Are you responsible for the businesses in which you invest?

1 year ago

We are told that to be prudent with our capital means transforming our liquid assets into longer-term forms of capital. This may include using an asset management company to invest your money into stocks in other companies.

When you start investing via such a company, you place your money in their hands so that they will use that money to fund the operations of other companies. If that company earns a lot of money in the period following your investment, you earn a return on your investment. The only dimension that matters to you, as regards your money, is whether the company that you gave your money to chooses companies that successfully make money. Thinking in this way means that the only thing that you want your money to do is to make more money for you.

This manner of thinking is the most common way of approaching investment – you are detached from the day-to-day actions of your money, and focus mainly on the returns that your investment wins. But a series of articles by Magda Wierzycka, CEO of investment management firm Sygnia, took aim at the funds that invest in Net1 UEPS, such as Allan Gray, throwing new light on this investment approach.

What if the companies that use your money to make more money are doing terrible things? Are you responsible for the suffering that might be caused by how these companies operate?

A context for responsibility

The Social Security Agency of South Africa has been hit by scandal in recent years. SASSA is the government agency responsible for social security disbursements. Every month, South African citizens who are eligible and registered for social security payments are given a cash grant. These grants are typically given to society’s most vulnerable citizens – the disabled, elderly, children, veterans – who do not have the capacity to be self-reliant.

The scandal involves the company that was granted the tender to run SASSA’s operations. CPS, owned by Net1 UEPS, has been exploiting their sway over grants recipients. These vulnerable members of society have been targeted by associated companies to take up very high interest loans. Because CPS holds sway over the disbursement of grants, they are able to take from these grants before they reach the holders’ pockets.

This sort of behaviour is shameful. But if you were an investor in Net1, or in one of the funds that invested in Net1, you’d have received decent returns on your investment as a consequence. Should you act to remove your investment from a bare-faced exploiter, once you learn about its actions?

Following Dr Wierzycka’s campaign, Net1 has undergone some level of transformation, with institutional investors promising greater oversight – this suggests that moral motives have power.

But this sort of action has deeper consequences – should your investment managers be investing in tobacco, if you hate smoking? Whether others in the investment field take up this moral movement remains to be seen, but the era of the South African businesses that exploit the most vulnerable may be coming to an end.

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