Investment Screening
The results show that pension funds are directing investments to companies with ―positive social goal‖ or ―with more general ethical objectives‖ (Carmichael, Thompson and Quarter 2003: 6). The SRI Equity Fund of Old Mutual, for example, is based on the SRI principles of the JSE SRI Index and includes listed companies that integrate corporate social responsibility and performance with business activities. The General Equity Fund, is another example, that invests in JSE-listed companies that are ―viable and sustainable, and have a clear commitment to job creation, skills development, affirmative action, sound environmental practices and effective corporate governance‖.
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The OPSEU policy paper on pension (2002), reports that screens can be responsive to the concerns of pension plan members if monitored over a long period of time. The OPSEU policy paper, however, warns that financial impact is not necessarily felt by the companies who are screened out (2002: 52), unless it is done collectively by a large number of pension funds. The study confirms that many small funds with uncoordinated programs on, especially, in the mining sector cannot exert pressure to change corporate governance if they operate in isolation.
Community Investment
The emphasis of community investing and economically targeted in South Africa has been on reconstruction given the legacy of apartheid. The study noted that most of the initiatives are designed to meet these goals. For example the Financial Sector Charter Council‘s goal is ―to actively promote a transformed, vibrant and globally competitive financial sector that reflects the demographics of South Africa and contributes to the establishment of an equitable society by effectively providing accessible financial services to black people and by directing investment into targeted sectors of the economy‖ (FSCC, 2008 Annual Report). A critical analysis of the investment allocation with regard to these programs, it is difficult to distinguish between community investing and economically targeted investments. Therefore, most of the community investments are considered as targeted investments.
103 Economically Targeted Investment
Economically targeted investment is a form of social investment that targets a certain amount of assets for specific social goals such as employment opportunities, provide affordable housing, urban revitalization, support of small and medium sized enterprises, renewable energy, and clean technology (Carmichael, Thompson and Quarter 2003; Hebb and Beeferman 2008). Table 7 below shows the amount of funds that were allocated for economically targeted investments in underdeveloped and previously marginalised areas of South Africa. This is according to the stated principles of the Financial Services and Property Charters, whose goal is to actively promote a transformed and vibrant financial sector and contribute to the establishment of an equitable society by effectively providing accessible financial services to black people and by directing investment into targeted sectors of the economy (FSCC Annual Report 2008).
In low-income housing, for example, targeted investments were targeted at R 41.8 billion to be achieved by 2008. However, only R 32 billion of the target was achieved.
Table 7: Targeted Investment Performance 2005 - 2008
2005 2006 2007 2008 Low-Income Housing (R-m) 13,269 25,705 26,761 31,135 Black SME (R-m) 6,214 9,840 8,802 11,368 Agriculture (R-m) 201 604 3,057 4,441 Transformational Infrastructure (R-m) 4,290 9,115 12,469 17,688 Source: The Financial Sector Charter Council, Annual Report 2008
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Figure 1 below shows that Black SME‘s and Agriculture was financed to over 200 percent of the original target. However, there was no information to verify the impact of these investments to the beneficiaries.
Figure 1: Targeted Investments 2008
Source: The Financial Sector Charter Council, Annual Report 2008
According to FSCC, however, targeted investments would only be achieved if there is a ―partnership between the financial sector and government to effect risk-sharing between government and banks to facilitate the transformation of the low-income housing market, as well as risk mitigation in areas of non-commercial risk‖ (FSCC Annual Report, 2008). This is
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consistent with Carmichael, Thompson and Quarter‘s assertion that investment in economically targeted investment is supported by regulations that defines collateral benefits of ETIs as well as ―guarantee of government funding so that pension funds can be used for urban redevelopment‖ (Carmichael, Thompson and Quarter 2003).
According to OPSEU policy paper on pension, for pension fund capital to be used more productively, investment vehicles and expertise have to be connected with pension trustees. The policy paper emphasises that social goals may not be realised ―without more collaboration between pension funds on social investment strategies with labour sponsored investment funds‖ (OPSEU, 2002). This could be a possible explanation why the South African trade union movement is not having an impact on the control of pension fund investments.
The Caisse de Dépôt et Placement du Québec offers a good example of economic development by pension funds in Canada (Carmichael, Thompson and Quarter, 2003). As Carmichael, Thompson and Quarter (2003) write, Québec‘s pension and benefits funds as well as the Québec Pension Plan invest in Caisse. As at 1997, Caisse had net assets of $63.6 billion, making it one of largest investment agency in Canada (Carmichael, Thompson and Quarter, 2003).
Labour-sponsored investment funds (LSIFs), is another economic development initiatives of the trade union movement in Canada and, in North America and Europe (Carmichael, Thompson and Quarter, 2003). According to Carmichael, Thompson and Quarter, pension funds that want to put a small part of their funds to regional venture capital could use LSIFs as an investment
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vehicle. LSIFs had assets of almost $4 billion in 1998(Carmichael, Thompson and Quarter, 2003).
Concert Properties, a real estate development company in British Columbia, and its sister investment vehicle, Mortgage Fund One, are both funded by about 26 pension funds shareholders (Carmichael, Thompson and Quarter, 2003). According to Carmichael, Thompson and Quarter, Mortgage Fund One and Concert Properties are good cases of ―multisector collabouration across labour and employer groups‖ (Carmichael, Thompson and Quarter, 2003).
The AFL-CIO Housing Investment Trust has public sector pension funds such as CalPERS, NYCERS and Mass PRIM as investors (Hebb and Beeferman, 2008). There are many other good examples of labour-friendly investment vehicles that have worked in collabouration with pension funds to deliver economically targeted investments.
In view of the above, the study agrees with COSATU‘s call for the trade union movement in South Africa ―to review the potential for using existing union investment companies to create and finance a vibrant co-operative sector‖ (COSATU, n.d.: ), in ―A Growth Path Towards Full Employment document. In particular, further research must be undertaken to explore the extent to which workers‘ funds held by union investment companies, the pension fund industry and retirement funds, cannot be consolidated to create a progressive developmental investment vehicle (COSATU, n.d.).
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