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The A to Z of Responsible Investment

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As society becomes more unequal and the effects of climate risk become more material across the globe, sustainable practices are increasingly being applied across all industries. This is no more evident than in the investment world where, in the last few years, the industry has seen increasing acceptance that sustainability issues can and do influence long-term investment outcomes. Issues such as resource depletion, climate change, poor governance and social inequality, pose both investment and systemic risks to investors’ goals.

The global Covid-19 pandemic has brought the importance of this responsible investment approach into even sharper focus. The lockdown in South Africa, in particular – put in place to help reduce the spread of the disease –  has had a devastating impact on our society. Now more than ever, the urgency of creating an economy around the concept of shared value has come to the fore, with a need for a stakeholder inclusive model where value is shared across participating shareholder groups.

However, there is still a need for increased understanding and clarity around the concept of ‘responsible investing’ and all its associated terms. Responsible Investment is a specific term coined by the United Nations and is defined as “an approach to investing that aims to incorporate environmental, social and governance (ESG) factors into investment decisions, to better manage risk and generate sustainable, long-term returns”.

There are many other terms associated with the concept that can cause confusion. We have therefore created the below glossary in a move to try and increase awareness around such an important practice for the sustainability of our world.


ACTIVE OWNERSHIP: When shareholders exercise their rights, actively engaging with investee companies on business strategy, including sustainability issues, to reduce investment risk and/or enhance long-term shareowner value.

CODE OF RESPONSIBLE INVESTING IN SOUTH AFRICA (CRISA): Principles that give guidance on how institutional investors should promote sound governance. The code came into effect in February 2012. See United Nations Principles of Responsible Investment (UNPRI).

ESG: Stands for environmental, social, and governance factors, the three categories of factors investors consider with regard to an investment’s sustainable practices.

GREEN ECONOMY: A low-carbon, resource-efficient, and socially inclusive economic growth path for improved human wellbeing and social equity while reducing environmental risks. It is an alternative concept to typical industrial economic growth, which focuses on increasing GDP above all other goals.

IMPACT INVESTING: Investing with the primary goal of achieving specific, positive social benefits, while also delivering an attractive investment return. Typically, these are investments in projects with clear social goals, for example, education or housing.

INTEGRATED REPORTING: An evolution of corporate reporting and a requirement of listing on the Johannesburg stock exchange. An integrated report explains how a business makes use of the various forms of capital (financial, human, natural, social, manufactured, and intellectual) to create value over time. It is focused on communicating how an organisation’s strategy, governance, performance, and prospects, in the context of its operating environment, lead to the creation of value in the short, medium and long-term.

UNITED NATIONS PRINCIPLES OF RESPONSIBLE INVESTMENT (UNPRI): The largest global initiative focused on driving RI practises. Old Mutual has been a signatory to the United Nations Principles of Responsible Investment since June 2012 and reports annually on its progress in implementing these principles.

PROXY VOTING: A form of voting whereby a shareholder with voting rights delegates his or her voting power to a representative (in our case, the asset manager) to enable a vote in absence at a company’s annual general meeting or special meeting.

STEWARDSHIP: Stewardship represents meaningful corporate engagement and industry collaboration aiming to promote ESG management practices that encourage long-term value creation for shareholders.

SHARED VALUE: Refers to “a management strategy in which companies find business opportunities in social and environmental problems”. The central premise behind creating shared value is that the competitiveness of a company and the health of the communities/environment around it are mutually dependent. Recognising and capitalising on these connections between societal and economic progress has the power to unleash the next wave of global growth and to redefine capitalism.

The many terms associated with responsible investing may seem daunting to the uninitiated. However, the broad concept of responsible investment is a simple one: when it comes to long-term investment, it is in the interests of all players in the financial ecosystem to offer a proactive role in creating long-term sustainable outcomes for all stakeholders. Sustainability is a long-term macroeconomic theme that is fundamentally reshaping the competitive landscape across every industry. As such, you would do well to familiarise yourself with the above terms as you’re certainly going to be hearing them more frequently going into the future. BM/DM

To answer more of your investment related questions, contact us at [email protected] or visit http://ww2.oldmutual.co.za/old-mutual-investment-group/insights/  for more news and insights.


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