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 Daniel Malan, Senior Lecturer in Ethics and Governance, and Director, Centre for Corporate Governance in Africa, University of Stellenbosch Business School, South Africa.
The Centre for Corporate Governance in Africa at the University of Stellenbosch Business School (USB) conducts multi-disciplinary research and offers educational and development activities to improve the effectiveness of corporate governance in African organisations. The Centre focuses on: the development of the compliance and performance aspects of directors’ attitudes, knowledge and skills; and the link between corporate governance, business ethics and total organisational performance. The purpose of the Centre is to improve the effectiveness of corporate governance within African organisations, predominantly in the private sector. The vision of the Centre is to be the leading provider of research and educational services on the African continent in the area of corporate governance. The Centre forms part of the university-wide HOPE project, which supports the creation of sustainable solutions to some of South Africa’s and Africa’s most pressing challenges. Programs and projects undertaken by the Centre focus on four major areas: responsible investment, board leadership and development, integrated reporting and values. Daniel Malan is a Senior Lecturer in Ethics and Governance and Director of the Centre for Corporate Governance in Africa at the University of Stellenbosch Business School in South Africa. His focus areas are corporate governance, business ethics and corporate responsibility. He is a member of the following initiatives: the World Economic Forum’s Global Agenda Council on Values, the International Corporate Governance Network’s Integrated Business Reporting Committee and the Anti-Corruption Working Group of the United Nations Principles for Responsible Management Education (PRME). He also has fellow membership (FCIS) of Chartered Secretaries of Southern Africa, a division of the Institute of Chartered Secretaries and Administrators (ICSA). Previously he was an associate director with KPMG Forensic, where he was responsible for ethics and integrity services. His educational qualifications include a Master’s degree in Philosophy as well as a Master’s degree in Business Administration (MBA), both from the University of Stellenbosch in South Africa. He lives in Stellenbosch with his wife and two daughters, where he is the residential head of Wilgenhof, the oldest university men’s residence in Africa.
Emerging Markets ESG: How would you define socially responsible investment (SRI)?
Daniel Malan: Investment that understands and acknowledges the impact of investment decisions on broader society, that accepts responsibility to a wider range of stakeholders, and tries to align the long term interests of shareholders with the well-being of the world.
Emerging Markets ESG: What distinguishes SRI from mainstream investment?
Daniel Malan: Mainstream investment still has the reputation that it focuses on the interests of shareholders at the expense of other stakeholders. Hopefully SRI will become mainstream and the distinction will fall away over time.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for companies in African emerging markets to manage?
Daniel Malan: Social issues are the most challenging, and they are closely linked to governance issues. Concerns about the growing gap between rich and poor and increasing systemic corruption make it very difficult for many companies to operate effectively.
Emerging Markets ESG: Which extra-financial theme – environmental, social or governance – is the most challenging for investors in African emerging market companies to analyze?
Daniel Malan: Social issues are the most challenging because they require in-depth local knowledge and are not as easily quantifiable as environmental performance or the more formal aspects of governance.
Emerging Markets ESG: The Public Investment Corporation Rating Matrix (the Matrix) is one of the flagship products of the Centre for Corporate Governance in Africa. Would you please introduce the Matrix and explain its impact. The Matrix has been used for four consecutive years. Have you discerned any trends?
Daniel Malan: The Centre was appointed by the South African Public Investment Corporation (PIC) in 2008 to develop a Corporate Governance Rating Matrix to be applied to listed South African corporations. The PIC is a government-owned asset manager and one of the largest asset managers on the African continent. During the first two years the research included the top 40 companies listed on the Johannesburg Stock Exchange (JSE). From 2011 onwards this was expanded to include the top 100 companies listed on the JSE.
The Matrix incorporates existing PIC, South African and international corporate governance standards and best practice. Compliance-related information received from the PIC was balanced with “softer” measures on adherence to the fundamental corporate governance values of transparency, honesty and accountability. The emphasis was on the development of core indicators that focus on material issues and performance, rather than extensive tick-box questions on technical issues.
The Matrix includes 16 categories: board, individual directors, executive management, remuneration, shareholder treatment, auditing and accounting, disclosure and reporting, corporate behaviour, corporate culture, sustainability report, UN Global Compact, human rights, transformation, health and safety, corporate responsibility and environmental.
The results of the Matrix are not disclosed publicly but only presented to our client, the PIC, who uses the data as part of their ongoing engagement with companies. We have seen a gradual increase in the performance of companies, which reflects the growing awareness of ESG issues in the South African context.