Issue: December 2011 / February 2012


Get ready for CRISA

Institutional investors must prepare to apply or explain their compliance, advises Prasheen Singh. Trustees of pension funds have an important role.

Singh...Reg 28 underpin

Singh...Reg 28 underpin
In July the final version of the Code for Responsible Investing in South Africa (CRISA) was launched with considerable fanfare in the institutional-investment arena. Upuntil the launch there had been a fair amount of talk in the industry about the topic of Responsible Investing (RI), the UN PRI and the initial drafts of CRISA – and a fair amount of talk afterwards. Now it is time for decisions and actions.

The GEPF’sJohn Oliphant,who chaired the committee responsible for producing the final CRISA code, was strident in his challenge that those of us involved in the long-term savings industry pledge commitment to it principles(see box). Included is an initial milestone of 1 February 2012 as the date by which institutional investors and service providers should indicate their adoption (or not) of the principles and practice recommendations in CRISA on an “apply or explain” basis. This issimilar to the approach used in companies’ reporting on adherence to King III.

Whether you represent the asset owners in the industry or represent one of the various service providers to the asset owners, such as investment managers and consultants, the question remains: “Will you apply the code or explain it away?”

CRISA applies to:

  • Institutional investors as asset owners, e.g. pension funds and insurance companies;
  • Service providers of institutional investors, e.g. asset and fund managers, and consultants.

It’s worth pointing out that the final draft of CRISA contains an additional principle that wasn’t in the discussion draft; namely, the fourth principle which requires that one be mindful of potential conflicts of interest and manage them proactively. This principle isn’t something that is explicitly spelt out in other international codes on RI but the committee felt that it warranted special mention, given the more concentrated ownership and governance realities in the SA marketplace.

To date, a lot of commentary and action around the topic of RI has come from investment managers and a few of the big pension funds. However, this code is aimed at all asset owners and their fiduciaries and their investment-related service providers (i.e. all pension / long-term savings funds, life assurers, investment managers, asset consultants etc. – or more specifically, the trustees or directors responsible for the assets and businesses of those entities).

So, if you are an institutional investor or service provider as defined by CRISA, what do you need to do to address the challenge if you’ve not done so already?

Firstly, you need to “believe”. Adopting and practising the principles of CRISA has considerable operational consequences with uncertain benefits and costs. Indeed, it also has potential costs (with possibly no benefits) if you don’t adopt the principles. So it can’t be ignored.

While investment managers need to adjust their investment processes to integrate ESG factors into their analysis and actions, it is the owners of the assets they manage who need to believe in the merits of why this should be done. Add to this the fact that from February onwards, institutional investors will need to disclose the extent of their adoption - or intent to adopt - then it’s essential that pension funds meaningfully address RI and CRISAas soon as possible.

Why would you do this? Besides believing this is ‘the right thing to do’, there is a growing body of evidence pointing to the positive correlation of above-average long-term returns and good ESG practices by companies. Institutional investors should further recall that the preamble to Regulation 28 now states that prudent investing “should give appropriate consideration to any factor which may materially affect the sustainable long-term performance of a fund’s assets, including factors of an environmental, social and governance character”. So it would be prudent to ask: do you have a choice?

Ideally before February:

  • Debate the pros and cons of CRISA adoption for your fund, organization or institution;
  • Decide the extent and manner in which you will adhere to the principles;
  • Draw up a Responsible Investment Policy appropriate for your entity;
  • Implement the policy by deciding what things you need to do and what things you need your service providers to do;
  • Take steps to get these going;
  • Review and update mandates / agreements between you and service providers / clients if necessary;
  • Engage with your stakeholders about what you are doing (or going to do), and work out how you will regularly disclose your activities and progress to them.

There is a lot to do. It’s not expected that all will be in place by February, but it is hoped that the first steps will have been taken with momentum growing thereafter. If you lack ‘knowledge’ or ‘resources’, there are consultants and advisors able to help. However, if you lack ‘time’ no one can address that but you. Have you started yet? Will you apply or explain?

  • Prasheen Singh is head of consulting at RisCura.


CRISA provides guidance on how institutional investors (owners and their agents) should execute investment analysis, investment activities and exercise rights so as to promote sound and responsible governance:

  1. An institutional investor should incorporate sustainability considerations, including environmental, social and governance (ESG), into its investment analysis and investment activities as part of the delivery of superior risk-adjusted returns to the ultimate beneficiaries;
  2. An institutional investor should demonstrate its acceptance of ownership responsibilities in its investment arrangements and investment activities;
  3. Where appropriate, institutional investors should consider a collaborative approach to promote acceptance and implementation of the principles of CRISA and other codes and standards applicable to institutional investors;
  4. An institutional investor should recognise the circumstances and relationships that hold a potential for conflicts of interest and should proactively manage these when they occur;
  5. Institutional investors should be transparent about the content of their policies, how the policies are implemented and how CRISA is applied to enable stakeholders to make informed assessments.