What does the socially responsible investment index (SRI), launched by the JSE Securities Exchange last week, really mean?
The first of its kind to be launched in an emerging market, the SRI comprises 51 companies that have been rigorously assessed on ‘triple bottom-line” reporting — encompassing environment, social and economic performance and corporate governance.
The companies range in size and sector participation from mining giant Anglo American (and its gold and platinum subsidiaries, Anglogold Ashanti and Anglo Platinum) to financial services heavyweights the Absa Group, First Rand and Investec; and telecoms companies Vodacom (and its parents Telkom and Venfin) and MTN, which made a bright yellow noise about being included.
Marcus Reinhardt, a director at SR&I, which did the number crunching for the index, described the SRI as an attempt ‘to see whether companies look at non-financial issues in a systematic way and disclose them”.
South Africa’s SRI is still embryonic. For one thing, it does not have negative screening, normally used to exclude tobacco and alcohol companies, gambling operators and mining companies. Thus SABMiller and Gold Reef Casino Resorts Limited rub shoulders with the Anglos and Iscor.
Yet Reinhardt believes the index gives investors a new choice, ‘allowing them to invest with their values”.
He points out that an index of this nature is less volatile than the conventional indices — which is interesting, considering the SRI is vulnerable to a wider range of shocks because of multiple sector exposure.
The index is not meant to be traded, but to be used as a benchmark by investors with ‘green” funds (with a heavy environmental bias) or ‘tracker” funds (which simply track indices). An investor can use the pool of companies as a sample guide to construct his or her own basket.
The noise about the index does not seem to have reached the markets in time — on Tuesday, a week after the launch, a trader in Johannesburg had not loaded or seen the index pricing.
Malcolm Gray, fund manager at Investec and adviser on the SRI’s development, emphasises that the index should not be considered an ethical one, but rather a window on corporate practice. Mining and resources companies are included because, while they have a negative environmental impact, they have to be transparent about it.
However, by Tuesday, Gray had not received a single client mandate to invest in the SRI.
By contrast, rated Investec corporate governance expert Brian Kantor can muster only mild enthusiasm for the index. Says Kantor: ‘The most important function of a corporate is to provide goods and services efficiently at a decent return — while being honest to suppliers, customers, workers and shareholders.”
Kantor supports corporate governance, but not its stringent regulation. His point is one that should be made to environmentalists: companies have to be solid and profitable before they can do good.