WHAT IS SRI?
TARGETED INVESTING
- Low-income housing (household income levels of less than R1500/month)
- Infrastructure (roads, dams, schools, bridges, hospitals, sewerage, water and electrification)
- Agriculture (poor, black farmers)
- Small, medium-sized and micro-enterprise financing
SCREENING
- Negative screening: excludes companies producing ‘undesirable’ products or services, as well as those operating in ‘undesirable’ industries, such as the tobacco, alcohol, or arms manufacturing. Shari’ah (Islamic) investment principles are one such example of this approach.
- Positive screening: seeks companies that are perceived to be good corporate citizens and that prioritise ESG issues.
- Best-of-Sector screening: combines both positive and negative screening methods. This means that no one sector or industry is excluded outright, but the portfolio managers will seek to invest only in companies that demonstrate a commitment to being good corporate citizens that pay attention to their ESG impacts.
SHAREHOLDER ACTIVISM
The active engagement with investee company management on a range of ESG issues. This can be achieved through the use of voting rights at annual general meetings and direct dialogue. Companies that fail to respond may cause us to divest.
SRI CRITERIA
Companies that innovate, expand and invest for growth create jobs. The senior management teams of investee companies must give evidence of their plans and strategies to enable job-creating growth.
Company training programmes and grading systems that provide clear career paths for all employees must be in place. This will upskill the workforce and lead to higher productivity and higher wages. There must be evidence of union and worker participation in decisions about training and development programmes.
There must be evidence of high levels of worker empowerment. This is rated according to the degree of worker participation in training, affirmative action, health and safety, advancing union rights, and centralised bargaining. Union involvement in decisions over company restructuring is scrutinised closely. Companies that are committed to creating genuine economic opportunities for emerging black businesses are favourably regarded.
Companies should have carefully planned and meaningful affirmative action programmes that will get the most out of their workforce – at the same time offering new opportunities for advancement. Programmes within the company should focus on the advancement of women, black employees and the disabled. Affirmative action is seen as closely linked to a company’s training programmes.
The minimum wage offered is key, and company benefits, such as maternity pay and hours of work, must be at least above the industry’s average. Companies that outsource work must ensure that conditions of employment in contracted companies are above industry standards and that unions can operate freely.
Companies must develop and implement policies and practices that will protect the environment and the communities in which they operate. Companies that have regular independent environmental audits are preferred.
Companies must have good health and safety records. The screening process will include reports by employees and the safety record of a company. The involvement of trade unions in health and safety will be further evidence of high standards at a company.
Best-practice corporate governance is essential, and companies are required to meet the requirements of the King IV Report on Corporate Governance. The role of directors is scrutinised, with special attention paid to full disclosure of directors’ pay, the appointment of independent remuneration and audit committees, and effective stakeholder communication.