SA investors lag in environmental responsibility practices

South African asset management companies have not yet fully integrated environmental considerations in their investment decision making according to research that was completed during June and December 2009 and included responses from 22 investment organisations. The study found that investors do not yet supply investment products that are primarily driven by an environmental focus to their clients.

The study was conducted by Stephanie Giamporcaro, a Research Fellow based at UCT’s Environmental Policy Research Unit and the Programme Director of the landmark new course Sustainable Investment of Asset Managers at the UCT Graduate School of Business. Launched in August  2009, the course is the first of its kind to provide the tools and knowledge to empower responsible investment in SA.

Only 50% of the sample showed some internal awareness, understanding and action around climate change. 53% of the survey respondents see the inclusion of environmental concerns as a further step to be taken in the future beyond the current corporate governance focus.

The main current obstacles to a further integration of Environmentally Responsible Investment (ERI) were found to be: the lack of interest and scepticism of institutional clients and of the local investment consulting industry around responsible investment; and the belief that in SA more important social developmental goals conflict with environmental priorities.

“The lack of interest and scepticism of institutional clients and of the local investment consulting industry around responsible investment is revealed as a major market impediment,” said Giamporcaro.

“Some respondents emphasised that there is still too strong a belief that investors will lose their beneficiaries’ money if they make social and environmental concerns a focus of their investment choices.”

Giamporcaro explained that this was a misperception – numerous academic studies have shown that responsible investments generate similar returns to others.

The main future enablers to a further integration of ERI approaches were found to be: A stronger environmental disclosure required from companies by regulators; a more binding environmental regulation framework that will lead investors to price environmental risk; and a stronger commitment from all institutional investors to follow the example of the Government Employees Pension Fund (GEPF) to implement responsible investment strategies and mandates.

“More than 80% of respondents believe that the South African investment industry will see a further integration of ERI approaches in the future, so there is the expectation that ERI practices will become commonplace,” said Giamporcaro.

“But there is no time for short-sightedness – it is necessary for long-term investors to act proactively to adopt investment strategies to mitigate climate change.

“The question of how political and economic leaders decide the development path of South Africa is also important. The recent debate around the Eskom World Bank loan application to finance coal energy infrastructure is largely symbolic of the new emerging era of environmental tensions. The financing and investment decision taken now in SA will shape for a long time the lives and the landscape experienced by both the rich and poor in the country,” said Giamporcaro.

Education, awareness, regulation, breaking clichés and boosting human and financial resources could help to stimulate this environmental paradigm shift in the South Africa investment industry, she added.

To assist this shift, the UCT Graduate School of Business and Giamporcaro will launch the course Sustainable Investment for Asset Managers in September this year. It will provide an in-depth knowledge of the Responsible Investment principles and a practical toolbox; offer an understanding of the current state of play and the latest trends in the responsible investment arena; and help public and private sector finance professionals develop a responsible investment strategy informed by best practices.

“The King III report incorporates important aspects of governance relating to the environment and South Africa will see legislation here in the next few years – all South African businesses will come under increasing pressure to treat sustainability as a business imperative. The investment sector needs the right skills to adequately deal with this emerging shift and to ensure that they can achieve financial performance in a sustainable way.”

On a positive note, 86% of respondents said they wished to see a growth of ERI approaches in the SA investment industry. “Hopefully this sentiment can be translated into the implementation of responsible investment approaches in the near future,” said Giamporcaro.

For more information on the GSB course, contact Mario Pearce on (021) 406 1268 or SMS “Investment” to 31497.