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Who Is Responsible For Responsible Investment?

GCX Africa and Sun International – The Better Business Breakfast Forum
Ethical/Responsible Investment In South Africa – Truth Or Myth?
25 March 15 – Better Business Breakfast Forum Podcast

KEVIN JAMES: The investment community is the most influential stakeholder when it comes to catalyzing change in corporates. ESG or Environmental, Social, Governance impacts have been previously externalized from the corporate equation, but are now being internalised. However, most in the investment community see ESG as a risk management tool, or as a potential hidden liability that is going to suddenly appear and compromise shareholder returns.

For effective corporate management of sustainability, it’s all about leadership. There is no other word. Rob Collins and his team at Sun International have overwhelmingly demonstrated good leadership. That is what we require: people who are bold; people who don’t mind breaking the paradigm and leading to the future. They have opened up Sun International to be able to do things properly, to do things authentically. We’ve had enough of people ticking boxes, we’ve had enough of people looking for good things to say that they can wrap up in a report at the end of the year, and sort of keep investors happy and not properly manage it for performance.

We’re now more interested in shared value. Shared value is the extension, or the evolution or maturity of what used to be called Corporate Social Responsibility, which was more about charity. When we talk about authentic shared value, we mean that value is actually being added to the value of the company. While such a strategy will ultimately result in a more resilient, sustainable company, the ultimate beneficiaries of such a strategy would be investors, because they would have a company that could guarantee long-term shareholder returns. This is critical for institutional investors, and for long-term investors, who have a longer-term investment horizon.

South Africa is particularly fortunate as we have a sophisticated integrated reporting structure, thanks largely to Mervyn King and the work he’s done. We have many benchmarks in institutions that support and send the right message, that, we need to start reporting and disclosing things that we previously never did before.

His thinking was an approach that was spot on when it comes to integrated reporting. At the end of the day, sustainability is a philosophy, it’s not a department. It’s a philosophy that’s needs to be embedded in every aspect and every activity of a company’s business and that is how you extract true business value. Doing anything less will only provide a derivative. About four years ago, I spoke to Mervyn King at a conference and I was frustrated. I said: “Why don’t you change the wording in your integrated reporting framework from ‘we recommend and suggest’ to ‘you just have to’? He said something to me that didn’t make sense at the time: ‘Kevin, legislation and regulation, people find ways around that, but you cannot escape market forces’. He said, ‘Market forces are driven by various stakeholder groups that are forcing companies to change, whether it is customers at Woolworths, Pick n Pay, Clicks, wherever the retailer, whether it be communities around mines, whether it be suppliers and supply chains.”

These are the stakeholders that are driving change and creating the market demand that is forcing companies to change. But there is one stakeholder group that holds the most influence. Shareholders have the power to influence companies to do the right thing, to make sure that they’re on a path that’s going to guarantee that they will be around in ten, twenty, thirty years’ time, delivering decent returns.

So we need responsible investment from active shareholders if companies are going to become more sustainable, more resilient and more profitable. At its core, responsible investment means incorporating material, non-financial issues and philosophies into investment decisions. It’s founded on the underlying assumption that companies that actively and deliberately manage their environmental, social and corporate governance, risks and opportunities, can generate greater returns over the long term.

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