Presented to the FIinance Honours class of Stellenbosch University on the 9 February 2016

1. Return & Responsibility
Finance Honours Guest Lecture
Stellenbosch University
9 February 2016

2. 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

3. Introduction
Connecting Capital:
Investigating the factors influencing the
decision-making processes of
institutional investors towards
responsible investing

4. Part I: The History of Finance

5. Who is this Guy?

6. The Founder of Stellenbosch

7. Who is this Guy?

8. The ancestral parents of a nation?

9. Will the real Jan van Riebeeck please stand up?

10. The first multinational company

11. The first traded shares

12. VOC share price performance

13. VOC vs Apple?

14. National collaboration

15. Remember this?

16. The ‘Company’ Flag?

17. Part II: Financial ‘Responsibility’

18. Definitions
Finance:
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.

19. Seen these?

20. 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?

21. Another question…
21

22. The Investing Continuum (Oostlander)

23. The Investment Continuum
23
FINANCIAL CAPITAL
MARKETS
Financial Return
Financial Performance Measurement
• Debt
• Equity
• Retail (mutual funds, online brokers)
• Institutional (Exchanges, Alternative
Trading Systems)
About 5%
FINANCIAL
CAPITAL
MARKETS
$165 Trillion
(SOCIALLY)
RESPONSIBLE
INVESTING
Social Screening and
Shareholder Advocacy
$7-60 Trillion
RETURN
MEASUREMENT
PLATFORMS
INVESTMENT
TYPE
AVERAGE
TRANSACTION
COST
MARKET SIZE
IMPACT INVESTING
MARKETS
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)

24. The Relevance of Finance

25. Wealth & Income Inequality
(Adapted: Piketty, 2014: Capital in the 21st
Century)

26. The Significance of the 1%
(Adapted: Piketty, 2014: Capital in the 21st
Century)

27. Just an Emerging Market issue?
(Adapted: Piketty, 2014: Capital in the 21st
Century)

28. The Bad & The Ugly

29. Part III: Responsible Investing

30. 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)

31. 31
• 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

32. 32
• 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

33. Principles for Responsible Investing
33
(Source: UNPRI, 2014)

34. 34
The Rise of Responsible Investing
(Source: UNPRI, 2014)
US$60tn
AuM
1450+
Signatories
(Source: UNPRI, 2015)

35. 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

36. Institutional Investor dominance
36
• 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. 37
The Institutional Investment System
(Source: Clarke, 2000)

38. 38
The Institutional Investment System
(Source: Clark, 2000)
(Source: Daniel, C. 2013. Personal Finance. 22 September 2013)

39. Part IV: The Journey Ahead

40. The Bad & The Ugly

41. The Good?

42. The Birth of Responsible Finance

43. 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-making
43

44. 44
The Relational View of Institutional Investing
Adapted from Habberton (2005)

45. 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 …”

46. Any answers?
46

47. Conclusion: A Key to Innovative Thinking

48. The Periodic Table of Elements