First Avenue acknowledges the importance of integrating sustainability issues (such as environmental, social and governance issues) into our investment analysis and long term investment strategy. We believe that these factors have an important impact on investment performance and, therefore, insufficient consideration of these factors could lead to incorrect investment decisions being made. For this reason, we view initiatives such as the United Nations Principles for Responsible Investing (UNPRI) and Code of Responsible Investing in South Africa (CRISA) as beneficial to our industry.
We currently incorporate all five principles of CRISA into our research process as follows:
Principle 1: An institutional investor should incorporate sustainability considerations, including environmental, social and governance, into its investment analysis and investment activities as part of the delivery of superior risk-adjusted returns to the ultimate beneficiaries.
ESG is a one of the core areas we focus on in our research process. We do not rely on ESG ratings / integrated reports that are widely available and prefer to research these factors independently. As an example, we recently studied the performance incentives used to determine management incentives in the SA platinum sector for large producers. Our conclusion was that there was insufficient focus on core issues such as safety of the work environment. In addition, management earned more than 3,000 times the salary of a mineworker. Our conclusion was that this was unsustainable in the longer term and would lead to poor outcomes both for workers and investors in the long term. For further information, kindly click on the link to our thoughtpiece Mining in South Africa: A Tragedy of The Commons.
Principle 2: An institutional investor should demonstrate its acceptance of ownership responsibilities in its investment arrangements and investment activities.
This principle is firstly actioned through our votes for or against company resolutions related to ESG. We keep a full record of these votes and this can be made available upon request.
Furthermore, we believe greater impact can be achieved through activism within the companies we hold. Where necessary, we write letters or engage with management in order to highlight our concerns around sustainability / ESG-related issues. We also will not hold companies where there is any evidence of corruption or poor governance as this increases the uncertainty of our investment case.
We also apply controls to prevent insider trading when engageing with companies as required by the Securities Services Act No 36 of 2004.
Principle 3: Where appropriate, institutional investors should consider a collaborative approach to promote acceptance and implementation of the principles of CRISA and other codes and standards applicable to institutional investors.
When necessary, First Avenue is open to collaborating and engaging with other investors on the implementation of principles that relate to ESG. We also may engage with our larger clients in order to gain their support for our initiatives and / or requirements of sound governance.
Principle 4: An institutional investor should recognise the circumstances and relationships that hold a potential for conflicts of interest and should proactively manage these when they occur
First Avenue strives to identify any circumstances and relationships that could lead to a conflict of interest situation. Our staff are required to disclose such conflicts of interest. Furthermore, it is our view that our principle of ‘investing alongside our clients’ will reduce the chances of such situations occurring.
Principle 5: Institutional investors should be transparent about the content of their policies, how the policies are implemented and how CRISA is applied to enable stakeholders to make informed assessments.
This information is available upon request. First Avenue is open to any discussion on our policies, processes or voting records.
Please find a link to our ESG Policy here.