance criteria in investment decision-making. And, as the essential adjunct to CRISA, there's of course King III. It noted that shareholders of major JSE-listed companies mostly comprise financial institutions: "These institutions are ‘trustees' of the ultimate beneficiaries who are individuals. The ultimate beneficiaries of pension funds, which are currently among the largest holders of equities in SA, are individuals who have become the new owners of capital."

Thus was laid the philosophical foundation for CRISA. The report of the King committee went further, arguing that a code be drafted specifically to set out the expectations on institutional investors in ensuring that companies effectively apply the principles and practices recommended by King III: "The code should encourage action that ensures all role players in the investment chain become aware of their duties." Thus was CRISA born.


  • Institutional investors are any legal person or institution defined in the FSB Act (e.g. pension funds and life-assurance offices) to the extent theat it owns and invests in the equity of a company and has obligations in respect of investment analysis, activities and returns to the ultimate beneficiaries;
  • Service providers are those who act under mandate of the institutional investor in respect of any of the investment decisions or performs investment activities for and on behalf of the institutional investor;
  • Mandate is the arrangement between the institutional investor and its service provider whereby the service provider makes investment decisions or performs investment activities for and on behalf of the institutional investor;
  • Sustainability is the ability of a company to conduct its operations in a manner that meets existing needs without compromising the ability of future generations to meet their needs. It includes managing the impact that the business has in the life of the community, the broader economy and the natural environment. It also includes the business strategy as well as economic, environmental, social and governance considerations;
  • Stakeholder means those who reasonably have a legitimate expectation to be engaged with, or receive information from, the institutional investor or its service providers on the grounds that they’re affected by the investment activities and decisions of the institutional investor or its service provider;
  • Transparent means easy to understand or recognise, balance, complete, obvious, candid, open, frank relevant and accessible to stakeholders;
  • Ultimate beneficiaries are those end-beneficiaries or underlying investors, such as the individual savers or pension fund members to whom institutional investors owe their duties, including the individual retirement fund beneficiaries and the individuals in whose names on whose behalf unit trust and policies are held

A caution relates to the seriousness of CRISA adherence, for the code essentially follows the UN Principles for Responsible Investment of which the GEPF was a founding signatory. Although more than 20 SA asset managers and owners subsequently signed the UN PRI, the King report found, in non-compliance with its principles "few are voting and disclosing their votes" at shareholder meetings.

With a handful of notable exceptions, few still do. Clearly, this flies against the transparency and accountability to the owners of capital for which CRISA stands. However, early indications from main players are brimful with promise (TT Sept-Nov '11).

Institutions will be put to the test, and it won't always be easy:

  • Their asset-management divisions can face conflicts in confronting companies that are clients of their sister corporate-finance divisions;
  • They could be hard-pressed to challenge remuneration policies when their own are compared;
  • They might lack the research capacity or mindset flexibility to promote long-term sustainability, for achievement of "superior risk-adjusted returns", against short-term temptations to maximise monetary benefits alone. This is compounded as much by bonus-incentive structures with short-term alignments as by client pressures for ever-upwards performance;
  • They'd need to focus on engagement with investees, not voting with their feet by divestment, because there's a relative paucity of JSE-listed companies that offer sufficient liquidity for institutional appeal.

A serious obstacle was recently encapsulated by Financial Times columnist Martin Wolf: "In the short-run, lower investment and higher prices of output boost both share prices and remuneration of management. Moreover, the short run is what management has.... Corporates are run not for long-term health, but for executive wealth, with bad results for the businesses themselves, and, still more, for the entire economy."

Still, there are ways through. They must be found. It depends on whether there's an institutional will to make CRISA work.

Allan Greenblo,
Editorial Director