Sessions

Day 1

PRI welcome

Dr Wolfgang Enghsuber, Chair, PRI Advisory Council
John Oliphant, Principal Executive Officer, GEPF

Keynote 1

Pravin Gordhan, Minister of Finance, South Africa

Time to push the reset button on pension fund investment: a shift towards patient capital

Sharan Burrow, General Secretary, International Trade Union Confederation
Bruce Whitfield (Moderator), Financial Journalist, Talk Radio 702

Doing business in Africa today: understanding the current political, economic, and social landscape

Ebrima Faal, Regional Director Southern African Region, Africa Development Bank
Arnold Ekpe, Former CEO, Ecobank group
Tshepo Mahloele, CEO, Harith General Partners
John Oliphant (Moderator), Principal Executive Officer, GEPF

Breakout 1

How can investors work with governments to create ‘integrated’ capital markets? (Audio only)


Responsible investment in emerging market debt (Audio only – Note: first 10 minutes of audio suffer from low quality due to technical errors)

Presentation slides – all


Corruption: due diligence and managing risks (Audio only)

Presentation slides – Stephane Voisin, Kepler Cheuvreux


The Principles in Practice: ESG integration into investment processes (Audio only)

How do we bring about long termism in the financial markets?

Sandy Frucher, Vice Chairman, NASDAQ
Erika Karp, CEO, Cornerstone Capital
Thabo Khojane, Managing Director Africa Client Group, Investec Asset Management
Elias Masilela, CEO, Public Investment Corporation
Diane Radley, CEO, Old Mutual Investment Group South Africa
Helene Winch (Moderator), Director of Policy and Research, PRI

Breakout 2

Integrated analysis: brokers demonstrate their best examples of integrated equity research (Audio only)

Presentation slides – Zoe Knight, HSBC


What impact do employee relations have on performance and valuations of companies? (Audio only)

Presentation slides – Oddo Securities


The latest academic research on responsible investment


The Principles in Practice: why be an active owner? (Audio only)

 

Day 2

Southern Africa – An economic overview

Chris Hart, Chief Strategist, Investment Solutions
Fiona Reynolds (Moderator), Managing Director, PRI

The responsible capitalism debate – the role of ‘values’ in ‘value’

Prabir Badal, Deputy Chairman of the Board, GEPF
Jay Youngdahl, Trustee, Middletown Works Hourly and Salaried Union Retirees Health Care Fund
Glenn Silverman, CEO, Investment Solutions
Paul Clements-Hunt, Former Head, UNEP Finance Initiative
Bruce Whitfield (Moderator), Financial Journalist, Talk Radio 702

Breakout 3

Running dry: how does water scarcity impact businesses and investors? (Audio only)

Presentation slides – Malango Mughago, WWF

Presentation slides – Veronique Menou, MSCI


Investing in access to finance: the case of South Africa (Audio only)


The PRI Reporting Framework: a practical guide for users

Presentation slides – Official release of the new Reporting Framework, 30 September 2013


The Principles in Practice: building your RI capacity (Audio only)

Presentation slides – SRPS

Breakout 4

Mining in Africa: boosting sustainability in the mineral economy (Audio only)


Director nomination process: how to get the right skill sets on corporate boards (Audio only)


Sustainable capital markets: the evolving role of exchanges (Audio only)


How to quit smoking: a case study in divesting from tobacco stocks (Audio only)

‘Gini’ out of the bottle: what is the cost of financial inequality?

David Wood, Director, Initiative for Responsible Investment, Harvard University
Elias Masilela, CEO, Public Investment Corporation
James Gifford, Executive Director, PRI

Aligning interests along the investment chain

Eric Wetlaufer, Senior Vice President of Public Market Investments, Canada Pension Plan Investment Board
Graham Sinclair, Principal, SinCo
David Russell (Moderator), Co-Head of Responsible Investment, USS

Conference wrap-up

Dr Wolfgang Enghsuber, Chair, PRI Advisory Council
John Oliphant, Principal Executive Officer, GEPF

James Gifford’s farewell speech

 

Side events and other sessions

Early bird sessions

Carbon action: Climate change impacts – right here, right now (Audio only)


Good for nothing?! (Audio only)

Presentation slides – Paul Robinson, Alquity


Creating value – investors and integrated reporting (Audio only)


Vote confirmation breakfast (Audio only)

RI Academy

Enhanced Financial Analysis

Presentation file – Cecile Churet, RobecoSAM

 

Event takeaways

Event takeaways written by Mark Nicholls: 

A call to arms

Plenary 2: Time to push the reset button on pension fund investment. A shift towards patient capital. 

There’s a danger at any industry event of slipping into self-congratulation – celebrating the small victories, glossing over the setbacks, conveniently forgetting about the failures. Any such danger was masterfully dispelled by Sharan Burrow, as she skewered the failure of regulators – and the financial sector itself – to learn the lessons of the global financial crisis.

