The Conscious Investor: It Pays to Be Nice

As responsible investment practices gain traction in South Africa and globally, increased shareholder activism is likely to see CEOs and chief operational officers called to publicly answer tough questions around management and investment decisions.

- Natalie Greve

A little over two decades since the listing of South Africa’s maiden responsible investment (RI) fund, ethical, social, environmental and socioeconomic considerations appear to be playing an escalating role in the decision-making process of moneyed institutional and individual investors.

Resisting customary advice that calls for the separation of sentiment and investment judgments, investors are opting to support funds that demonstrate a certain corporate conscience – and it appears this approach may increasingly be making business sense.

According to Suzette Viviers, a professor in the department of business management at Stellen bosch University, who has undertaken extensive research on the subject, on balance, the risk adjusted returns from RI funds perform on par with conventional funds; even outperforming them in certain cases. 

“It makes intuitive sense that companies which proactively manage environmental, social and governance (ESG) risks are going to avoid fines, carbon taxes, have more motivated employees and more loyal clients – who may even be prepared to pay premiums for greener products and services.

“If they place pressure on suppliers across the supply chain to follow their lead, it can only lead to improved returns. This might also explain the growing interest in ESG indexing,” she comments.

RI, on the one hand, allows investors to invest according to the tenets of their beliefs or ethics, employing a self referential framework and taking a stand on what they do not want to own. This form of negative screening is described as “ethical investing”. (See box.)