Many large asset managers, such as Old Mutual, Allan Gray and Prudential, subscribe to the Code for Responsible Investing in South Africa (Crisa) in their investment philosophies, believing that it is to the long-term benefit of their clients.
Managers may screen the companies they invest in or, through shareholder voting power, influence companies that are failing to uphold their environmental, social and governance (ESG) responsibilities to “do the right thing”. Two smaller managers are particularly active in this regard.
Sitting comfortably alongside the funds these managers offer is a range of sharia-compliant funds from various managers, which invest according to the moral principles enshrined in Muslim law, although these funds are not directed only at Muslims.
And if environmental issues in particular are close to your heart, there is a “climate change fund” and a “green” exchange traded fund (ETF).
• Community Growth Funds is wholly owned by Unity Incorporation, which represents six trade unions. It outsources the management of its Community Growth Equity Fund to Old Mutual Investment Group and its Community Growth Gilt Fund to FutureGrowth, while Unity Incorporation undertakes social research and screens companies to provide a mandate for the portfolio managers.
“Our socially responsible investment (SRI) track record speaks for itself, having successfully managed a range of SRI vehicles since 1992. Since inception, we have given our socially and environmentally aware investors a choice of vehicles through which to grow and manage their wealth, while contributing to the economic sustainability of South Africa,” Community Growth Funds says on its website.
The equity fund’s top five holdings, as at December 31, 2016, were Naspers, BHP Billiton, Steinhoff, Barclays Africa and Anglo American.
• Element Investment Managers. Element was the first South African investment manager to sign the UN Principles for Responsible Investment in May 2006 and was instrumental in the establishment of Crisa.
Terence Craig, the chief investment officer at Element, says many local asset managers have paid lip service to Crisa in the past. He says a quick gauge of their commitment is whether, according to the code, they are voting at shareholder meetings and publishing their voting records. He says Element is highly active in this regard, publishing both its voting record and its voting and proxy policy, with explanations of where it voted against a resolution.
Craig says: “While ESG and corporate-governance teams are becoming more commonplace, particularly globally, they are often held at arm’s length from core investment activities and investment teams. Element’s ESG research is integrated into our investment research and portfolio construction process.”
Element’s wide range of funds include its Earth Equity Fund and three sharia-compliant funds: the Islamic Equity Fund, the Islamic Balanced Fund and the Islamic Global Equity Fund. The Earth Equity Fund’s top five holdings, as at December 31, 2016, were Astrapak, Anglogold Ashanti, South 32, Reinet Investments and Altron.
• Sharia funds. Because the charging of interest is prohibited under Islamic law, such funds do not invest in conventional money-market or bond instruments, or in financial institutions such as banks. They also don’t invest in companies that have high levels of debt or those involved in “vice” activities, such as gambling, alcohol, tobacco and pornography.
Apart from Element’s sharia-compliant funds mentioned above, asset managers offering these funds include 27four, Kagiso, Oasis, Old Mutual, Stanlib and Sentio. Absa’s NewFunds Shari’ah Top 40 ETF tracks the FTSE/JSE Shari’ah Top 40 Index.
• 3 Laws Capital. In 2013, this boutique asset manager with a “unique focus on sustainable investing” launched the 3 Laws Climate Change Equity Prescient Fund, which invests in resource-efficient South African companies. It does so in partnership with Osmosis Investment Management, a London-based asset manager focused on environmentally friendly investing, which provides the research and screening process.
The fund’s manager, Arthur Johnson, says resource efficiency (a combination of energy intensity, water intensity and waste intensity) is determined through the analysis of largely under-utilised public data, measuring how effectively companies transform their use of resources into economic value.
The fund’s top holdings at the end of January 2017, apart from its 16-percent investment in the Osmosis MoRE Equity Fund, were Naspers, British American Tobacco, Remgro, Nedbank and Anglo American.
• CoreShares Green ETF, which was launched in 2011, tracks the Nedbank Green Index, which comprises selected shares from the 100 largest companies on the JSE.
The companies are selected on environmental credentials and liquidity criteria. Environmental credentials are determined with reference to the United Nations register of Clean Development Mechanism projects in South Africa and the Carbon Disclosure Project database, the CoreShares website says.
The top five holdings, at December 2016, were Kumba Iron Ore, Harmony Gold, Sibanye Gold, Nedbank and Investec.