Her analysis is clear: finance sector lobbyists have watered down policies to re-regulate their industry; the swing from pump-priming to austerity in 2010 has savaged growth, wages and living standards; the global economy is no more stable than it was six years ago.

“The system is sick,” she said. “We need to rebuild our economies, and build an economic model that returns to old principles: full employment, decent work – the dignity of work where people’s rights are respected – and a universal social protection floor.”

Such an analysis might be expected from the general secretary of the International Trade Union Confederation. But it came with a call for long-term investment and a leading role for the pension funds stewards, as they are, of workers’ investments.

“Modern portfolio theory has failed and we need a dedicated approach to inclusive growth,” said Burrow – praising the OECD’s principles for long-term investing set out at the last G20 meeting, in Moscow last month.

Those principles “could make a difference in helping workers’ pension funds shift towards long-term investing”, she said, which the OECD defines as “patient, productive and engaged capital”.

She called for a recasting of the asset owner-asset manager relationship, giving “primacy to the former”, wide-scale investment in climate-related assets, and the elimination of the abuse of labour in developing countries, found in so many companies’ supply chains.

“Ask any CEO if they would like their sons or daughters to work in the textile factories in Pakistan, the mines in the Congo, manufacturing plants in Central America, among the beer women in Cambodia or the slave state of Qatar and they shudder,” she said. “But at the same time they allow the willful perpetuation of these horrors in the supply chains of their corporations and we have workers capital invested in them.”

“The PRI principles remain a strong floor for sustainability across all areas of ESG and you have enormous authority to effect change. But you must be more activist in your approach … So much more can be done,” she added.

Stirring, and inspiring stuff, which put the proceedings of the two days of PRI in Person in vivid context.

But, perhaps, the vision is more easily seen from the conference podium than in the investment committee. As one asset owner delegate put it after hearing Burrow speak: “Try telling a fund manager who’s paid based on annual performance to take the long-term view.”

Short-term and short-sighted – but who’s to blame?

Plenary 4: How do we bring about long termism in the financial markets?

The debate is at the heart of responsible investment: how do you persuade investors to invest for the long-term, to think (almost) as much about returns in 20 or 30 years as they do about the next quarter?

As one asset owner joked, “the asset owners blame the investment managers, the managers blame the owners, and they both blame the consultants.”

A debate in the PRI in Person plenary attempted a more sophisticated approach to the problem – and found a perhaps surprising appetite for regulation.

For Elias Masilela, the CEO of South Africa’s Public Investment Corporation, it’s about education, and a new relationship between asset owners and their managers.

He noted that few South African asset owners “appreciate the benefits of long-termism”.

“To a large extent, it’s about education, and consciousness, appreciating the link between the market economy on the one side and asset performance on the other.”

And, with investment advisers “very short-term in their thinking, and very conservative”, it is vital to educate boards of trustees about long-term investing. “You need to start with the owners of capital: if the owners of capital are short-term, you can’t expect to the agents to wake up one morning and be long-term in their decisions.”

Diane Radley, CEO of Old Mutual Investment Group, argued that it’s a question of trust and confidence, noting that investors will happily lock away money with (trusted) private equity fund managers for five years, but will want annual reviews of the performance of listed equity managers.  

Other panel members, however, were looking for the firm smack of the regulatory stick.

“Somebody with a stick has to set the tone – it’s called government,” said Sandy Frucher, vice chairman of NASDAQ. “They have to establish universal things, like civil rights, human rights, and respect for the environment … and appropriate mechanisms like good governance and transparency.”

“The stick will, hopefully, create an even playing field that will allow investors to make intelligent choices.”

That point of view found resonance in the audience, with Malcolm Gray of Investec drawing an analogy with government regulation of tobacco and alcohol for public health reasons.

“We’re in a situation where the information technology out there today drives information to the point where short-termism is almost an addictive drug. Is it not time,” he asked, “for regulators to step in to drive long-termism, because it’s better for us than short-termism?”

FOSMESG integration, anyone?

Panel 1B: Responsible investment in emerging market debt.

Could the responsible investment alphabet soup be about to get a little thicker? Yes, if Andrew Canter gets his way.

The chief investment officer of local investor Futuregrowth Asset Management was talking about emerging market debt – but it turns out that he’s no fan of the ESG acronym.

“Frankly, I’m a little bored with ESG as a term – I think it confuses clients, it means different things to different people, and I’m much more inclined to think about this as part of your normal analytical process.”

That process, he explained, should incorporate ESG analysis with a whole host of other economic and organisational factors.

