The purpose of
this letter is to establish an open dialogue with you regarding issues that we
see as critical for long-term shared value creation across the South African
Environmental, social and governance (ESG) issues are very real and directly impact the ability of firms to generate value for all stakeholders. Governance failures, both in the private and public sectors, along with the mounting costs of environmental and social issues together convey a clear message – we simply cannot afford to ignore ESG risk.
Growing returns sustainably
As one of the largest custodians of South Africans’ savings, we have a deep responsibility to our clients to manage and grow their assets in a sustainable manner. An important component of the returns we generate comes from the investments we make in listed firms such as yours. As such, we rely on your leadership in managing ESG risks and capitalising on ESG opportunities.
Partnering with our investee companies
While we continuously engage with company executives on a range of ESG issues and are encouraged by the largely positive response, this process demands robust, frank engagements, sometimes requiring us all to reassess how we measure performance, while working towards a joint vision of how to create shared value.
As such we have identified three key areas that we believe are critical for CEOs to provide leadership on:
1. Transformation: Transformation is an imperative for South Africa and the corporate sector must make its contribution. The economic rationale is clear – lack of socially inclusive growth and transformation will result in instability and muted growth. In addition to tackling ownership, we see real opportunities for companies to address transformation by being more effective in the areas of skills development, enterprise development and by offering socially inclusive products and services.
2. Long-term sustainable strategy: It is critical that corporates have a clear, well-articulated strategy in place based on long-term competitive advantage, a strong sense of purpose and a sound, sustainable business model. Integral to such a strategy must be deep consideration of the impact of ESG factors; not just in a separate Annual Report, but central to the business strategy itself.
3. Ethical Leadership: If South Africa is to secure the long-term sustainable growth it so urgently needs, then ethical private and public leadership needs to be central to our collective endeavours. We expect transparent and ethical dealings by directors and for the leadership team to take responsibility for the ethical issues in the company’s operations as well as its goods and services. We will be stepping up our focus on the manner in which businesses provide disclosure on ethics management and the outcomes thereof.
As a long-term investor, we believe that it is in the interest of all participants in the financial ecosystem to play a proactive and coherent role in creating long-term sustainable outcomes for all stakeholders. Fundamental alignment on these issues creates a virtuous circle that connects the aspirations of South African savers with the long-term sustainable strategies of corporate SA.
Khaya Gobodo (Managing Director)
Hywel George (Director of Investments)