The notion that investors must choose between doing good and doing well is increasingly outdated. Responsible investing, which considers environmental, social and governance (ESG) factors alongside traditional financial analysis, has moved firmly into the mainstream in South Africa and globally.
Several frameworks guide responsible investing in the South African context. The Code for Responsible Investing in South Africa (CRISA) encourages institutional investors to integrate sustainability considerations into their investment decisions and ownership practices. King IV, the governance code that applies to all organisations in South Africa, explicitly recognises that good governance contributes to value creation in a sustainable manner. Internationally, the United Nations Principles for Responsible Investment (UN PRI) provides a voluntary framework that many South African asset managers have adopted.
It helps to understand the terminology. ESG investing refers to integrating environmental, social and governance factors into investment analysis. Sustainable investing goes further, actively seeking investments that contribute to sustainable development outcomes. Socially responsible investing (SRI) typically involves screening out harmful industries such as tobacco, weapons or fossil fuels. Impact investing targets measurable social or environmental outcomes alongside financial returns.
For South African investors, ESG considerations are particularly relevant. Water scarcity, energy security (given the challenges with load shedding), labour practices and corporate governance scandals have all demonstrated how non-financial factors can destroy shareholder value. Companies that manage these risks well tend to be more resilient over the long term.
The FTSE/JSE Responsible Investment Index tracks companies listed on the JSE that meet specific ESG criteria. Several South African unit trust funds and exchange-traded funds (ETFs) now offer ESG-focused options, making it accessible for individual investors to build a responsible portfolio without sacrificing diversification.
A common misconception is that responsible investing means accepting lower returns. Research consistently shows that companies with strong ESG practices often outperform their peers over the long term, partly because they tend to manage risks more effectively and attract better talent.
Interested in aligning your investments with your values without compromising on returns? Contact our team to discuss how ESG investing can fit into your financial plan.