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NEWS
Henley offers scholarships to investigative journalists
Henley offers scholarships to investigative journalists

5 trends that can keep the South African MBA relevant
5 trends that can keep the South African MBA relevant

We need to realign government, business and civil society
We need to realign government, business and civil society

Life as a full-time MBA student
Life as a full-time MBA student

Brexit delay provides breathing space for SA
Brexit delay provides breathing space for SA

MSA joins the ADvTECH family
MSA joins the ADvTECH family

SA plunges to 117 out of 149 in gender wage equality
SA plunges to 117 out of 149 in gender wage equality

UCT’s Executive MBA recognised for its distinctive approach
UCT’s Executive MBA recognised for its distinctive approach

GIBS Executive MBA programme debuts in top 50
GIBS Executive MBA programme debuts in top 50

Can Africa fill the glass?
Can Africa fill the glass?

YALI AFRICA launch at Unisa
YALI AFRICA launch at Unisa

The fake resurrection of South Africa
The fake resurrection of South Africa

Don't panic: The digital revolution isn’t that unusual
Don't panic: The digital revolution isn’t that unusual

Why Agile works
Why Agile works

How firms can avoid the mediocrity trap
How firms can avoid the mediocrity trap

How a 100000-strong company is relearning how to innovate
How a 100000-strong company is relearning how to innovate

The changing shape of the MBA
The changing shape of the MBA

Adding climate change to curriculum is a top priority
Adding climate change to curriculum is a top priority

The MBA should turn you into a business disruptor
The MBA should turn you into a business disruptor

Innovation in SA organisations driven by C-level support
Innovation in SA organisations driven by C-level support

UNISA SBL a torch-bearer of training for military veterans
UNISA SBL a torch-bearer of training for military veterans

Scaling up the MBA for relevance in the 4IR
Scaling up the MBA for relevance in the 4IR

Moody's: SA not out of the woods yet
Moody's: SA not out of the woods yet

GIBS manufacturing-focused MBA kicks off in Durban
GIBS manufacturing-focused MBA kicks off in Durban

Henley’s Makhoalibe selected for sought-after programme
Henley’s Makhoalibe selected for sought-after programme

Personal potential, a source of power
Personal potential, a source of power

Reach your business leadership potential with a MBA from WBS
Reach your business leadership potential with a MBA from WBS

MPC: SA needs a period of stable interest rates
MPC: SA needs a period of stable interest rates

SA’s energy problems just the tip of the iceberg
SA’s energy problems just the tip of the iceberg

What's really driving disruption?
What's really driving disruption?

Why has there been such a failure of leadership?
Why has there been such a failure of leadership?

Steinhoff: Exactly where does responsibility stop and start?
Steinhoff: Exactly where does responsibility stop and start?

The cure for the loneliness of command
The cure for the loneliness of command

How to survive in the age of digital transformation
How to survive in the age of digital transformation

New MBA timetable starts in 2016
New MBA timetable starts in 2016

EVENTS
Henley MBA & PGDIP Preview Day
Henley MBA & PGDIP Preview Day
29 May 2019,
Pretoria

UCT GSB MBA Information Sessions
UCT GSB MBA Information Sessions
15 October 2019,
Johannesburg



06 NOVEMBER 2018
Mandatory ESG provisions could be a game changer

by Stephanie Giamporcaro: Associate Professor at UCT Graduate School of Business.
As South Africa continues to feel the effects of several high profile corporate governance scandals, the proposal by the Financial Sector Conduct Authority (FSCA) to make it compulsory for pension funds to report on how they implement ESG (environmental, social and governance) provisions in their investment approach, could be a game changer.

The proposal by the FSCA, if legislated, will require the country’s pension funds to show how they apply ESG factors to assets they intend to buy; how regularly they measure the compliance of their assets to their sustainability criteria; and to report on how these provisions are being met in both financial statements and annual trustee reports.

More often than not, South African institutional investors and their fund managers do not ask the right questions, or consider the risks associated with ESG factors. This, as a number of case studies from the UCT Graduate School of Business (GSB) have highlighted, has contributed to the demise of some high profile companies in recent times.

The collapse of micro lender African Bank Investments Limited in 2014 under a weight of bad debt is a case in point. It demonstrated what happens when good corporate governance and responsible investing is not prioritised. The board and the investors failed to address the predatory nature of the lending practices the bank resorted to, in order to boost profits. Neither investors, nor the board, questioned how these practices would, in the end, jeopardise the lives of African Bank clients. Investors with a keen eye on sustainability and ethical principles would have very likely noticed early on, that the unsecured lending business would not be viable.

