South African fund managers warned on ESG fiduciary duty ahead of UN-sponsored conference

Leading lawyer says principles-based law could see court cases linked to King Report on corporate governance.

South African fund managers need to “up their game” on environmental, social and governance (ESG) issues or risk court cases based on the country’s King Reports on corporate governance, which set a high standard on social responsibility in corporate behaviour, according to Paul Watchman, author of the internationally renowned Freshfields report on fiduciary duty. Speaking to ahead of a United Nations Environment Programme Finance Initiative (UNEP FI) global round table in Cape Town on October 22, Watchman, chief executive of Quayle Watchman Consulting (QWC) and a former partner at law firm, Freshfields Bruckhaus Deringer, said South African fiduciary law was likely to take its lead from corporate law, bearing in mind South Africa’s principles-based legal system. Watchman said: “Given South Africa’s legal DNA and leadership on responsible investment generally, it is especially the case in South Africa that the fiduciary duties of pension fund trustees require them to be prudent and to take professional advice on their investments.” South Africa’s King Report on governance was first issued by former high court judge Mervyn King in 1994. In a 2002 update, the King II reportplaced a high onus on companies to broad consider social and stakeholder responsibility in their business and reporting following a number of corporate governance scandals in the country.
Responsible investment issues have been high on the agenda of South African asset managers since the country’s largest institutional investor, the Government Employees Pension Fund, became one of the first PRI signatories when it was launched by Kofi Annan, the former Secretary General of the United Nations, at the New York Stock Exchange, in April 2006.
However, the $18 trillion (€12.7 trillion) United Nations Principles for Responsible Investment (UNPRI) recently kicked out five signatories, including two South African fund managers, Oasis Group Holdings, and Trinity Holdings, the South African resources investor, after they failed to report progress on implementing its six environmental, social and governance investment principles.
Link to UNEPFI conference: Financing change, Changing finance