UN-backed principles for responsible investment investors maintain that investors support investee companies through the crisis, write Suzette Viviers and Colin Habberton.

Long before the coronavirus reached our shores, President Cyril Ramaphosa called on South Africans to build “a culture of responsibility” to reduce domestic violence, road accidents and child neglect. With Covid-19 now wreaking havoc all over the country, the president’s call has taken on several new dimensions.

Not only are individuals encouraged to be responsible consumers, but companies are urged to rethink their business models. The good news amid the uncertainties and anxieties that individuals and businesses and are facing is that many have risen to the challenge.

After the confirmation of the first local Covid-19 case on March 5, the JSE all share index lost almost 20% of its value. Panic sales on the local bourse far surpassed those in August 2008 as a result of the global financial crisis; and October 1997 due to the Asian contagion.

Carnage on the stock market begs the question: Do investors have a responsibility towards their countrymen? If so, what can investors do to demonstrate responsibility?

As elsewhere in the world, institutional investors own the majority of shares listed on the JSE. Of the thousands of institutional investors in the country, only nine asset owners, 48 investment managers and seven service providers were signatories of the UN-backed principles for responsible investment (PRI) at the end of March 2020.

Signatories publicly acknowledged that they have a duty to act in the best long-term interests of their beneficiaries. They also undertook to integrate environmental, social and corporate governance (ESG) considerations into investment analyses and ownership practices.

During the course of his PhD studies, Colin Habberton conducted semi-structured interviews with more than 30 institutional investors of varying size. The findings revealed that participants’ understanding and practice of “responsible investing” varied widely.

The collective loss has led to anxiety and panic, but encouragingly is has also inspired outpourings of courage, gratitude and generosity

For some, responsibility included the integration of ESG considerations into their decision-making process. For a small minority, responsibility extended to influencing their peers and other stakeholders in seeing the purpose and positive systemic impact of ESG integration. For most, however, their primary, if not sole, responsibility was to meet their clients’ return expectations.

All these investment approaches demonstrate some degree of responsibility, and one that will be tested in times of crisis.

As the stewards of citizens’ savings, institutional investors should respond to Ramaphosa’s call to act responsibly. The PRI provides some suggestions on how they can do it. Their position on the matter is very clear: investors should support investee companies through the crisis “in the interests of public health and long-term economic performance — even if that limits short-term returns”.

Instead of selling shares en masse, investors should rather engage with investee companies to hold them accountable for their actions and ensure they are managed for the long term. Practically speaking, this means that the immediate needs of employees, contractors and suppliers should be prioritised over short-term financial returns.

Engagements should also focus on the setting of prices and supply levels which will enable society to respond to the health and economic impacts of the crisis. Other suggestions on how investors (whether they are PRI signatories or not) can act responsibly are provided on the PRI’s website 

Investors should also consider investing in companies that enable societies and the planet to thrive.

ESG exchange-traded funds (ETF) offer opportunities in this regard. Research by Morgan Stanley shows that inflows into ESG ETFs have steadily grown from January to mid-March 2020, while inflows into the top 25 US equity ETFs decreased over the same period.

The popularity of ESG ETFs could be attributed to investors seeking “safe havens”.

In SA there are few ESG-focused alternatives to choose from while witnessing the value destruction brought on by the coronavirus lockdown, sovereign debt credit downgrades and the collapse of the rand. The impact of Covid-19 on financial markets and the lives of individuals has been severe.
The collective loss has led to anxiety and panic, but encouragingly is has also inspired outpourings of courage, gratitude and generosity.

Investors are not immune to the repercussions of crises, nor can they disclaim themselves from the response. When the virus passes, SA must find the courage and solidarity to rebuild its economy and society.

Institutional investors have an opportunity to demonstrate their commitment to the society that built their businesses. They have a chance to broaden their understanding and practice of “responsibility” to ensure clients’ future retirement. Let’s hope they rise to the challenge.

Viviers is a professor in the department of business management at Stellenbosch University. Dr Habberton is co-founder of the Relativ Group, an impact advisory firm based in Cape Town.