Old Mutual Investment Group has set out clear expectations of South Africa’s listed companies when it comes to their management of environmental, social and governance (ESG) risk. In a letter sent to the CEOs of SA’s top 100 companies, it called on their leaders to engage with it on a range of ESG issues, in an effort to work towards a joint vision of how to create shared value.
“As one of the largest custodians of South Africans’ savings, we have a deep responsibility to our clients to manage and grow their assets in a sustainable manner. An important component of the returns we generate comes from the investments we make in listed firms such as yours. As such we rely on your leadership in managing ESG risks and capitalising on ESG opportunities,” says the letter, signed by Old Mutual Investment Group Managing Director, Khaya Gobodo and Director of Investments, Hywel George.
Speaking about the rationale behind sending SA’s top CEOs a letter of this nature, Gobodo highlights that the past few years have shown that ESG issues directly impact the ability of companies to generate value for all stakeholders. “As an investment firm, we are intently on how a company addresses ESG issues. If addressed correctly, ESG doesn’t have to come at a cost; in fact, it can be a source of competitive advantage, profit and growth,” he says. “It is therefore important that we set out a framework for our interactions with corporates, and what we expect of them in terms of the role of ESG in their respective businesses.
“Companies can, and must, play a role in driving socially inclusive and resource-efficient growth in our country. It is critical that these elements form part of our national growth path if we are to continue to move forward and develop as a country.”
Old Mutual Investment Group has worked hard to cement its commitment to responsible investing by creating an ESG framework as part of its investment process. It has a dedicated responsible investment and ESG engagement team of five members, who have been consistently vocal on issues such as executive remuneration and ‘say on pay’, as well as the drafting of regulation of ESG issues in South Africa through the drafting of the King Code.
George, as Director of Investments, says that Old Mutual Investment Group has a material interest in how long-term sustainability issues are addressed by market participants. “From our perspective, confronting the role of ESG risk in the SA corporate sector makes sense from an investment perspective, while being good for our clients and for broader society.”
George points out that the tone is set at the top and SA’s CEOs therefore need to take responsibility for the ethical issues associated with the company’s operations as well as its goods and services. Referring to three priority areas listed in the letter to CEOs, he says that while there are a host of critical ESG issues that need attention within SA companies, the most urgent for Old Mutual Investment Group are transformation, a clear long-term sustainable strategy and ethical leadership.
“Transformation is an essential building block for South Africa and we fully expect the corporate sector to make its contribution. As an investment house, we will continue to actively engage with the laggards amongst our holdings and work with them to make progress on BBBEE,” he says. “In addition, we believe it is critical that corporates have a clear long-term strategy in place based on a sound sustainable business model that considers the impact of ESG factors as central to the business strategy itself.”
Gobodo adds a third priority: that Old Mutual Investment Group expects transparent and ethical dealings by directors. “Clarity on alignment between company strategy and rewards and long-term incentives is critical. We are also particularly concerned with the way human capital is managed, specifically skills development, succession planning and health and safety. We will be stepping up our focus on the manner in which businesses provide disclosure on ethics management and the relevant outcomes,” he says.
As long-term investors, Gobodo, George and their colleagues believe that it is in the interest of all participants in the financial ecosystem (asset owners, asset managers and issuers) to play a proactive and coherent role in creating long-term sustainable outcomes for all stakeholders. “We believe that fundamental alignment on these issues creates a virtuous circle that connects the aspirations of South African savers with the long-term sustainable strategies of corporate SA,” concludes their letter.