What is SRI?

Socially responsible investing (SRI) combines investment objectives and social concerns, such as social justice, economic development, peace or a healthy environment. Essentially, it marries investors’ values with their financial requirements. In South Africa today, the primary focus of SRI is the provision of basic services and infrastructure development. When making these investments we also apply a responsible investment overlay, which is when fund managers factor environmental, social and governance (ESG) criteria into their investment process.

At COMANCO, we have three distinct categories of SRI that we consider throughout our investment-decision making process.

Targeted Investing

Targeted Investing is cause-based and characterised by selecting investments that aim to achieve a particular objective. These are defined in the Financial Sector Charter as being debt financing of, or investment in, transformational infrastructure projects that support economic development in underdeveloped areas, and contribute towards equitable access to economic resources in the following sectors:

• Low-income housing (household income levels of less than R1500/month)
• Infrastructure (roads, dams, schools, bridges, hospitals, sewerage, water and electrification)
• Agriculture (poor, black farmers)
• Small, medium-sized and micro-enterprise financing.

Screening

Screening can be divided into three categories: negative, positive and best-of-sector.

• Negative screening: excludes companies producing ‘undesirable’ products or services, as well as those operating in ‘undesirable’ industries, such as the tobacco, alcohol, or arms manufacturing. Shari’ah (Islamic) investment principles are one such example of this approach.
• Positive screening: seeks companies that are perceived to be good corporate citizens and that prioritise ESG issues.
• Best-of-Sector screening: combines both positive and negative screening methods. This means that no one sector or industry is excluded outright, but the portfolio managers will seek to invest only in companies that demonstrate a commitment to being good corporate citizens that pay attention to their ESG impacts.

Shareholder Activism

The active engagement with investee company management on a range of ESG issues. This can be achieved through the use of voting rights at annual general meetings and direct dialogue. Companies that fail to respond may cause us to divest.