The South African investor community needs to take note of developments in the UK, and more specifically note the oversight role being played by the UK Financial Conduct Authority (“FCA”).
The UK investment market has changed significantly since the publication of the first UK Stewardship Code in 2011.
Asset owners and asset managers cannot delegate their responsibility anymore and are accountable for effective stewardship.
The FCA, in their feedback statement FS19/7 issued in October 2019, indicated that they would:
- Examine how asset owners set and communicate their stewardship objectives, and
- Take actions to promote arrangements between asset owners, asset managers and service providers that support these objectives.
- Help to address regulatory, informational and structural barriers to effective stewardship practices, including by consulting on rule changes to enhance issuers’ climate change disclosures.
- Will consider further the role of firms’ culture, governance and leadership in both the management of climate risks and the exercise of stewardship.
The Financial Reporting Council (“FRC”) subsequently issued the 2020 UK Stewardship Code (“Code”) and while compliance by asset owners, asset managers and service providers is voluntary, their awareness of the regulatory oversight role of the FCA is an important factor and likely front of mind for all these players.
It sets high stewardship standards for asset owners and asset managers, and for service providers that support them.
“Stewardship is the responsible allocation, management and oversight of capital to create long-term value for clients and beneficiaries leading to sustainable benefits for the economy, the environment and society.”
Environmental and social factors, particularly climate change, in addition to governance, have become material issues for investors to consider when making investment decisions and undertaking stewardship.
The Code comprises a set of ‘apply and explain’ Principles for asset managers and asset owners, and a separate set of Principles for service providers. It however does not prescribe a single approach to effective stewardship.
“Organisations wanting to become signatories to the Code is required to produce an annual Stewardship Report explaining how they have applied the Code in the previous 12 months.”
The FRC will evaluate these Reports against their assessment framework, and those that meet the reporting expectations will be listed as signatories to the Code.
The Code contains more detailed reporting expectations for listed equity assets. Once a year each signatory must produce a report, being a single document which must be reviewed and approved by its governing body and signed by the chair, CEO or chief investment officer. Once the report is approved by the FRC, it is a public document which must be made available on the signatory’s web site.
How does this compare to what is currently happening in SA?
Does the Financial Sector Conduct Authority (“FSCA”) have a similar view to that of the FCA as to the role it wants to or needs to play in the local market?
It would be interesting to get their viewpoint on this.
Also, compare this to the Code for Responsible Investment in South Africa (“CRISA”).
“CRISA was a governance initiative organised by the Institute of Directors of Southern Africa (“IoDSA”) and supported by the Association for Savings and Investment South Africa (“ASISA”).”
One of the intentions of CRISA at the time was to support the implementation of the amended Regulation 28 of the South African Pension Funds Act, requiring all South African pension funds to consider a responsible investment approach as part of their fiduciary duties. It also defined responsible investment and aimed to guide South African institutional investors in the implementation of responsible investment practices.
Has this happened?
How many of the asset managers subscribe to the CRISA investment principles?
With greater oversight we believe it will improve transparency, market quality and integrity, ultimately creating sustainable value for beneficiaries similar to what is happening in the UK.