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On the Ground in Africa: Embedding Responsible Investment Practices
As a long-term investor and responsible steward of the assets it manages on behalf of its customers, Old Mutual Africa is on course to becoming the leading responsible investor on the continent, where it has offices in Kenya, Malawi, Zimbabwe and Namibia. Old Mutual Africa’s Responsible Investment Committee spearheads this initiative, ensuring that we continue to incorporate environmental, social and governance (ESG) considerations in the assets in which we invest. Marjorie Mayida shares some of the learnings along her ESG journey into the African investment landscape.
Jonathan: Describe your role and what you’re most passionate about in your position.
Marjorie: I am the chair of the committee, which is a platform where responsible investment representatives from Namibia, Malawi, Kenya, Zimbabwe and South Africa can share their experience and discuss their challenges. In this role it is my responsibility to support my colleagues in embedding responsible investment (RI) into the DNA of our investments across selected Old Mutual Africa businesses.
In addition, I am the responsible investment ambassador for the Zimbabwean business, and thus play an active role in developing Old Mutual Zimbabwe's responsible investment initiatives and building these out in the broader Zimbabwean business arena.
We do this by spearheading responsible investment thought leadership in the country as part of our commitment to making a positive contribution to the Zimbabwean economy.
This is important for us, as we believe that Old Mutual should be the voice of change in influencing the way in which investments are made. Part of this is ensuring that people become aware of the materiality of ESG factors in the investment process.
Jonathan: What do you think it means to be a responsible investor?
Marjorie: It means ensuring not only the creation of sustainable businesses and economic systems through good corporate citizenship, but the generation of long-term, superior, risk-adjusted returns by seriously considering ESG factors, when we invest and engage with the management of investee companies.
Jonathan: Why is responsible investment so important, and particularly for Africa?
Marjorie: The global investment themes have been evolving and the 2007-2008 global financial meltdown brought to the fore the increasing demands from both institutional and individual investors to play a more active role in how companies are managed. The importance of responsible investment in Africa can never be overemphasised, as it presents an overarching framework for the future of a healthy investment environment in Africa. Africa is part of the set of emerging frontier economies with huge growth potential and is a major destination for capital flows from developed nations.
As a leading African business and asset manager, if we are to harness and leverage the potential capital flows into the African continent, Old Mutual Africa needs to epitomise responsible investment, thereby boosting our influence on Africa’s corporate governance frameworks and our impact on our society as a whole.
Jonathan: Is there a business case for responsible investment?
Marjorie: Yes, definitely. Contemporary research on the impact of responsible investment on performance indicates that companies that incorporate ESG thinking into their operational and strategic plans, are operationally efficient, and are able to attract debt and equity funding more effectively than companies that don’t. When it comes to adding alpha (excess performance ahead of a benchmark or the market), companies that are committed to embedding responsible investment in their businesses tend to be winners, and thus attract more foreign capital. So responsible investment is an important strategy for African businesses. Our colleagues in South Africa have developed an ESG indexation product that is based on their responsible investment thesis. They use a best-in-class approach and select the best 50% in each sector based on their ESG screening. Their research illustrates and endorses the outperformance of the ESG index relative to the market index.
Jonathan: What are some of the key regulatory drivers and governance codes that drive responsible investment in Africa?
Marjorie: Each country must comply with its own laws. For example in Zimbabwe, the Companies Act guides the conduct of and relations between companies and their stakeholders. However, the Act is porous when it comes to a number of the softer ESG issues, as it was enacted in 1951 and times have changed since then. For listed companies, the Act is assisted by the Listing Rules, which largely promote governance aspects for all listed companies. The Act is currently under review and improvements are expected. A positive milestone in Zimbabwe’s responsible investment space was achieved in April 2015 when the country launched its own National Code on Corporate Governance, which provides the framework for corporate conduct for both public and private sectors. Governance drivers are also being developed in Kenya, such as the Code of Corporate Governance Practices for Issuers of Securities to the Public. However, despite this step in the right direction, there is still a lot that needs to be done to bolster the responsible investment initiative throughout Africa. A number of our local companies also subscribe to the King III Code on Corporate Governance in South Africa and, as a member of the Old Mutual Group, we have adopted the corporate Responsible Investment Standard.
Jonathan: What are some of the initiatives of the committee?
Marjorie: During 2016, the committee stepped up its efforts to increase awareness of responsible investment across all the African business units, and we have launched proxy voting policies for Malawi, Kenya and Zimbabwe. The committee will also be responsible for embedding ESG issues in the valuation models for analysts and in ensuring that all Old Mutual Africa countries speak with the same voice when it comes to responsible investment. Engagement with companies on ESG issues has been in full swing in 2016, as we continue to pioneer responsible investment in Africa. Efforts will also be made to improve and increase the ESG research of listed companies, and increase ESG capacity building.
Jonathan: Is ESG research limited in African markets?
Marjorie: Yes, unfortunately coverage is still limited in Africa. However, we are not letting that slow our momentum and we are working closely with MSCI to deepen ESG research in the markets in which we operate. Over and above this, we are encouraging Old Mutual Africa countries to develop their own internal ESG ratings on their investee companies as a stopgap measure. This will complement the research that will later come through from MSCI. We strongly believe that this is the course of action we should take, as it is in firm support of our responsible business agenda for 2016 and beyond.
Jonathan: How will this change the way that Old Mutual Africa does business?
Marjorie: Responsible investment practices will place us on an equal footing with how business is conducted in developed nations, as these are the same issues that investors and businesses in first-world countries are grappling with. In addition, these initiatives will greatly increase the human face of all our investments and enhance our competitive edge across the African continent. I strongly believe that responsible investment is the way of the future, and ensuring that we deliver on the long-term goals of our customers in a sustainable and responsible way.
This article first appeared on 3blmedia and is reproduced with permission.
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