The term that has emerged globally to describe the environmental, social and corporate governance issues that investors are considering in the context of corporate behaviour.
No definitive list of ESG issues exists, but they typically display one or more of the following characteristics:
• Issues that have traditionally been considered non-financial or not material
• A medium or long-term time horizon
• Qualitative objectives that are not readily quantifiable in monetary terms
• Externalities (costs borne by other firms or by society at large) not well captured by market mechanisms
• A changing regulatory or policy framework
• Patterns arising throughout a company’s supply chain (and therefore susceptible to unknown risks)
• A public-concern focus

Climate change, water security, Greenhouse Gas Emissions (GHG) etc.

COVID-19, Black Economic Empowerment & Transformation, Gender equality, Health and Safety etc.

Executive remuneration, Tax compliance, Audit & Risk, Transparency & Disclosure etc.

The integration of environmental, social and corporate governance (ESG) considerations into investment management processes and ownership practices in the belief that these factors can have an impact on financial performance. Responsible investment can be practiced across all asset classes.

The voting of company shares and/or the engaging of corporate managers and boards of directors in dialogue on environmental, social and corporate governance issues as well as on business strategy issues. This is increasingly pursued in an effort to reduce risk and enhance long-term shareholder value.

The active investment management processes that include an analysis of environmental, social, and corporate governance risks and opportunities.

Investments made into companies, organizations, and funds with the intention to generate positive, measurable environmental and social impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending on investors’ strategic goals. The growing impact investment market provides capital to address the world’s most pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, microfinance, and affordable and accessible basic services including housing, healthcare, and education.

Yes - Regulation 28 of the South African Pension Funds Act No. 24 of 1956, which came into effect in July 2011, states that a pension fund’s fiduciary duty supports the adoption of a responsible investment approach to deploying capital into markets that will earn adequate risk adjusted returns.

It also states that prudent investing should consider factors which may materially affect sustainable long-term performance of a fund’s assets including factors of an environmental, social and governance character.

The FSCA issued Guidance Notice 1 of 2019 Sustainability of investments and assets in the context of a retirement fund investment policy statement (The FSCA Guidance Notice).  The Notice provides guidance to boards of funds on how the fund must comply with Regulation 28. In particular, how a fund’s investment philosophy and objectives, as reflected in its investment policy statement, seek to ensure the sustainability of its investments and assets.

The FSCA supports the Code for Responsible Investing in South Africa (CRISA) as a means of giving effect to Regulation 28.

Both the UN-supported Principles for Responsible Investment (PRI) and the Code for Responsible Investment in South Africa (CRISA) offer a set of principles according to which investors are encouraged to make investment decisions and based on which they are encouraged to communicate with their clients and the public regarding these decisions.

The PRI is an international Non-Profit Organisation to which asset owners, investment managers and service providers in the investment industry become signatories. Signatories are expected to pay an annual signatory fee and to report annually to PRI on their ESG integration activities, which are assessed and scored according to international best practice standards.

In this way, to be a PRI signatory means a public, paid and monitored commitment to the implementation of the Principles for Responsible Investment. The PRI provides guidance and tools to investors that reflects international best practice standards of ESG integration applicable across all asset classes and all markets. 

To this end, the PRI is less nuanced in the guidance it provides than would be the case of CRISA, which is regionally focused. At present, CRISA exists as a standalone code with voluntary implementation of the principles on an apply or explain basis. CRISA is however, currently under review and is expected to be broadened in terms of its reach across asset classes and geography.

As such, for investors looking to enhance their responsible investment capacity and activities, there is no reason why supporting one of these initiatives would preclude support of the other, with PRI and CRISA existing as separate, but entirely complementary initiatives.