All footnotes in FAQ below available in the document
- To position stewardship and responsible investment principles and practices within a broader context as universally relevant throughout the investment value chain and across all asset classes, investment styles and type and size of organisation.
- To create a context within which the investment environment can evolve towards positive outcomes to address South Africa’s unique environmental and social challenges, including poverty, inequality, unemployment and transformation, balanced with the delivery of suitable, transparent, cost-effective and relevant services to the users and beneficiaries of investment products.
- To incorporate the implementation of sound governance practices as they relate to stewardship and responsible investment, and foster accountability for implementation and disclosure.
- To cultivate integrated thinking throughout the investment industry, through building capacity in the six capitals, and understanding of the triple context of society, economy, and environment within which businesses operate, as well as their relevance on the impacts on the six capitals.
- To establish meaningful reporting about practices of stewardship and responsible investment.
- To encourage collaborative action towards the mainstreaming of sustainable finance that contributes to a more equitable and inclusive economy.
- To promote the development and implementation of green and sustainability-oriented investments and investment vehicles that address ESG issues (such as those encapsulated in the SDGs and NDP).
Implementing the 5 principles of CRISA 2 is intended to be a systematic, iterative process of:
- integrating material environmental, social and governance (ESG) factors into investment arrangements and activities (Principle 1); and
- demonstrating the acceptance of ownership rights and responsibilities enabling diligent and effective stewardship (Principle 2); and
- contributing to capacity building and collaboration (Principle 3),
- in an accountable manner through being founded in sound governance practices (Principle 4); and
- promoting transparency (Principle 5) through meaningful disclosure, towards the attainment of positive outcomes.
Outcome 1: Positive impact
CRISA 2 defines positive impact as:
- “making measurable positive contributions to the UN’s Sustainable Development Goals;
- realising benefits to society, the environment and/or other stakeholders alongside a financial return;
- achieving a reduction in negative consequences; and
- exercising positive influence (such as on the implementation of sound governance practices).”
Outcome 2: Innovation
CRISA 2 defines innovation as:
- “developing and implementing novel ideas, investment approaches, methodologies, products or strategies for engagement and collaboration, to maximise positive impact, promote inclusion and build resilience.”
Outcome 3: Inclusion
CRISA 2 defines inclusion as:
- “applying the principles of the Code to support a more inclusive society and economy along all ESG pillars, such as a just transition towards a greener, more inclusive economy that enables sustainable development, protects livelihoods, and supports the availability and equality of opportunities to access financial services and products.”
Outcome 4: Resilience
CRISA 2 defines Resilience as:
- “taking into consideration the threat of unanticipated changes, challenges to the global economic system and the potential consequences, for pricing of risk and assets, having the ability to withstand and recover from disruptive events, and furthermore developing an ability to adapt to changing conditions.”
The CRISA 2 principles are of universal relevance, capable of flexible application on a proportionate basis8 as the context may require, by asset owners, asset managers and service provider organisations within the investment value chain who may be involved in investment arrangements and activities, and who wish to voluntarily align themselves with the principles.
CRISA 2 applies to asset owners9, asset managers10 and service providers11. Other organisations within the investment value chain or who may be involved in investment arrangements and activities12, are similarly encouraged to apply the principles of CRISA 2.
In the event of conflict between the principles of CRISA 2 and applicable legislative provisions, the legislative provisions or regulations will prevail.
Foreign investment institutions are encouraged to apply the voluntary principles of CRISA 2 to the extent that they invest in South African assets.
Southern African Development Community (SADC)13 investment institutions are invited to consider the voluntary principles of CRISA 2 to the extent that they invest in Southern African assets.
The effective date for reporting publicly on the application of CRISA 2 is 1 February 2023.
Endorsement of CRISA 2 and its principles is offered on a voluntary basis.
Endorsement indicates support for CRISA 2 and its principles on a flexible and proportionate basis by organisations voluntarily aligning themselves with the principles.
Endorsing organisations can best demonstrate their endorsement of CRISA 2 by publicly reporting on an “apply and explain” basis their application of the CRISA 2 principles from 1 February 2023 onwards.
Given the voluntary and broad-based nature of CRISA, there is currently no requirement to formally apply for recognition as an organisation committed to endorse CRISA 2.
Endorsing organisations can best demonstrate their endorsement of CRISA 2 by publicly reporting using an “apply and explain” basis about their application of the CRISA 2 principles from 1 February 2023.
Should the CRISA Committee receive strong demand from CRISA 2-endorsing organisations to be publicly listed via the CRISA website and/or other publicly available list, the CRISA Committee may consider establishing such a database in future. Should your organisation be interested in being included on such a database for CRISA 2, please email info@crisa2.co.za for further information.
