Issue: June 2012 / August 2012
Expert Opinion

What’s all the fuss about ESG?

Fernandez...pride in diversity
You hear a lot these days about sustainability, socially responsible investing and principles of responsible investment. It boils down to is how companies and investment managers are able to prioritise environmental, social and governance (ESG) considerations. While largely voluntary for now, global capital providers increasingly require their fund managers to show what they have done to achieve results in these different spheres. Closer to home, as individuals and customers we’ve become more conscious of what impact the products we consume have on the environment each time we pick something off a shelf!

How is Sanlam Investment Management (SIM) doing?

On the environment (E)

As an investment manager, we are working towards bringing environmental considerations to the fore of our decision-making. We have drafted a policy on environmental factors that need to be considered in our investment process. This policy is being approved.

As a business, SIM subscribes to the Sanlam group environmental policy, which has been drawn up, expanded and updated over time. Sanlam is also in the process of establishing a group-wide Environmental Committee that will consider all our environmental risks so that we can identify opportunities to further reduce our carbon footprint as a Group, and has teamed up with the World Wildlife Fund on water conservation.

On social objectives (S)

Before engaging with clients on social issues, SIM itself focuses on achieving results with respect to social priorities. “The business has changed fundamentally. We now have a much younger vibe. We’re cross-generational, dynamic and diverse,” says SIM MD Cora Fernandez. That is reflected in the staff complement. Whereas in 2000, 19% of SIM’s workforce was black, that proportion is now over 50% with many black South Africans in key decision-making roles.

A particular success story is the SIM equities team. It has made a quantum leap since 2009 when it was predominantly white and is now one of the most transformed equities teams of the traditional asset managers in the industry, with 64% of its team members Black, Coloured and Asian.

Head of Equities/Senior Portfolio Manager at SIM, Patrice Rassou, is a firm believer that diversity within the group makes for better decisions in the long run. “The unprecedented level of volatility that has accompanied the global credit crisis has proved to me that investment teams need to be resilient and able to solve complex problems at short notice. What better way to tackle such problems than with a group of individuals with different perspectives, skills and personal histories whose combined cognitive wisdoms complement and enhance each other,” he says.

SIM adopted a strategy to “grow its own timber” holistically across all levels of the business. With this in mind, we developed several programmes to attract and retain talented South African investment professionals. A bursary programme, which is much more than just that, includes a mentoring programme where senior leaders in the business, including Cora Fernandez, spend significant time and effort helping the recipients shape their lives and careers.

Through its Investment Professionals Development Programme (IPDP), SIM also offers young graduates with limited industry experience the invaluable opportunity to participate in a work-based development programme that facilitates their individual performance and fast tracks their career development. Nine candidates participated in last year’s IPDP and qualified with the National Certificate in Financial Markets and Instruments.

On corporate governance (G)

As a responsible corporate citizen, SIM is committed to integrate the principles of responsible investment into all that we do because it makes long-term sense. You take on more risk if you invest in a business with bad governance. If executive management does not adhere to good governance practice, it is unlikely to be cognisant of the impact the business has on a carbon-constrained economy (aka carbon footprint). The same logic holds on the social front.

As such, we subscribed to the UN Principles for Responsible Investing (PRI) in 2008 and to the local Code for Responsible Investing in SA (CRISA) in 2011. The Sanlam Group recently became a signatory of the UN PRI too.

In 2006, we set up a Corporate Governance Unit (CGU) to implement our governance responsibilities on behalf of clients. Since then the CGU has drawn up a policy document freely available to the public and a framework for voting proxies - an essential element of corporate governance as it is the primary way in which shareowners can influence a company’s operations and its stance on corporate governance.

The graph shows SIM’s proxy voting activity since 2010. It highlights the active stance we take when it comes to the companies in which we invest on behalf of our clients.

Attaining the above ESG objectives will no doubt involve an ongoing and ever-evolving journey for the industry, and SIM. But as long-term investors, we believe it is well worth the effort.