What If Your Funder’s Business Contradicts Your Social Impact Mandate?

The RAITH Foundation – Social Justice Funder, Responsible Investor and Shareholder Activist

(Article first published in the 2019 Annual Review of SA Philanthropy by IPASA)

Having decided in 2010 to focus its funding to promote social justice, the RAITH Foundation became increasingly aware of the need to address the contradiction between the goals of its grantees and the practices of some of the firms from which, as a shareholder, it drew its wealth. Accordingly, it adopted the role of an activist shareholder, interrogating the actions of the, at times, secretive companies in which it had a say and seeking to exert pressure on them to adopt responsible environmental, social and governance (ESG) practices.

In order to leverage the limited resources that it was able to dedicate to promoting responsible investing (RI) – the foundation remains primarily a grantmaker, rather than an activist body – RAITH soon came to realise the importance of building strategic partnerships and advocating its position through the media, as well as the need to continue to engage and persuade corporates to adopt more sustainable approaches.

The RAITH Foundation is a private South African philanthropy entity, established in 2001. After initial investments in scholarships, arts and culture, and technology, the decision was taken in 2010 to focus the foundation’s funding broadly in the social justice sector. The belief was this was the best way to make lasting change for a better South Africa. For RAITH, social justice means building a more equitable society, where everyone has access to the same opportunities and is treated fairly and with dignity. RAITH spends approximately R70m on grants in the sector annually. These funds are derived from its investments, which are primarily held on the Johannesburg Stock Exchange (JSE).

From the outset, the potential contradictions of funding for social justice and investing in companies listed on the JSE were clear to the foundation. The most obvious example being its funding of environmental justice work, while investing in one of the biggest polluters in the world: the South African fuel supplier Sasol. It was therefore inevitable and even necessary for RAITH to decide on an approach which would attempt to mitigate the risk of its investments negatively impacting on the progress made through its funding.

Responsible Shareholding

However, responsible, or mission-aligned, investing was not an area of expertise in the foundation and so began a process of engagement with many independent and leading thinkers in the field, including those from the impact-investing and social-impact spaces.

What was learned was that there are many different ways of being a responsible shareholder and the choice of intervention is often based on the specific interests and expertise available in and to the foundation concerned. Doing nothing was not an option. Drawing on substantive experience in Britain and the rest of Europe and in the US over the past 25 years, the foundation concluded that divesting and shareholder activism constituted two of the most impactful avenues for action.

Accordingly, two key objectives were agreed: to support the foundation’s grantees in their work through shareholder activism and to encourage others to become shareholder activists, with the long-term goal of making companies more accountable for the sustainability of their operations and for the current and long-term health of the communities in which they work.

Shareholder Activism

RAITH had taken a decision early on in its social justice funding to divest from alcohol, tobacco and gambling. However, it maintained investment in some potentially egregious companies precisely in order to become a shareholder activist. Divestment is often not a useful tool when you are a small shareholder, though it can be if you are part of a bigger divestment action; the latter is a relatively new approach in South Africa. For RAITH, an important first step to becoming a shareholder activist was to take back the voting power it had given over to its asset managers.

This required adopting a principled position to guide its voting at shareholder meetings. RAITH chose the UK Financial Council’s Stewardship Principles to guide its voting, although these are not nearly detailed enough to guide every decision that needs to be made. RAITH has since expanded on these principles, adapting its practice according to the votes it has been asked to make. This has been a learning experience in the past four years for both the Board and staff but has proved an important way of gaining a true understanding of the companies in which the foundation is invested. Supplementing this approach, RAITH also sought to review the Environmental, Social and Governance (ESG) reports for the companies in which it invested – a time-consuming process for which it enlisted the support of consultants to assist in the review and highlight any areas of concern.

Second, RAITH set an agenda for engagement with companies in its portfolio in an effort to encourage accountability and transparency, particularly in relation to ESG issues. This has included writing to, and meeting with, mining companies such as African Rainbow Minerals (ARM), South32 and Impala Platinum, as well as the banks. The foundation has requested copies of annual general meeting (AGM) minutes from the mines in an effort to hold them more accountable for the promises they make. It has also asked for copies of their Social and Labour Plans (SLPs) in order to share these with its environmentally active grantees. It became clear to RAITH, from its interactions with the mines, that they were generally not willing to be held to account or provide transparency in relation to their operations. In most cases, RAITH was expressly forbidden from publishing any of the documents with which it was supplied, even though these should have been widely available.