The demise of manufacturing and engineering firm First Tech in 2013 (the first-ever investment-grade corporate bond default in SA – involving between R800m and R3.5bn of investor fund fraud) similarly highlighted the need for better monitoring to prevent corporate governance failures. A GSB study revealed that some of the major issues of concern at First Tech included an over-complex corporate and financial structure, a ghost board of directors in no position to ask the right questions, a lack of independent and reputable auditors, and a ticking-the-box attitude towards codes of corporate governance. Financial groups exposed to First Tech included SA’s major banks, insurers and asset managers. All ignored the red flags.

The Lonmin saga, the object of another GSB case study, also left some investors asking themselves how they had failed to spot the brewing tensions between management of the company and the miners. Before the Marikana tragedy, Lonmin was a darling of the stock market, widely viewed as a sustainable and socially responsible company to invest in. It was included, for example, in the original JSE Sustainable Reporting Index, showing, with hindsight, how low the hurdle for inclusion on these matters was.

South African funds managers are, by and large, signatories to the United Nations-supported Principles for Responsible Investment (PRI) Initiative, an international network of investors that seeks to understand the implications of sustainability for investors and supports signatories to incorporate these issues into their investment decision-making and ownership practices. Yet, many appear to be turning a blind eye to corporate governance red flags that, at best, are contrary to the principles they are pledged to and, at worst, threaten the very sustainability of their investments.

Arguably, one of the major shortcomings of business is that it is motivated by short-term profit, and therefore investment decisions seem to be made without taking longer-term views. ESG matters, by their very nature, should compel business to take a longer term view. Yet in SA, and indeed across the continent, ESG is for the most part regarded as a compliance issue and not recognised as a value-adding activity, despite growing evidence to the contrary.

Approached in the right spirit, ESG can drive inclusive socio-economic growth, and by extension, catalyse private sector development as a recent GSB case study on Old Mutual demonstrates. For the past several years, the financial services giant has placed a growing emphasis on ESG - and is setting the bar in this regard.

In 2015, Old Mutual launched its positive futures plan, which aimed to “contribute to positive futures” by addressing sustainability issues relevant to its business and the markets in which it operated, along with the Old Mutual World ESG Index Fund with around R2 billion committed by institutional investors.

Jon Duncan, head of responsible investment (RI) at Old Mutual, saw the new fund as a significant milestone for Old Mutual, as it provided the evidence that new sustainability-themed product innovations could attract capital and at the same time provide investors with competitive risk-adjusted returns.

According to Duncan, who was interviewed for the case study, responsible investing practices can play a key role in creating shareholder value in three ways: by boosting businesses’ ability to deliver appropriate risk-adjusted returns by giving them deeper insight into risk; by improving their ability to attract and retain clients; and, by improving their ability to innovate in terms of both product and process.

Africa is heading in the right direction, but needs to face important challenges in terms of walking the talk. According to the latest African Investing for impact Barometer, as of the end of July 2017, around US $428.29bn of investment assets in the Sub-Saharan regions of East, West and Southern Africa were declared to be allocated to investment strategies which seek to generate social or environmental impact whilst generating investment returns. Our estimation is that this represents almost half of the total assets under management! The Barometer, which is published annually by the Bertha Centre for Social Innovation and Entrepreneurship at the GSB, reveals however that despite this promising account, the majority of investors surveyed are not good at communicating what they are actually doing and how much it has changed the way their organisations assess companies. In addition, they are still not able to demonstrate the positive impact on society of their investment decisions.

The First Tech, Lonmin, African Bank and recently Steinhoff debacles are cruel proofs that a lot still needs to be done to match good intentions with full blown implementation.

In Europe, SRI fund markets are already well established and responsible investment regulation has been passed in many countries. The European Commission recently released an ambitious Sustainable Finance action plan that stresses the necessity to inquire further into an investor’s preference towards ESG and to see more in-depth disclosure coming from institutional investors and their fund managers regarding their actual ESG achievements.

It is to be hoped that stronger regulations in South Africa, could help to shift short-sighted and deeply ingrained views around ESG factors, as they did in Europe. For Africa, a continent that needs billions annually to meet the United Nations' sustainable development goals, but with limited resources to do so, the role of ESG will be crucial in terms of catalysing additional capital flows.
Source:

University of Cape Town Graduate School of Business
UCT GSB is internationally renowned as one of a few business schools in Africa with the prestigious triple-crown accreditation with endorsements from EQUIS, AACSB and AMBA. As a top school with more than five decades of experience in Africa and other emerging markets, UCT GSB has a responsibility to engage with its socio-political and economic context. Its teaching, learning and research are directed towards addressing the complex and pressing economic and social challenges of our world today. Visit our InfoCentre or website.

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