CRISA and Regulation 28: South Africa Boosts Sustainable Investing
"ESG issues are mainstream investment considerations and not peripheral, especially at a time the world is facing serious sustainability challenges." -- John Oliphant, Chairman, Committee on Responsible Investing by Institutional Investors in South Africa
So far, 2011 has been a banner year for sustainable investing among South Africa's institutional investors. In March, the National Treasury issued a revamped version of Regulation 28 of the Pension Funds Act, which regulates R 1.1 trillion (USD 152.5 billion) in private pension funds and R 1 trillion (USD 138 billion) in the Government Employees Pension Fund (GEPF), South Africa's first signatory to the international Principles for Responsible Investment (PRI).
The revised Regulation 28, which went into effect on July 1 and will become mandatory in January, makes it clear that the South African government is serious about sustainable investment. It outlines a fund's fiduciary duty to "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."
SUSTAINABLE INVESTMENTS, SUPERIOR RETURNS
Also last month, the Institute of Directors in Southern Africa (IoDSA) released the Code for Responsible Investing in South Africa (CRISA), which directs institutional investors to "incorporate sustainability considerations, including environmental, social and governance, into investment analysis and investment activities as part of the delivery of superior risk-adjusted returns to the ultimate beneficiaries."
The Association for Savings & Investment South Africa (ASISA), one of CRISA's endorsers, notes that the issuance of the code "makes South Africa the second country next to the United Kingdom to formally encourage institutional investors to integrate into their investment decisions sustainability issues."
"At the heart of CRISA is the recognition of the importance of integrating sustainability issues, including ESG, into long- term investment strategies," wrote John Oliphant, chairman of the Committee on Responsible Investing by Institutional Investors of South Africa and chief investment officer of GEPF in his foreword to CRISA. "These issues become more important in a market such as ours, which is predominantly driven by a non-mandatory market-based code of governance for companies (King Report on Governance), as opposed to legislation."
THIRSTY FOR ESG: THE PROACTIVE HORSE WINS
Heather Jackson, Head of Socially Responsible Investing at Cadiz Asset Management, an asset management firm that manages R 42 billion (USD 5.8 billion) for third-party clients in South Africa, notes the importance of "socially-oriented capital projects to promote growth and stability... the vital role of sustainable impact investing in offering the capital and ingenuity necessary to solve some of our pressing social and environmental challenges."
"It is the companies and organisations with the capabilities to turn these challenges into business opportunities that are more likely to be the winners of tomorrow," Jackson said. Indeed, the challenge to incorporate ESG into investment strategy should be viewed as chance to get ahead of the competition and set the stage for long-term SRI growth. While the code is non-mandatory, "industry can either be reactive or proactive," said Wits University law professor Bonita Meyersfeld, "because we know effective regulation is coming."
As South Africa's institutional investors adjust to the nation's new socially responsible investing environment, they would do well to remember the Zulu proverb, "The horse that arrives early gets good drinking water."
image: This South African garden uses urine and compost from UDDTs (urine diversion dehydration toilets) (credit: Sustainable sanitation, Flickr Creative Commons)