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At the start, our article "Responsible Investment - Why?" by Dr Neil Eccles, who holds the Noah Chair in Responsible Investment at UNISA's Centre for Corporate Citizenship, summarises the results of a survey of key stakeholders in the retirement fund industry regarding RI. While the importance of ESG issues among the investment community isn't in doubt, the adoption of SRI seems beset by inertia. Read this article for an insight into some of the obstacles that have resulted in the slow pace of integration of RI into mainstream investment and what can be done to unleash its ultimate acceptance.
For those still new to the subject of SRI, a "360? snapshot of Responsible Investing" by Given Phaladi of RisCura is a good overview. The article looks at the various different approaches that encompass SRI and discusses how in SA responsible investing has focused on socioeconomic transformation but is growing to integrate broader ESG practices, as reflected by the introduction of the FTSE/JSE SRI index in 2004.
While RI may appeal to a number of trustees and consultants, how it becomes integrated into a mainstream strategy is always the more practical problem. "Responsible investing to the core," by Jonathan Kruger of Prescient, introduces one approach that employs a core satellite approach to equity investments. The FTSE/JSE SRI index provides the initial universe, that's in turn screened using price indifferent indexation techniques to select shares weighted by economic value according to predefined fundamental factors.
The quantitative process is further enhanced using behavioural and momentum factors. Satellites that include "high impact" investments could be used to complement the core. It's just one of many current innovative ideas and provides food for thought.
"Where do we come from and where are we heading?" is an extremely abbreviated summary of an exceptional 300-page academic study by Dr S Viviers et al that traces the evolution of SRI funds in SA between 1992 and 2006 and perhaps begins to give an insight into some of the resistance to RI here.
For RI to thrive the author suggests that there's a need to address negative perceptions regarding the risk and return profile of RI funds, as well as the lack of skills and expertise in SA. Viviers believes a rebranding of RI and introduction of innovative products can give RI the required boost into the future.
For a different but no less important take on our theme we publish an article by Thato Minyuku and Andrew Joannou of Renaissance Specialist Fund Managers that takes us back to basics with a look at "The cost of short-termism on retirement investments". It reiterates that our responsibilities as fiduciaries require that we take a long-term approach to pension fund investments.
A number of structural and behavioural reasons why stakeholders adopt a short-term approach to control risk are addressed in the article. Importantly, trustees need to be aware that an indiscriminate focus on the short term comes at a cost of eroding long-term returns. True chicken soup for the investment soul!
Alexander Forbes Asset Consultants' Rezina Suliman weighs in with an introductory piece on how Shari'ah investing fits into the entire ethical investing framework. For anyone unfamiliar with how such funds approach the concept of ethical investing, the article provides a fascinating insight - and not just for Muslim investors. Investment in accordance with Shari'ah law is expected to grow in SA as fund managers seek to tap into an estimated 400 000 Muslim households. Without doubt this is one aspect of ethical investing that we all need to understand more clearly.
And last but not least there's "Grassroot tycoons" by Malcolm Gray of Investec Asset Management. It's a must read. The piece introduces the concept of the universal investor. The new owners of capital - the millions of contributing pension fund members - constitute the grassroot tycoons and they're the essence of universal ownership.
The grassroot tycoons have a direct and vested interest in the management of their assets for sustainable profits to meet their future liabilities. That implies the integration of an ESG framework in the investment approach. Food for thought, indeed.
Happy reading and best wishes for the holiday season.
