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In­vestors in the UK and US are spoilt for choice if they want to ap­pease their en­vi­ron­men­tally friendly val­ues be­cause they can in­vest in many funds that re­flect them. For in­stance, if they want to in­vest in funds that avoid back­ing to­bacco firms, casi­nos or nu­clear power sta­tions, they can. Un­for­tu­nately, in South Africa, re­tail in­vestors don’t have the luxury of such choice, be­cause we are lag­ging be­hind in this space.

Tra­di­tion­ally, eth­i­cal funds adopt a process called neg­a­tive screen­ing to ex­clude com­pa­nies with ques­tion­able prac­tices, such as the ones that man­u­fac­ture weapons or pro­mote gam­bling. How­ever, there is an in­crease in the num­ber of funds and in­dices that are in­vest­ing in com­pa­nies that make a pos­i­tive ESG (en­vi­ron­men­tal, so­cial and gov­er­nance) con­tri­bu­tion by hav­ing good hu­man rights, labour rights and equal­ity records.

En­cour­ag­ingly, South Africa is mak­ing some progress when it comes to sup­port­ing ESG prac­tices. How­ever, it is the in­sti­tu­tional in­vestors that have bet­ter ac­cess to funds that em­brace ESG philoso­phies, while re­tail in­vestors will strug­gle to find such ex­po­sure. This is mainly be­cause some in­sti­tu­tional in­vestors are bound by law to con­sider them, while re­tail in­vestors have yet to show an ap­petite for them.

Pen­sion funds, for ex­am­ple, are ob­li­gated to em­brace ESG prin­ci­ples, thanks to reg­u­la­tion 28 of the pen­sions fund act of 2011 which says: “Pru­dent in­vest­ing should give ap­pro­pri­ate con­sid­er­a­tion to any fac­tor which may ma­te­ri­ally af­fect the sus­tain­able per­for­mance of a fund’s as­sets, in­clud­ing fac­tors of an en­vi­ron­men­tal, so­cial and gov­er­nance char­ac­ter.”

If you per­son­ally want to in­vest in green com­pa­nies or funds that em­brace pos­i­tive ESG prin­ci­ples, it is pos­si­ble, but you will have to be­come more proac­tive. Here is what you can do:

1GRILL YOUR FUND MAN­AGE­MENT COM­PANY ABOUT THEIR ESG CRE­DEN­TIALS “There are as­set man­agers that have re­spon­si­ble in­vest­ing cre­den­tials, so you could ask them ... to show you how these is­sues are con­sid­ered in their re­search, eval­u­a­tion and port­fo­lio con­struc­tion process. For the buyer that wants to im­pose some eth­i­cal con­straint, you could say ‘I am look­ing for a fund that ex­cludes to­bacco, al­co­hol and gam­bling’,” says Jon Dun­can, head of re­spon­si­ble in­vest­ment at Old Mu­tual In­vest­ment Group.

2CONSIDER THE FTSE/JSE RE­SPON­SI­BLE IN­VEST­MENT IN­DEX SE­RIES Con­sider funds that track or have ex­po­sure to the FTSE/JSE Re­spon­si­ble In­vest­ment in­dex se­ries. It was launched in Oc­to­ber 2015 by the JSE to pro­mote its cor­po­rate sus­tain­abil­ity prac­tices, in part­ner­ship with FTSE Rus­sell. The new in­dex se­ries re­placed the JSE’s So­cially Re­spon­si­ble In­vest­ment (SRI) In­dex af­ter ques­tions were raised about its se­lec­tion cri­te­ria and per­for­mance.

3CHANGE YOUR SHARE PORT­FO­LIO TO RE­FLECT YOUR VAL­UES This is a good thing to do as it could re­duce your risk, says Gray Maguire, an in­de­pen­dent fi­nan­cial man­age­ment con­sul­tant. “Com­pa­nies that man­age their en­vi­ron­men­tal and so­cial im­pacts bet­ter are less likely to have share price volatil­ity from changes in en­vi­ron­men­tal leg­is­la­tion, so­cial un­rest or dis­as­ters – think VW emis­sions scan­dal, BP Deep­wa­ter Hori­zon, Lon­min,” he says.

Sim­ply sell your shares and in­vest your money else­where if you have ex­po­sure to a com­pany, whose phi­los­o­phy and gov­er­nance prac­tices you do not agree with.

If you find your fund man­ager or in­vest­ment house in­vests in com­pa­nies that have ques­tion­able prac­tices and val­ues, you can get ad­vice about switch­ing those too. IN­VEST IN SHARIA FUNDS

“Debt, through bonds or fixed-in­come project fi­nance, or pri­vate eq­uity may be the only way to gain ex­po­sure to re­new­able en­ergy com­pa­nies,” says Dun­can.

6MAKE SURE YOUR PEN­SION FUND IS EM­BRAC­ING ESG PRIN­CI­PLES You do not have to sit idly by and let the trustees make all the de­ci­sions when it comes to your pen­sion fund. Grill the trustee of your pen­sion fund about how ESG is­sues are con­sid­ered in their in­vest­ment man­dates.

Old Mu­tual, for ex­am­ple, launched the first re­spon­si­ble in­vest­ment MSCI eq­uity fund in South Africa, and there are bound to be more as­set man­age­ment houses fol­low­ing suit and cre­at­ing sim­i­lar prod­ucts for pen­sion funds to con­sider.

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