Canter tried an exercise in crowdsourcing: “If anyone can come up with a better acronym to combine financial, operational, strategic, market, environmental, social and governance factors into one nice acronym our clients can understand, then shout it out during the course of the discussions.”

The exercise failed. FOSMESG it is.

Who knows what good employee relations are worth?

Panel 2B: What impact do employee relations have on performance and valuations of companies?

It’s pretty much a consensus view: employees are a company’s most valuable asset. But what on earth are they worth? Turns out nobody knows – but, from a valuation point of view, that may not be the point.

At an event held in South Africa, mining is often front of mind, and Anna Pot of Dutch investment giant APG found that, on a series of company visits she carried out last week, “even the most conservative economists or analysts explained that labour relations and dynamics in the labour force is the main issue for the mining sector – and the economy as whole.”

And there’s certainly a lot of research analysing the importance of employee relations to corporate performance: “The question is, can we put a number on it? We came to the conclusion that it’s not possible.”

But, she added, it doesn’t mean it doesn’t matter. “It’s a very valuable metric for quality of management.”

It’s an old complaint among responsible investment advocates: investors often discount ESG issues that can’t be quantified, while embracing more conventional factors that also defy quantification. “Quality of management is factor number one for active equity investors,” said Jean-Philippe Desmartins, head of ESG research at Oddo Securities in France.

So, back to employee relations: both Oddo and APG are tackling the human resources (HR) valuation conundrum by coming up with a series of metrics or questions for their analysts and fund managers to ask, helping them to build up a picture of employee relations.

These include whether a head of HR sits on the executive committee, the percentage of staff covered by collective bargaining agreements, or the number of strike days or worker accidents.

Nonetheless, more can be done. Frank Fox, head of occupational health at miner Anglo American, said that investors should ask more questions of companies, and companies should disclosure more of their HR data – and Pot quoted figures from Bloomberg that only 23% of companies disclosed figures on employee turnover, for example.

“The biggest problem for us is that we don’t have a standard set of measurements we can interrogate companies with, and we have to understand what it means when they’re down or up,” said Fox. “We need to develop these measurements, and it will only happen through investors asking these questions.

“It’s one of the things that have to come out of a conference like this.” Over to you.

In late October, the PRI will launch an engagement with listed retailers to encourage improved company practices, enhanced reporting and increased board and senior management attention on direct employees. 

Time for a push on sustainability listing standards?

Panel 4C: Sustainable capital markets: the evolving role of exchanges

What’s the biggest contribution a stock exchange could make towards building sustainable capital markets? Simple: introduce sustainability disclosure standards into their listing requirements. And what is the chance of any one exchange taking a lead here? About zilch, say’s NASDAQ’s Sandy Frucher.

Such a move would be “a breach of our fiduciary trust, because we’d probably destroy our listing business,” NASDAQ’s vice-chairman told a side event here in Cape Town today.

“Listing is a global business,” he said, and if a company didn’t like one exchange’s rules, it would simply go elsewhere.

So exchanges – including those collected in the Sustainable Stock Exchanges initiative – have mostly focused on voluntary actions, with varying success.

Sonia Favaretto of Brazil’s BMF&BOVESPA said around two-thirds of companies on her exchange had met a recommended comply-or-explain disclosure standard. On NASDAQ, a similar effort had only seen 20% sign-up.

The answer, argued Frucher, is a “global standard”, introduced by IOSCO, the International Organization of Securities Commissions. “If the exchanges could find common ground on this, we could push the regulator,” he argued.

Such common ground might be hard to found. Favaretto noted exchanges – and companies – in different regions of the world are at different stages when it comes to sustainability disclosure. “We’re far from there,” she said, referring to a universal standard.

Step forward the investors. “Investor groups have to demonstrate that transparency on social and environmental issues is a real concern,” said Frucher. “The investment community has a terrific opportunity to pressure us and the regulators.”

Paying the price of inequality

Plenary 7: ‘Gini’ out of the bottle: what is the cost of financial inequality?

Should responsible investors care about inequality? It might seem self-evident that the answer should be ‘yes’ but, as an issue for investors to be concerned about, it’s a relatively new addition to the agenda.

And, indeed, there are plenty of economists who would answer with a resounding ‘no’ – arguing that inequality is an inevitable outcome of economic growth in a market economy, or that “a rising tide lifts all boats”.

David Wood, the director of Harvard University’s Initiative for Responsible Investment, isn’t convinced by their arguments – and set out the case for the defence.

Income inequality encourages rent seeking and political capture, as the rich seek to consolidate their power. It can encourage high-risk behavior among those in the middle seeking to join the elite, and – perhaps most importantly – it contributes to instability, representing a symptom of fundamental societal weaknesses.

So, what should a responsible investor do about it? The audience was pressed for answers, which ranged from putting pressure on governments to raise minimum wages, increase ‘impact investments’ in poor communities, or lobbying for the better regulation of finance.

