Responsible Investing

In our view, our process aligns with the fundamental tenets of the newly launched Second Code for Responsible Investing in South Africa (CRISA 2), released in September 2022. The code is intended to encourage investment managers to take faster or more decisive action in achieving the ambitious responsible investment targets set out in CRISA 1. The second code details five voluntary principles for stewardship and responsible investment. These are: ESG Integration, Stewardship, Capacity Building and Collaboration, Governance, and Transparency.   

Figure 1: The 5 principles of CRISA 2

Responsible Investing at PIM: 

While opportunities are considered from both a risk and return perspective, we firmly believe that we have the responsibility of ensuring that the capital we invest contributes to the greater good of the economy, the environment and broader society. 

With regards to ESG specifically: 

In stating the above, we systematically integrate ESG as a risk management tool within our quantitative assessment methodologies. Successfully combining these helps us analyse opportunities from both a financial perspective, along with ‘environmental, social and governance’ considerations. Practically, this talks to the identification of risk factors, the formal and structured engagement at both investee company and industry level (i.e., principle 2, 3 and 4) and the inclusion of appropriate risk management tools, activities or practices in our process. In combining these, we believe that we are able to reach the appropriate investment decisions for our funds, manage risk effectively, and through the deployment of capital, reward or penalise entities based on our assessment of the associated risk factors. 

ESG is also deployed from a screening perspective. Our internally developed in-house ESG-scoring tool ensures that we screen companies according to our internally considered ESG criteria. The ESG scorecard is standardised on a per sector basis, is quantitative and data-driven and accounts for industry materiality and company size biases. It continues to deliver positive results, both from a screening and a post-investment monitoring perspective and provides an in-depth measure of each pillar. We believe the standardised methodology applied allows us to consider ESG perspectives, and ESG risks, without inherent biases. 

Finally, we use ESG in thematic positioning from both a risk and impact perspective. Thematically, we need to understand the risk profile of prospective investments and get a better view of whether they meet or contribute to ESG outcomes and can achieve long-term impact. 

While we have made significant traction in ensuring that we consider the various CRISA 2 principles in our investment process, we continue to refine our thinking, consider best practices, and process data to ensure that we can appropriately quantify what are, in essence, qualitative risk factors. 

Given our long-term approach to investing, we believe that the inclusion of ESG is not a nice-to-have but integral to our responsible investing process. In addition, there is evidence that assessing and incorporating ESG factors in investment decision-making offers material benefits over the long term.  DM/BM

Author: Conway Williams, Head of Credit at Prescient Investment Management

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