The application regime for CRISA 2 is “apply and explain”14. Application of the principles is implicit, while explanations should demonstrate how the principles have been interpreted, which practices have been implemented and how that interpretation and implementation have translated into real-world outcomes, including where any adaptations have been made to scale application of practices on a proportionate basis.
CRISA 2 includes per Principle Implementation practices and Reporting elements guidance for Principles 1 through 4. Principle 5 on Transparency states: “Investment organisations should ensure disclosures are meaningful, timeous and accessible to enable stakeholders to make informed assessments of progress towards the achievement of positive outcomes.”
Principle 5: Transparency – Implementation practices
5.1 In addition to the specific reporting elements recommended in Principles 1 to 4, investment organisations should ensure disclosures are timeous and accessible to enable stakeholders to make informed assessments of progress towards the outcomes of diligent stewardship and responsible investment, including progress against indicators or metrics and any future targets or objectives.
5.2 Regular engagement with key stakeholders should take place to identify and understand information requirements.
5.3 Disclosures should be made public as far as possible in order for disclosures to be readily accessible to stakeholders. For private and unlisted investment organisations or vehicles, transparent public disclosure is considered good practice since it can build trust, support sound governance and risk management and enhance investment value.15
5.4 It is recommended that investment organisations pursue integrated reporting16 to provide a holistic overview of their investment strategy and philosophy, investment arrangements and activities as well as their progress and outcomes achieved.17
5.5 In addition to applying such statutory guidelines or directives as issued by the FSCA or relevant regulator from time to time, applying the disclosure recommendations of King IV™ and globally accepted reporting standards is considered good practice in relation to disclosure of implementation of Principles 1 to 4.
Principle 5: Transparency – Reporting elements
5.6 An overview of the approach to applying CRISA 2, including an indication of the proportion of assets that it applies to and where any of the principles or recommendations may be applied differently from how they are set out (for example as a result of scaling application on a proportionate basis) and the reasons for such variation.
5.7 The subject matter disclosed, medium used and time intervals for when disclosures take place on particular matters should be clearly communicated and consistently applied, for example quarterly, twice a year or annually.18 Where the frequency varies according to the information, this should be clearly stated.
5.8 It should be clearly communicated which information is publicly available, and where this can be found.
5.9 Where any standard, initiative or framework is used to guide disclosure, this should be clearly communicated, together with any metrics, targets and indicators applied.
5.10 To enhance the quality of reporting, the guiding principles of the Integrated Reporting Framework (particularly as it relates to reliability, completeness, consistency and comparability) are considered good practice.
All endorsements of CRISA 2 are offered on a voluntary basis. As a voluntary Code, each endorsing organisation’s voluntary endorsement indicates support for CRISA 2 and its principles.
The CRISA Committee does not have regulatory or oversight powers and as such is not in a position to monitor and/or enforce the Code.
Given the voluntary and broad-based nature of CRISA, the CRISA Committee is not in a position to verify the application of CRISA 2 by endorsing organisations. The CRISA Committee may partner with academic and other institutions on a periodic basis to assess a sample of endorsing organisations’ application of CRISA 2 and for the development and issuance of further guidance on specific aspects of CRISA 2.
For CRISA 2, as a voluntary Code premised on self-regulation by the investment industry, it is expected that asset owners will require from their investment managers and other service providers a thorough understanding of their approach to stewardship and responsible investment, which may include a formal endorsement of CRISA 2 and reporting on an organisation’s approach to implementing the CRISA 2 principles.
Mandates19 and contractual agreements between asset owner clients and their service providers should also reflect the application of the CRISA 2 principles where such application has been outsourced to a service provider. Mandates should clearly define the approach to be taken and expectations. The onus remains on the provider of the mandate (such as the asset owner or client) to ensure the mandate deals with stewardship and responsible investment and that there are processes to oversee the application of these provisions when executing the mandate. Mandates and contracts should provide for performance and reporting requirements and sanctions for non-adherence.
- Incorporation of the concept of stewardship more explicitly and as applicable across all asset classes.
- Broadening of applicability to enable universal and flexible application across asset classes, investment styles and type of organisation.
- Highlighting the importance of ensuring sound governance over stewardship and responsible investment, through the introduction of a dedicated governance principle (CRISA 2: Principle 4).
- Expanding the practice recommendations through incorporating focused implementation and reporting elements within each principle, while retaining a broader transparency principle (CRISA 2: Principle 5) to address the overarching approach to disclosure.
- Shifting to an outcomes-based approach and “apply and explain” application on a proportionate basis.