Is there a role for the rating agencies? The PRI’s Helene Winch suggested that they might want to explore the relationship between a country’s Gini coefficient – a measure of income distribution – and its chance of sovereign default. Perhaps a higher country risk rating, and higher borrowing costs, might focus a government’s mind?

Introducing the Klop curve

Plenary 7: ‘Gini’ out of the bottle: what is the cost of financial inequality?

Panel 3A: Running dry: how does water scarcity impact businesses and investors?

Yesterday it was FOSMESG integration – today we were introduced to a brand new financial theory: the Klop curve.

This innovation overshadowed an otherwise excellent side event on water risk (takeaway: there’s loads of it, and no-one’s pricing it properly).

The curve, named after its ever-modest inventor, Piet Klop of PGGM, is a tool to allow the user to assess the level of investor awareness and concern about an environmental or social issue.

I’ve been unable to source an electronic version, but the curve traces investor engagement from ‘denial’, through ‘opportunity’, to ‘panic’.

“If you can’t fix the world, make sure you’ve got a curve to your name,” Klop said. Quite.

The reporting rubber hits the road

Panel 3C: The PRI Reporting Framework: a practical guide for users

There’s been huge relief at the PRI at the launch of its crucial new reporting and assessment framework, and just a little moaning from signatories who face a more involved process to disclose how they are implementing the principles.

But there is cautious hope, at least, that the slow-motion avalanche of information that signatories will produce over the next six months will help asset owners and asset managers understand each other a bit better.

“There’s going to be a wealth of information created by the R&A framework,” said Eric Wetlaufer, of the Canada Pension Plan Investment Board, reporting back from a closed asset owner meeting about monitoring managers on ESG factors.

“There will be great opportunities for consistency of comparison across a large number of managers, and there will be great opportunities for insights into what’s making a difference, as we’ll be able to get some performance information,” he said.

He cautioned, however, that it’s early days, and asset owners are somewhat in ‘wait and see’ mode.

There was a bit more concern among asset managers – perhaps predictably, given that the reporting burden is likely to be heavier for many of them. Graham Sinclair of SinCo warned that the framework “creates something of a fixed-cost headache”, particularly for emerging asset managers, such as some of those in South Africa.

And he fretted that the framework may yet miss the mark: “Will this drive behaviours that are excellent at describing processes, but poor at describing outcomes?”

The general consensus in the corridors is that the PRI has done a good job in listening to the signatories, and coming up with a reporting framework that asks the right questions, and that will bring enormous transparency to the sector.

Regardless, after two years of development, piloting, debate, and some disagreement, the time has come to put theory into practice.

Where next for the PRI?

The PRI is an initiative at the crossroads – with the departure of its founding head, James Gifford, and the launch of its long-awaited new reporting framework. But it doesn’t suffer from a shortage of advice on what its next steps should be, and debate rages particularly on the values that lie – or should lie – at its heart.   

Today heard a strong argument both for a clearly ethical component to the work of responsible investors – and for PRI signatories to demonstrate they are having an impact.

Jay Youngdahl, a trustee of a US pension fund, the Middletown Works Hourly and Salaried Union Retirees Health Care Fund, set out the case for values to be central to the PRI’s mission. He railed against the “obscene financialisation of the global economy,” what he described as “the cult of money” flowing to the finance sector, and the related increase in inequality.

He questioned whether responsible investors shouldn’t be more concerned about social issues, such as lay-offs in the name of shareholder value, and asked whether what he described as the “values-free” approach of the PRI is appropriate in the face of issues such as climate change.

“If responsible investment is based on a strategy of ‘shareholder primacy’, we should be concerned,” he warned, noting that the idea “is under ferocious attack, as it seems to exclude or marginalise all other stakeholders … Few outside of the finance industry or the wealthy favor shareholder primacy.”

This critique, he stressed, stemmed from both ethical and pragmatic concerns.

And PRI signatories heard a similar, if perhaps gentler, challenge from one of the initiatives parents, Paul Clements-Hunt, the former head of the UNEP Finance Initiative and founder of the Blended Capital Group.

“The PRI can pat itself on the back after the first ten years … but the next 10 years will be hugely challenging,” he said.

“The PRI has to continue to ask the toughest questions to concentrated political economic power,” he said. “If it doesn’t do that, its created a country club that is inward looking.”

“In ten year’s time, when we look back, we’ll be asking, ‘Has the PRI moved the dial, in terms of concentrated capital flowing into productive investments in Africa, alongside the Government Employees Pension Fund, alongside the Nigerian Pension System, etc …

“If it hasn’t, it will have been a grand 20 year adventure, the country club will have had lots of conferences, and lots of cocktails, but that’s the challenge.”