return & responsibility
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Return & ResponsibilityFinance Honours Guest Lecture
Stellenbosch University9 February 2016
Introduction Vodacom Samsung Medscheme Group Alexander Forbes Hewlett Packard Edgars Diners Club International FirstRand Old Mutual Group LoveLife Momentum
SANParks Peace Parks Foundation GivenGain City of Cape Town University of Stellenbosch Medicins sans Frontiers WWF SA UNICEF Greenpeace Nelson Mandela Foundation PayProp Capital
Introduction
Connecting Capital:Investigating the factors influencing the
decision-making processes of institutional investors towards
responsible investing
Part I: The History of Finance
Who is this Guy?
The Founder of Stellenbosch
Who is this Guy?
The ancestral parents of a nation?
Will the real Jan van Riebeeck please stand up?
The first multinational company
The first traded shares
VOC share price performance
VOC vs Apple?
National collaboration
Remember this?
The ‘Company’ Flag?
Part II: Financial ‘Responsibility’
DefinitionsFinance:
1. The management of large amounts of money.2. Monetary support for an enterprise.
3. The monetary resources of a state, organisation or person.Money:
A medium/object/record that can be exchanged for goods and services and is used as a measure of their
value in a market.
Seen these?
Some Questions…
What do you value?Do you have responsibilities as a financial professional?If so, what are they and how do you plan to fulfill them?What role can finance play in the context of poverty and/or environmental sustainability? Do you think massive salaries are morally justifiable in the world of finance today? Why?
Another question…
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The Investing Continuum (Oostlander)
The Investment Continuum
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FINANCIAL CAPITALMARKETS
Financial Return
Financial Performance Measurement
• Debt• Equity
• Retail (mutual funds, online brokers)• Institutional (Exchanges, Alternative
Trading Systems)
About 5%
FINANCIALCAPITALMARKETS
$165 Trillion
(SOCIALLY) RESPONSIBLE
INVESTINGSocial Screening and Shareholder Advocacy
$7-60 Trillion
RETURN
MEASUREMENT
PLATFORMS
INVESTMENTTYPE
AVERAGETRANSACTION
COST
MARKET SIZE
IMPACT INVESTINGMARKETS
Financial + Social Return
Financial + Social Measurement
• Debt• Equity
• Retail (online micro finance)• Institutional (Impact Funds,
emerging platforms)
About 10%
$5 Billion
PHILANTHROPY(GIVING MARKETS)
Social Return
Social Performance Measurement
• Grants
• Retail (offline channels, online giving, Donor Advised Funds)
• Institutional (Foundations)
About 30%
$300 Billion
SOCIAL CAPITAL MARKETS / MARKETS FOR GOOD
(Adapted: Markets for Good, 2010)
The Relevance of Finance
Wealth & Income Inequality
(Adapted: Piketty, 2014: Capital in the 21st Century)
The Significance of the 1%
(Adapted: Piketty, 2014: Capital in the 21st Century)
Just an Emerging Market issue?
(Adapted: Piketty, 2014: Capital in the 21st Century)
The Bad & The Ugly
Part III: Responsible Investing
30
• Member of the G20 and BRICS countries• Market capitalisation 10x size of African rivals• Highest FDI of all African countries (2003-2012)• Biggest African investor into the rest of Africa• 3rd largest investor into Africa overall (US, UK)• 1st in Africa for investor protection, 10th in world• 4 largest, safest banks in Africa• Biggest stock exchange in Africa, 19th in world
Investment Landscape: South Africa
(Sources: Africa Report, 2014; E&Y 2013; Global Finance, 2013; IFC, 2014)(Sources: Africa Report, 2014; E&Y 2013; Global Finance, 2013; IFC, 2014)
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• Government• Ministry of Finance• National Treasury & SARS
• Regulators• South African Reserve Bank (SARB)• Financial Services Board (FSB)
• Industry Bodies• Association of Savings and Investment in SA• Banking Association of South Africa• Batseta Council of Retirement Funds for SA
Financial Sector Structure in South Africa
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• Infrastructure• Johannesburg Stock Exchange (JSE)• Strate, JSE Clear
• Legislation• Financial Advisory and Intermediary Services Act • Companies Act• Pension Funds Act (incl. Amendments, Reg 28)
• Normative Frameworks & Benchmarks• UNPRI Signatories & IODSA’s CRISA & King III (IV)• JSE SRI & Nedbank Green Index
Financial Sector Structure in South Africa
Principles for Responsible Investing
33
(Source: UNPRI, 2014)
34
The Rise of Responsible Investing
(Source: UNPRI, 2014)
US$60tn AuM
1450+Signatories
(Source: UNPRI, 2015)
35
“All retirement funds, long term insurers, collective investment scheme (CIS) management companies are treated as
institutional investors…” (SARB, 2013)•Asset Owners
• Public Sector: GEPF, Transnet, Eskom, parastatals• Private Sector: Over 3800 funds registered with FSB
•Asset Managers• Public Sector: Public Investment Corporation• Over 200 Retirement Funds & CIS companies• Over 100 Insurers
Institutional Investors in South Africa
Institutional Investor dominance
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• Institutional investors control 67%+ of market capitalisation in the US • They collectively own 73% of the US’s 1000 largest companies • Across 33 OECD countries average is 40% ownership of total assets• In South Africa it is estimated to be well in excess of 50% of total
assets
(Source: OECD, (2014)
37
The Institutional Investment System
(Source: Clarke, 2000)
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The Institutional Investment System
(Source: Clark, 2000)
(Source: Daniel, C. 2013. Personal Finance. 22 September 2013)
Part IV: The Journey Ahead
The Bad & The Ugly
The Good?
The Birth of Responsible Finance
Definitions: Lost in Translation (Institutional) Investors
Capital(s)
(E)nvironment, (S)ocial, (G)overnance
‘Sustainability’
Responsible/Ethical/Green/Impact Investing
[The Politics & Psychology of] Decision-making43
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The Relational View of Institutional Investing
Adapted from Habberton (2005)
Relational Economics: Creating Shared Value
CSR to CSV (Porter, 2011) Value Creation not just Value Add Intrapreneurship Economic, environmental & social returns Stakeholder relationship management
Linked to normative structures in SA including: King III Report on company reporting: “…how a company has, both positively or negatively, impacted
on the economic life of the community in which it operated …”
Any answers?
46
Conclusion: A Key to Innovative Thinking
48
The Periodic Table of Elements
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