Although ESG investing has increasingly gained traction in recent years, it is less clear whether organisations are making a conscious effort to improve their actual ESG outcomes. Complete and accurate ESG data is lacking and it is not possible to substantively compare companies’ methodologies, neither between years nor between companies. All that we have available are self-reported ESG disclosures, under which firms paint themselves as “saints rather than sinners” while box-ticking King III and the ‘Code for Responsible Investing in South Africa’ (CRISA) principles.
Against this backdrop, even the gold standard for stewardship, namely the UN Principles for Responsible Investment (UNPRI), has been criticised for “creating a pop culture of enthused signatories” rather than influencing and changing investor behaviour. Such criticisms reflect not only the lack of consistency and comparability within ESG reports, but also the fact that integrated reports tend to disclose positive, rather than balanced, information. In addition, the revised ‘Organisation for Economic Co-operation and Development’ (OECD) principles of corporate governance go beyond the firm and include responsibilities for investors as well as guidance on managing conflict of interests. One therefore needs to question whether investors can truly integrate ESG information into their investment process and whether ESG metrics inform actual long-term sustainability.
However, despite such concerns, we believe organisations and asset managers cannot stand by and wait indefinitely for improved triple bottom line reporting when change is urgent. At 36ONE Asset Management, we have taken it upon ourselves to create a Sustainable and Responsible Investing (SRI) Committee. This committee coordinates 36ONE's approach to ESG and tracks the implementation of our ownership responsibilities policy. We have actively engaged with ESG matters for some time through, for example, our proxy voting and management engagement. However, we believe that this committee will provide impetus for us to play a key role in bridging data gaps and building awareness and intellectual capacity relating to ESG issues.
In addition, 36ONE recently became a signatory to UNPRI. The UNPRI is the overarching global framework on ESG matters in investment and decision-making practices. Being a signatory provides us with access to examples of best practice from a global network of peers as well as access to standard reporting and assessment tools. We believe this demonstrates our complete commitment to integrating ESG matters into all aspects of our business, not least by participating in the annual PRI reporting and assessment. This provides us with the opportunity to collaborate with other signatories and the UNPRI Head of Africa and the Middle East, and ensures that we continually measure:
- How we incorporate ESG matters into investment analysis and decision-making processes.
- How we collect appropriate information on ESG matters by the entities in which we invest.
- How we promote acceptance and implementation of the principles within the investment industry.
- How we enhance our effectiveness in implementing the principles.
- How we report on our activities and progress towards implementing the principles.
- How seriously we take our active ownership duties.
36ONE has already made important strides in sustainable and responsible investing. We are now actively incorporating the UNPRI guidelines into our mainstream investment processes. Our investment decision-making process now incorporates red flag indicators, the results of individual or collective engagement with management and ESG information from external research providers. We use the UNPRI as a guide to implement SRI procedures and policies and are continuously evolving our processes to incorporate lessons learnt from previous experience.