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THE FIRST RESPONSIBLE INVESTMENT MSCI EQUITY FUND IN SOUTH AFRICA

18 May 2016

KIM JOHNSON | PORTFOLIO MANAGER AT CUSTOMISED SOLUTIONS

KEY TAKEOUTS:

  • ESG INDEX FUND A FIRST FOR SA
  • MORE CLIENTS DEMANDING SUSTAINABLE RETURNS
  • FUND SCREENS OUT POTENTIAL HIDDEN ESG COSTS

In April, we launched the Old Mutual Responsible Investment Equity Index Fund, the first of its kind in South Africa. The Fund applies the MSCI ESG Research methodology to the FTSE/JSE Shareholder Weighted All Share Index (SWIX) universe, providing a tilt towards companies with best-in-class environmental, social and governance (ESG) practices.

With ESG indexation investing gaining significant traction globally, South Africa has started to see the rise of this same trend locally, spearheaded by the launch of the FTSE/JSE and S&P ESG Indices in South Africa late last year.

Historically, index-tracking investment managers have had limited scope to incorporate ESG factors into their investment processes. This is because of the limited ESG data previously available and the investment universe being determined by the available indices (which have generally been pure market capitalisation-weighted indices that capture broad market returns).

PAST IMPACTS AND FUTURE VALUES

The Old Mutual Responsible Investment Equity Index Fund invests in a local universe of shares that are assessed using a two-step ESG screening approach: the MSCI ESG Impact Monitor screening tool and the MSCI ESG Intangible Value Assessment tool. These tools continually monitor the South African universe not just against their local peers, but also against their global peers.The impact monitor assesses whether the companies adhere to the internationally responsible investment norms. A breach of these norms or principles would typically exclude the company from the Index. The MSCI ESG Intangible Value Assessment screening tool is a forward-looking assessment, which identifies industry-specific ESG risks and opportunities, and thematic changes in the company’s risk landscape. A company could also be excluded if the sector peers are better ranked from an ESG perspective.

More and more of our clients are starting to replace a ”shareholder” mindset with that of a ”stakeholder” approach when considering the future of their investments. This Fund aims to assist in the evolution of this kind of thinking by providing investors with low-cost access to a transparent rules-based fund that invests in good quality ESG companies that should, over time, outperform their peer companies that are not taking ESG factors into account in their business operations. In addition, the responsible investment credentials of the Fund are further enhanced by our internal proxy policy and our dedicated ESG engagement specialist.

“We believe that a company’s approach to the management of long-term ESG risks and opportunities provides insight into its long-term peer-relative performance. Combining this insight with our proactive approach to stewardship, and our index capabilities, has allowed us to bring an innovative low-cost responsible investment product to the domestic market.”JON DUNCAN | HEAD OF SUSTAINABILITY RESEARCH AND ENGAGEMENT AT OLD MUTUAL INVESTMENT GROUP

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