The Value of Environmental, Social & Governance on PIC’s sustainability journey
Vhahangwele Manavhela, also known as Hangwi, joined South Africa’s Public Investment Corporation (PIC) in 2014 in the role of Environmental, Social & Governance specialist for Unlisted Investment, later becoming ESG Manager. She received her Master’s Degree in Sociology from the University of Johannesburg and, prior to taking up the mantle of ESG Manager at Public Investment Corporation, worked at Tshikululu Social Investments. “Working at the social investment company was the foundation of what later became my ESG role. That’s how my journey began, with a very strong passion around social issues,” she explains. We sat down with Manavhela to find out how she has been tackling the tri-fold challenges of ESG management at South Africa’s largest asset management organisation with over US$150bn under management, and what she sees as the way forward for South Africa as a whole.
The role of an ESG officer focuses on three key areas: Environmental, which tackles how a company approaches its relationship with the natural world; Social, an expression of the way a company manages its relationships with suppliers, employees, customers and the communities whose lives it touches; and Governance, which deals with the internal controls of a business, including audits, executive remuneration, corruption and leadership diversity and equality. “My role was to kickstart the ESG, to develop policies, develop systems and make sure those practices were fully integrated within the investment process. Obviously I started from a social perspective, and then learned more about the governance and environmental aspects as I went,” she explains. “Once you start working on all of them, you start to see how integrated they are and together they drive the company towards sustainability.”
Although her educational background lies in the social aspect of the ESG role, Manavhela emphasises the governance aspect of the ESG role as a starting point for effecting positive change within the social and environmental elements. “For me, governance is the lens. Once there is good governance within the company it becomes much easier to approach, say, the environmental and social aspects.” She admits that the challenge at the heart of applying ESG within a company is measuring the impact in line with financial performance. “For example,” she points out, “companies might not recognise the needs of their employees until they are on strike and only then will recognise the losses incurred by not having an effective ESG strategy that includes managing the interest of their employees. The company could be collapsing because of poor governance, corruption or fraud, and only once it is collapsing will a lot of companies be able to see those financial losses.”
Manavhela stresses that, for her, the core of success, and where returns and victories are most obvious, is the space where governance strategies have positive social impact. “I'm passionate about people, valued as human capital,” she declares. “When you see that the people within the company have got a sense of ownership, that is what gives me satisfaction. I see people starting to enjoy the benefits of something that they have never experienced, and that is where I take much pride in the transformation of South Africa. Previously in South Africa,” she explains, “companies were owned by whites, but now we are working towards a point where the ownership is shared. There’s also new money and old money. There are very few black people in South Africa with old money. As we put our ESG policies into practice, we’ve seen a greater pool of investment opportunities arise amongst people with new money. And that means you’re investing in people of colour and women too.”
Manavhela also emphasises the need for consumer education, twinned with added transparency on behalf of companies in order to improve and encourage sustainable practices. “We still need a lot of education on the consumer side to understand ESG issues,” she says. “Customers can't just look at the financial value of a product; they also need to look at the sustainability aspects. When a product is cheaper, ask yourself, why is it cheaper than the company next door? Maybe a lot of people have been exploited to make it cheaper, she continues. “Transparency is something we need to move towards. We need to get to a point where companies disclose employee remuneration, minimum wage within the company and so on. If we move towards a point where we disclose those things, then maybe the consumer will be more aware and more alert, in terms of making a choice of where they should buy and who they should support.”
The environmental pillar of her role is, Manavhela explains, currently tied to the concept of risk management, compliance with legislation and applying best practice principles. “South Africa is a water-scarce country. There is no way you can look at the risk management of a company and then not be forced to identify environment as one of those risks.” Environmental regulations become part of compliance and then, she explains, “you start realising that there are other things that can help me save money, like resource efficiency”. Transitioning from compliance to short-to-long-term sustainable practices is the roadmap for the Environmental element of Manavhela’s role. For companies to get of the national grid and adopt the renewable energy require a proper infrastructure and financial capital. Although there has been a successful reduction made of average cost of electricity generated from R2.37 to .77c, the realisation of your investment is still within medium-to-long term. ESG issues cannot be achieved over night but require medium-to-long term planning. But there are quick wins as well: changing light bulbs, installing water meters. What you do is encourage companies to adopt the strategies where they can get those quick wins, and then turn those into long term strategies.”
Despite all the obstacles making ESG mandatory for investors and within invested companies could be a game changer for achieving sustainability. The principles of responsible investment, as championed by institution like UNPRI and Global Compact, are key drive to driving sustainability.
In April-May 2018 Manavhela was part of the 7 weeks global programme under the auspices of Eisenhower Fellowship (EF) in the United States. The purpose of her EF journey was to to determine if the US market has evolved in terms of ESG integration to a point where ESG is fully integrated into the investment process, and consequently if they are able to quantify its value as part of equity valuation. Based on the information she collected during her fellowship, Manavhela decided to pursue her aspiration of studying and is currently working on her PHD, further exploring the role and value of ESG in business. In the conclusion of her report, Examining Models for Quantifying the Contribution of ESG-Related Activities to Financial Performance, she writes: “I was on a mission to find both meaning and new ways to advance sustainability in this changing world. The redefining of sustainability has forced me to reconsider my current role in the society and the contribution I can make to advance sustainability in a more meaningful and clearly defined way.”