Ethical Fund Spotlights Corporate SA

12 March 1999

The new millennium will see the demise of the private company. Not in legal terms, but in practical terms. All companies will be public - servants of society as it should be. No major business will escape the magnified rainbow spotlight of the Triple Bottom Line: economic prosperity, environmental protection and social equity. In SA, one institution, the Community Growth Fund (CGF), is preparing the way.

Money Values has discussed the trend of ethical investment in some depth in three previous issues. But it is only more recently that one fund in particular, the CGF, has begun to flex its muscles transparently and put individual companies under the magnifying glass of public scrutiny. Case in point? Iscor hit the newspaper headlines over the past two weeks for its failure to make the grade for inclusion in the fund. More about that later. First, some background on CGF.

The CGF was established as a unit trust in 1992 to promote social responsibility in business by only investing in those companies which met a set of ethical criteria. The CGF, 50% owned by trade unions, has grown its portfolio of assets to over R700 million. The fund has seen an 4.6% return over the past 3 years, ranking 5th out of 15 SA general equity funds on financial performance alone. From an initial investment universe of only 20 companies in 1992, CGF now has over 80 organisations which meet their standards.

The criteria, which are applied to companies by the Labour Research Service, are equally weighted and disqualify any company which scores below 50%. The criteria, are as follows:

1. Create jobs through innovation and expansion plans.
2. Training of workers to enhance skills.
3. Economic and social empowerment.
4. Equity through affirmative action in the workplace.
5. Good conditions of employment.
6. Promote sound environmental practices.
7. Apply high health and safety standards.
8. Demonstrate open and effective corporate governance.

The CGF 1998 Annual Report makes fascinating reading. Here are some highlights.

1. Companies newly approved: Sasol, Woolworths Holdings Ltd, Shoprite Holdings Ltd, Grinaker Construction Ltd, Group Five.
2. Companies rejected: Nandos Group Holdings, Enviroserv Holding Ltd.
3. Performance of sectors: Consumer sector (high), Health sector (zero).

Iscor, previously mentioned, is worth further comment, simply because of the press coverage it has received recently. According to the CGF, the company only achieve a 48% rating and was therefore rejected. Reasons included:

"Appalling relations with the union, doubts about the effectiveness and "tokenism" of affirmative action policy, an effectual retraining programme, environmental problems, and the re-deployment of white managers as consultants at higher cost". Positive aspects were "a reduction in injury and fatalities, full-time shop stewards and improved conditions of employment."

One media report pointed out that privatisation has reduced employment at Iscor from 55 000 in 1993 to 36 000 currently, with another 6 000 jobs under threat. Another notes that, despite a court injunction against Iscor for polluting ground water in the Vanderbijlpark area, they fail to mention this in their most recent annual report "between the pictures of rolling hills and birds of prey that featured in the section on environment"; nor do they even note it under contingent liabilities.

Stories like these are indicative of what is to come for businesses under the rainbow spotlight of the Triple Bottom Line. So watch out for the new "watchdogs" like CGF in the emerging new economic democracy of "public" companies.