On 14 April in London, over 59% of shareholders voted against the £13.8m remuneration package for BP CEO Bob Dudley. BP had reported record losses of USD6.4bn and retrenched 4,000 employees in the preceding financial year. Dudley’s 20% pay rise was only one of the contentious issues on the agenda. Activists also used the AGM to focus attention on BP’s controversial plans to undertake exploration in the Great Australian Bight. One of the most vocal groups highlighting these issues was the charity ShareAction, which argued that BP had failed to uphold the commitments on climate change and environmental issues made at its 2015 AGM.
ShareAction was originally set up in 2005, with support from civil society, as FairPensions, which ranked major UK pension funds on responsible investment. The group now aims to “transform the investment system and unlock its potential to be a force for good” by demanding “reform in the ways large investors make decisions and account for them”. It does this by:
- campaigning to improve corporate behaviour by helping investors to engage with companies on issues such as corporate lobbying on climate change, factory farming and corporate tax, and by pressuring pension funds on climate change action;
- building and supporting networks of foundations, faith groups, unions and NGOs to take action in the investment system;
- assisting shareholder activism by, for example, training individuals to engage directly with companies as part of an “AGM Army”; and
- Providing expert policy and research to promote best practice in the investment industry. Recent surveys include Asset Manager Voting Practices: In Whose Interests? and a ranking of responsible investment practices at nine pension providers.
ShareAction is now launching a new network of civil society organisations working towards sustainable capital markets in Europe.
An organisation like ShareAction is perhaps what is missing from the South African responsible investment community. South Africa is regularly promoted, especially when compared to its emerging market peers, as a leader in the field. This is due to various positive interventions, including changes to Regulation 28 of the Pensions Fund Act – to support the adoption of a responsible investment approach by giving “appropriate consideration to any factor which may materially affect the sustainable long-term performance of a fund’s assets, including factors of an environmental, social and governance character”. The launch of the JSE SRI Index in 2004 and the creation of the Code for Responsible Investing in South Africa (CRISA) in 2011 are also viewed as ground-breaking.
But progress appears to have stalled. There are some asset managers that seem to be taking responsible investment seriously, but most asset managers and owners, including pension funds, do not seem to have made it much further than developing a responsible investment policy. The fact remains that the majority of investors in a pension fund scheme will not know whether or not their fund manager supports responsible investing practices. Even if they do, there is little to no information available about how such practices are implemented: for example, very few fund managers report publicly on their engagement with company management around ESG issues.
The bottom line is that despite South Africa’s much-lauded initiatives around responsible investment, there is very little evidence to show that these initiatives have translated into actual changes in corporate behaviour and impacts, especially in relation to the environment, climate change, and social factors. Individual investors also do not necessarily realise that, as the ultimate beneficiaries or owners of those funds, they have power over how those funds are invested or managed on their behalf. A local organisation based on the vision of ShareAction, “of an investment system that truly serves savers and communities, and protects our environment for the long term” would go some way in rebalancing the situation.
There are a number of ways in which a civil society organisation modelled on ShareAction could boost transparency and accountability in the South African business and investment community, not just in responsible investment. These include:
- Supporting NGOs: there are numerous NGOs working across the country to improve corporate accountability and address social and environmental rights. Some groups such as the Centre for Environmental Rights (CER) have developed capacity to ensure that where their work has investment implications, this is brought to the attention of investors. However, not all of these NGOs are able to adequately convey the relevance of their work to investors. Furthermore, although there are areas of overlap, often the work is not coordinated. By understanding the investment system, it will be possible to ensure that the results of NGO programmes are brought to the attention of the relevant investor audience and that the outcomes can be used to drive change.
- Boosting transparency of asset managers: Despite many of South Africa’s largest asset managers marketing themselves as being signatories to the PRI or supporters of CRISA, it is extremely difficult to determine which fund managers actually are acting on these commitments and which are simply “greenwashing”. This is evident from a 2013 report commissioned by the CRISA Committee that found shortcomings in the application of CRISA and varying degrees of accountability across institutions. In many cases, asset managers prefer to engage with companies on issues affecting responsible investing behind closed doors, with little evidence of this driving any meaningful change.
Independent surveys and research are necessary to benchmark asset managers on responsible investment performance and transparency on issues such as policies, voting practices and engagement strategies. This will support best practices and encourage improvement by asset managers who are “talking the responsible investment talk” but not actually taking any responsible investment action.
- Driving change in asset owners: Asset owners, the large institutional investors such as pension funds and insurance companies, are essential to the implementation of responsible investment practices. Asset owners, on behalf of their members, establish the investment mandates that asset managers should apply. Despite the changes in Regulation 28, asset owners continue to disregard responsible investment strategies in their mandates. Research is needed to establish how asset owners are fulfilling their fiduciary duty in this area.
The need for further changes was reflected in the PRI’s 2015 report Fiduciary duty in the 21st century that recommended that the Financial Services Board clarify compliance with Regulation 28; asset owners prepare a public annual report on how they have implemented SRI commitments; and ESG-related competence on pension fund boards be improved.
- Giving individual investors a voice: A PRI survey in 2015 found that, out of 1001 respondents in South Africa, 77% agreed that “it is important that companies their pension fund is invested in do not pay CEOs too high a salary” and 51% “consider it ‘very’ important that the companies their pension fund is invested in do not contribute to the burning of fossil fuels which link to climate change”. However, the investment community argues that a barrier to responsible investment is the lack of demand. It is possible that there is demand but that asset owners and managers are not paying attention, but there is currently no simple way for individual investors to communicate their viewpoints to pension firms and explore how to translate their moral standpoints into their investments. Greater public awareness is needed for this barrier to be overcome.
ShareAction has been extremely successful in supporting individuals in another area: raising issues it feels are important at company AGMs. AGMs are an important arena to hold boards and executives to account and to ensure that they are acting in the best interests of stakeholders, including on ESG issues. South African AGMs are notoriously humdrum affairs, with many asset managers not bothering to attend and executives seldom required to answer difficult or challenging questions. With many asset managers apparently ignoring even basic tenets of corporate governance, perhaps it is time to support individuals who want to make a stand?