- Adopting concepts from sources that are widely accepted as authoritative, including:
- the triple context21 and six capitals22;
- integrated thinking23 and integrated reporting24; and
- sustainable finance25.
CRISA and King IVTM are complementary codes that reinforce and complement each other26. CRISA 2 adopts certain approaches introduced by King IVTM (such as the outcomes-based approach and “apply and explain” regime) and recommends some of its practices as good practice (such as the disclosure approach and integrated reporting).
CRISA 2 is intended to be a standalone code forming part of the governance framework for South Africa. The references to King IVTM in the Code therefore reflect alignment and acknowledge the intellectual thinking of the King Committee, while retaining independence.
The principles of CRISA 2 are intended as complementary guidance to Regulation 28 and will further assist funds in adopting a responsible investment approach.
Regulation 28 of the Pension Funds Act, 195627 promotes responsible investing of fund assets, based on a sustainable, long-term, risk-aligned and liability-driven investment philosophy. Regulation 28(2)(b) of the regulations to the Act requires all funds to have an investment policy statement and Regulation 28(2)(c)(ix) requires that boards of funds consider ESG factors before investing in an asset.
Specifically, the Preamble to Reg. 28 states:
“A fund has a fiduciary duty to act in the best interest of its members whose benefits depend on the responsible management of fund assets. This duty supports the adoption of a responsible investment approach to deploying capital into markets that will earn adequate risk-adjusted returns suitable for the fund’s specific member profile, liquidity needs and liabilities. Prudent investing should give appropriate consideration to any factor that may materially affect the sustainable long-term performance of a fund’s assets, including factors of an environmental, social and governance character. This concept applies across all assets and categories of assets and should promote the interests of a fund in a stable and transparent environment.”
The principles of CRISA 2 are intended as complementary guidance to the FSCA Guidance Notice 1 of 2019 to further assist funds in adopting a responsible investment approach. The purpose of the Guidance Notice is to provide guidance to boards of funds on how the board must comply with Regulation 28(2)(b) read with Regulation 28(2)(c)(ix), in particular how its investment philosophy and objectives, as reflected in its investment policy statement, seek to ensure the sustainability of its investments and assets, and to set out the Authority’s expectations regarding disclosure and reporting on issues of sustainability.
In assessing and enforcing compliance with Regulation 28(2)(b) read with Regulation 28(2)(c)(ix) by boards of funds, the FSCA has advised that it will in particular apply the requirements set out in paragraph 4 of the Guidance Notice.
CRISA 2 is a voluntary domestic code for South Africa capable of universal application. PRI28 is an international investor initiative for which a formal application to become a PRI signatory29 is required, as well as the annual payment of a signatory fee30 and annual reporting via the PRI’s Reporting and Assessment31 framework.
The principles of CRISA and PRI are aligned in respect of intended objectives and outcomes. The origins of CRISA are also closely tied to PRI’s network of signatories in South Africa. PRI is also represented on the CRISA Committee and PRI is supportive of CRISA 2 and the need to appropriately resource the CRISA Secretariat32.
Organisations endorsing CRISA 2 and who are also formal signatories to PRI may benefit from reporting and disclosure efficiencies emanating from the PRI’s Reporting and Assessment33 framework’s public signatory reports34.
CRISA 2 is capable of universal application across all asset classes and types of organisations. Ownership concepts across equity investments are already complex, for example in relation to pooled investments, nominee holdings and rapid movements in secondary markets, as well as misconceptions about whether a shareholder has rights equal to those of an owner. In asset classes other than equity, ownership may not even be relevant.
The CRISA Committee has therefore decided to use the concept of diligent discharge of stewardship duties, which would incorporate active ownership in its original sense (where it would apply), but would also cater for situations where stewardship is relevant but not specifically related to ownership. Where fiduciary duties are owed, the investment institution should actively enquire and participate at annual general meetings, for example, to ascertain whether or not the company is truly creating value or eroding it.
To reinforce the outcomes-based approach intended for CRISA 2, the principles are intended to be framed as a state of being or operating. Therefore, they are phrased as statements reflecting a state that has been achieved or which is strived for. For example, Principle 1 states a situation where “Investment arrangements and activities should reflect a systematic approach to integrating material environmental, social and governance (ESG) factors”, in other words, integration efforts are in place or have been undertaken. Similarly, the other principles take this approach.
Furthermore, CRISA 2 foresees an ongoing and iterative approach to the implementation of the principles towards the ultimate realisation of the intended outcomes of impact, innovation, inclusivity and resilience. In reflecting an ideal state of being or operating, application of the principles then becomes supportive of the process towards these outcomes, rather than their being tick-boxes in and of themselves.