Sustainable investment options for your Tax Free Savings
South Africans have until the end of February to make their first annual contribution of R30,000 as part of a R500,000 lifetime contribution limit to a Tax Free Savings Account (TFSA) scheme. Savetaxfree.co.za has a useful directory of tax-free investments. Unfortunately, as can be seen from AfricaSRI’s list of funds, there are very few focussed sustainable investment funds available in South Africa for individual or retail investors. Several of the providers of TFSAs are signatories to the Principles for Responsible Investment and the Code for Responsible Investing in South Africa, which means that they should theoretically be integrating sustainability factors, such as environmental, social and governance issues, into their investment decisions. However, it is still difficult to dissect the marketing material and determine which providers are actually taking steps towards implementing their responsible investment commitments.
Shari’ah funds
One option is to invest in one of the growing number of Islamic finance or Shari’ah funds. As the CFA notes, Islamic finance shares characteristics with SRI in terms of its objectives and methods. Shari’ah funds use negative screening to exclude from their portfolios companies that generate income from sales of alcohol, pornography, gambling, weapons or pork products. There are several Shari’ah funds available for TFSAs. These include the Element Islamic Balanced Funds, the Kagiso Islamic Balanced and Islamic Equity funds, Old Mutual Albaraka Balanced and Albaraka Equity funds, and the various Oasis funds.
Exchange Traded Funds
For those interested in low-fee Exchange Traded Funds (ETFs), there are two SRI options available via platforms such as EasyEquities. These are Nedbank’s Bettabeta Green ETF (BGREEN) and Newfunds Shari’ah Top40 ETF (NFSH40). The Newfunds Shari’ah Top40 ETF tracks the FTSE/JSE Shari’ah Top 40 index of the 40 largest and most liquid Shari’ah-compliant firms. The BGREEN ETF tracks the Nedbank Green Index, which is calculated on liquidity and, drawing on data from the Carbon Disclosure Project (CDP), environmental criteria. Eligible companies from the JSE Top 100 are determined from their CDP’s disclosure scores, while companies with better CDP performance (evidence of actions contributing to climate change mitigations, adaptation and transparency) are given higher weightings. The BGREEN ETF initially outperformed the All-Share Index and the JSE Top 40, but recent performance has lagged.
New SRI indices?
Unfortunately, for those looking for international exposure, only five DB x-trackers ETFs are available and none of these are based on ESG screens. In 2015, Old Mutual launched two ESG index funds, one based on the MSCI World ESG Index, the other on the MSCI Emerging Markets ESG Index. These are only available to institutional investors. UBS Global Asset Management recently found that ETFs tracking SRI indices outperformed the parent indices over the past five years. Hopefully in coming years South Africans will also be able to add SRI-based ETFs to their TFSAs.