Each week Emerging Markets ESG publishes an interview entitled, “Five Questions about SRI.” The interview features a practitioner’s insights about SRI in emerging markets and through Emerging Markets ESG shares this expertise with a wide global audience. The goals of Five Questions about SRI are fourfold:
- To collect a catalogue of examples of SRI in practice in emerging markets;
- To raise awareness about SRI in emerging markets;
- To reflect on what SRI in emerging markets means to practitioners; and
- To enable SRI practitioners in emerging markets to network with peers around the world.
This week’s interview is with Claire Rentzke, Senior Consultant, RisCura, Cape Town, South Africa.
RisCura is a global, independent investment consultant and financial analytics provider. The company services institutional investors with just under USD200 billion in assets under management, as well as a significant number of asset management, hedge fund and private equity firms. It advises one of the largest investor bases in listed and unlisted African investments, which is represented in all asset classes across the continent, and is a leading provider of independent valuation, risk and performance analysis services to investors. In addition to being pioneers of liability-driven investing for both defined contribution and defined benefit funds, the company’s strengths include world-class investment decision support and an exceptional skill for understanding investments in emerging markets. RisCura has offices in London, Johannesburg, Cape Town, and Windhoek, in addition to representative offices in Zambia and Mauritius. Claire Rentzke is a consultant based in Cape Town and works with some of the largest retirement funds in South Africa. She is particularly passionate about responsible investing and seeing the principals of ESG properly implemented. As she enjoys excellent relationships with all investment managers, including niche specialist managers, she is experienced at determining their key skills and ensuring funds benefit from this skill. She has strong expertise in optimising investment mandates, negotiating fee structures and monitoring fund success over time. Claire joined RisCura in March 2004, and is a CFA chartered holder. Prior to joining the company, she worked for Citigate Financial Intelligence where she was responsible for researching international financial institutions.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Claire Rentzke: There are numerous definitions and terminology in the area of responsible investing, which hasn’t aided the cause. It is often easier to talk about what it is not. It is not corporate social responsibility, it is not charity, and it isn’t an asset class or an asset manager product. While socially responsible investing alludes only to investments that are beneficial from a social perspective, responsible investing (and indeed socially responsible investing) is about considering the long-term viability of any investments made. Responsible investing is potentially a more appropriate term as it incorporates broader factors. It implies a long-term view and considers whether there are environmental, social or governance factors that may impact the long-term value of businesses.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Claire Rentzke: Ideally nothing should. Responsible investing should be mainstream. This would mean that all asset managers, in their analysis of companies, should be looking at a long-term investment horizon and not what a valuation is likely to do over the next six to 12 months. Responsible investing tries to quantify the impact on valuation of factors that are often more difficult to quantify and that are not always widely reported by companies. These can be grouped into environmental, social and governance factors as opposed to purely economic factors.
Responsible investing incorporates a much longer investment horizon but the length of time over which the impact of ESG factors may be felt can vary considerably and is often not easy to assess. Additionally there is an incredibly wide array of factors that managers may need to consider in their analysis.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in Africa to manage?
Claire Rentzke: In Africa it would appear that social factors are often the most difficult for companies to manage. This is possibly because of the diversity of social factors that companies need to consider. These include community upliftment, gender diversity, HIV/Aids and worker safety, amongst others. Africa has a history of trying to be competitive based on cheap labour, which has left a legacy of social ills that are difficult to assess, quantify and remedy.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in African companies to analyze?
Claire Rentzke: I would say investors struggle with both environmental and social factors. There has been less research done in these areas on the impact on valuation, and the factors are more difficult to identify than governance issues which are driven by the guidance of King III. Company reporting on these issues is also not as extensive and the factors can be overlooked by companies who are focused on the short-term. Often environmental factors can involve a tradeoff as well, which can be difficult to evaluate. For example, what is the environmental impact of a sugar producer that may eradicate natural vegetation to plant sugar cane but in turn uses that sugar cane to produce alternative sources of energy?
Emerging Markets ESG: You have worked with South African investment fund managers for over eight years. Based on your discussions and interaction with them, what are the three most pressing ESG issues for South African fund managers at present? Has anything changed during the past five years?
Claire Rentzke: The ESG issues that managers see as important vary by manager and the level of their expertise in assessing ESG. A common trend has been the evolution of thinking around responsible investing. Over the last five years responsible investing has become much more prominent and many more managers are talking about ESG and responsible investing than five years ago when it was the exception rather than the rule. With the release of CRISA (the Code for Responsible Investing in South Africa) and the new Regulation 28 of the Pension Funds Act, ESG is now firmly on the agenda of every manager. More recently, managers have expanded the ESG analysis they do include from being predominantly focused on governance to also include more analysis of environmental and social factors.