Foundation representatives have also attended and adopted an activist position at many AGMs. For example, RAITH recently successfully brought attention to bear on the negative impact of a potential investment to be made by Standard Bank in coal-fired power stations. At the same time, what has been particularly striking to RAITH in its activist role is how shareholders, in general, do not appear to take an active interest in their investments and are happy to leave decisions about the sustainability and ethics of these to asset managers – damaging the businesses and communities in which they work as a result.

To raise the profile of shareholder activism as a practice and a cause, an important element of RAITH’s strategy has been to spread the word. The foundation’s efforts in this area have included communicating its own work on responsible investment in order to encourage others, and providing information to its grantees to assist them in their advocacy work with companies. The foundation has also coordinated with journalists to publish articles in Business Day on issues about which it feels particularly strongly. So far, it has had 15 articles published in the nearly three years that it has been active in this space. These have garnered significant attention and have helped to move along the important discussion on responsible investing (RI) in the investment community and among the public at large.

Another important focus of RAITH’s communications work has been to understand and engage with asset managers more effectively to help them to understand the broader implications of some of their investments and to try and influence them accordingly. Most asset managers can have significant influence over the conduct of companies, due to the collective size of their investments and their understanding of the businesses concerned.

In the past five years, there has been a significant increase in interest from asset managers in issues of ESG, as they have become increasingly aware of the risk associated with ignoring the important environmental, social and governance requirements for a thriving, sustainable business, as well as the risk associated with flagrant human rights abuses that may be associated with some corporate actions. An example of such advocacy for more responsible investing may be found in Allan Gray’s successful intervention in the governance and management of Net1, a company that came under the spotlight for its bad-faith conduct in the payment of social grants to many poor, vulnerable South Africans.

However, it was never going to be possible, nor was it envisaged as RAITH’s role, to provide direct support for the work of the many non-governmental organisations (NGOs), some of which were recipients of RAITH grants, which challenged corporates for their negligence or negative impacts on communities. Accordingly, after many discussions with the concerned NGOs, a new body called Just Share was established with the dual aim of helping to support these organisations and providing a coordinated response in the sector to issues of responsible investment. Two years later, Just Share has moved from strength to strength and was pivotal in the recent RAITH/Theo Botha success in having a shareholder resolution presented and passed at the Standard Bank AGM.

Impact and Learning

One of the greatest misperceptions in responsible investment is the idea that if a shareholder divests or becomes an activist, they are likely to lose value on their portfolio. This hasn’t proven to be the case for RAITH and is not borne out more widely by any research into the issue. Indeed, many of the ESG-type funds now made available by asset management companies are thriving.

However, RAITH is essentially a grant-maker, albeit an, at times, activist one. Its role as an activist shareholder does not constitute its core business. Accordingly, the foundation had to ask itself, with no staff dedicated to this work, how it could intervene in a way that was strategic and, most importantly, supported the overall mission. It is important in this regard to be guided by technical expertise, a clear policy and a focused action plan.

The foundation has also had some success in taking its message of the need for more responsible investment to the media – an advocacy activity which is not resource-intensive but can be extremely eff ective. Another learning has been that it is essential to have partners. Managing partnerships can be time-consuming but with the establishment of a resource such as Just Share, RAITH has managed to extend its influence beyond the foundation and provide the support that many NGOs need to take on the power of the corporates.

Finally, it is important to engage with those corporates who aim to be more responsible and responsive to ESG issues and see themselves as leaders in the field, but have many vested interests jockeying for control over their resources. Even a small shareholder can help push them in the right direction, making it easier for them to make unpopular, but responsible, financial decisions which do not negatively impact on the sustainability of our planet or the communities that inhabit it.

Of course, as with any philanthropic intervention, whether via grant-making or responsible investing (RI), there are limits to the systemic change that can be achieved and, in this case, especially to the changes required to transform what remains an exploitative economic framework. However, foundations can make a difference by highlighting some of the worst offenders, holding them to account and, little by little, encouraging others. RAITH’s experience both in its grantmaking and in RI shows that.

For more information, download the RAITH Foundation’s Investment Stewardship Policy, Strategy and Action Plan here.

By Audrey Elster – Executive Director of The RAITH Foundation, a privately-funded NPO that has been implementing a social justice programme since 2010. They believe both government and the corporate sector have a role to play in advancing social justice, and should be held accountable when they fail to do so. The RAITH programme has therefore supported projects that provide access to justice for marginalised people, improve governance (especially at a local level) and promote accountability through the media and citizen participation.

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