With the South African Social Security Agency (Sassa) and Cash Paymaster Services (owned by JSE- and Nasdaq-listed Net1) in the news for all the wrong reasons, several people have stated that they would never invest in Net1 because of its business model and alleged lack of ethics when dealing with social grant recipients. This is a nice gesture, but it is lacking in substance.
Net1 is the easy target for any investor claiming to only want to invest in ethical companies, but surely we need to take it further than just this one company? Cigarettes kill, this is an undisputed fact, yet we have British American Tobacco (BAT) listed on the JSE and with a market cap of over R1.6tr, it is one of the largest JSE stocks. Why does that company get a free pass when Net1 is being pilloried? Surely we should have equal standards?
Investing is about profits and, truth be told, most investors care very little about the actual source of those profits. They just want profits – the higher the better – ethics be dammed.
Yet there is a growing movement for socially responsible investing (SRI), or environmental, social and (corporate) governance (ESG) investing as it is becoming known by the public. Yet when it is brought up (which is very seldom), it generally gets shot down as namby-pamby greenie stuff that is not at all serious.
But the Net1 issue shows that we do care, we just seem to only care at certain times, or when it suits us. For example, very few people are invested in Net1 (unless you hold Allan Gray products in which case you likely hold a small slice of Net1), so it is easy to vilify the company and take the moral high ground. And it already seems like we have moved on from Net1 – the court case is over and it’s as if the investors no longer care about what the company did.
However, we have just one planet and we get only one life on it, and we need to care not only about the Earth but also the other people we inhabit it with.
Further, if we are long-term investors, the long-term sustainability of the companies and sectors we invest in is critical to our investments and ESG is a large part of that sustainability.
Locally we have one exchange-traded fund (ETF) in this space with the CGREEN from CoreShares. But this ETF only focuses on environmental issues as defined by the “United Nations register of Clean Development Mechanism projects in South Africa and the Carbon Disclosure Project database”. A nice start, but this leaves out social and corporate governance issues.
So, here’s the challenge both to myself and you the reader. Let’s start being more focused on ESG issues when we invest. Importantly, let’s look for companies that not only truly embrace ESG but also offer great investment potential.
Locally (and most likely globally), most of ESG is just statements without any real fact. Claims about caring for staff and the environment and to support proper corporate governance are great but they’re not always backed up with any evidence. It’s too easy to claim ESG but not follow the King Commission’s corporate governance guidelines. Far too many companies pay staff ridiculously low wages and treat ESG as something they pretend to care about but don’t.
A last point is that many will claim that supporting ESG hurts a company’s profitability. This is not true and many papers have been published showing that ESG-compliant companies (or funds that invest only in high ESG stocks) do better than their peers. So, we can get better returns, a better planet and happier people. Who wouldn’t embrace that?
This article originally appeared in the 6 April edition of finweek. Buy and download the magazine here.