Committee on Responsible Investing by Institutional Investors in SA
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2010
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02
Sep
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The draft Code for Responsible Investing by Institutional Investors in South Africa has been released for public comment.
The two month comment period, which ends on 31 October this year, was announced by John Oliphant, chairman of the stakeholder committee that has been drafting the Code for Responsible Investing by Institutional Investors over the past five months. Oliphant is also Head: Investments and Actuarial at the Government Employees Pension Fund (GEPF).
The UK is the only other country with a code for institutional investors.
Oliphant says in 2006 the United Nations introduced the Principles of Responsible Investing, of which the GEPF is a founding signatory. These Principles, adopted by a number of South African institutional investors, encourage investors to integrate environmental, social and governance (ESG) issues into their investment decision making. The new draft Code, he explains, is the next step in ensuring that institutional investors actually implement policies that guide their day to day actions when it comes to responsible investing.
Together with The King Report on Corporate Governance South Africa (King III), which is also not legislation but rather principles and practices that are adhered to on an “apply or explain” basis, the new Code will seek to encourage best practice conduct by shareholders and companies, says Oliphant.
“Responsible investing and corporate governance guidelines in South Africa are largely voluntary. The Code aims to put in place the checks and balances needed to make this voluntary framework successful.”
According to Oliphant, anyone who has been expecting a tome of principles will be left disappointed. Instead, he adds, the new draft Code consists of simple, yet powerful, voluntary Principles that encourage institutional investors and their service providers to put in place certain measures aimed at ensuring responsible investing.
“The Code for Responsible Investing by Institutional Investors in South Africa consists of four principles. The first two principles encourage institutional investors to formulate policies that will guide their approach to being responsible shareholders. And principle three and four require institutional investors, within the realms of the law, to ensure that the principles are implemented, upheld and, most importantly, disclosed.”
Oliphant says the Code encourages institutional investors and service providers to adopt the Principles and practice recommendations in the Code on an “apply or explain” basis.
“If applied and disclosed, these Principles will guide the ultimate beneficiaries of investments made by institutional investors to ask the right questions. It will also empower those beneficiaries to select responsible custodians for their investments. Once the Code is in place, why would a pension fund place money with an investment manager who has not adopted the Code and who has not put in place the necessary policies as outlined by the Code?”
Responsible investing has become a non-negotiable, says Oliphant. “Institutional investors have a critical role to play in making the overall corporate governance system effective, because they are in a position to influence and encourage the voluntary application of sound governance principles and practices by the companies in which they invest.”
He is urging institutional investors and other interested parties to take the time to consider the draft Code and to come with constructive input.
“This is your chance to add to our framework. Once finalised the beneficiaries of your investment decisions will expect you to implement this Code and to disclose the practices you have committed to.”
Oliphant reminds institutional investors that it will be their responsibility to ensure that third party service providers also adhere to the provisions of this Code and the relevant policies implemented by institutional investors.
The Code in Summary
Principle 1 – Environmental, Social and Governance (ESG) Policy
The Code requires institutional investors to develop a policy detailing the process of assessing the investment target’s environmental, social and governance (ESG) fundamentals. The institutional investor must ensure that this policy is not only implemented, but also complied with.
Principle 2 – Responsible ownership
The second principle requires institutional investors to demonstrate a responsible approach to shareholding by implementing a policy detailing mechanisms of intervention and engagement with companies when concerns have been identified, as well as the means of escalation if concerns raised cannot be resolved.
The Code requires such a policy to also detail the approach to voting at shareholder meetings, including the criteria to be used in reaching voting decisions, processes for management of conflicts and publication of voting records.
Controls should also be introduced by the institutional investor to prevent insider trading as defined by the Security Services Act.
Principle 3 – Promoting the Code through collaboration
The third Principle of the Code encourages institutional investors to consider a collaborative approach, where appropriate, to promote acceptance and implementation of the Principles of this Code and other applicable codes and standards applicable to institutional shareholders.
Principle 4 – Disclosure
Institutional investors are required to fully disclosure to stakeholders the policies put into place in line with this Code, the implementation of these policies, and the general application of this Code.
The Code requires an institutional investor to fully and publically disclose to its stakeholders at least quarterly to what extent the Code has been applied.
If an institutional investor has not fully applied one of the Principles of this Code, the reasons should be disclosed honestly. Disclosure should not be limited to the integrated report only, but also be made accessible via the institutional investor’s website, quarterly client report and by other appropriate means of communication to stakeholders.
Public comment
The draft Code can be downloaded from www.iodsa.co.za or www.asisa.org.za or www.unpri.org The deadline for comment is 31 October 2010 and feedback can be e-mailed to crisacomment@iodsa.co.za
Source: Committee on Responsible Investing by Institutional Investors in SA
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