Society

We are committed to being a responsible corporate citizen with regard to our community, our society and our environment. Achieving our ambition means working consistently to create sustainable value for all of our stakeholders – those that are directly affected by our business and those that are indirectly affected.

Performance summary

Indicator	Change	2017	2016	2015
Number of asset managers assessed through MARS	17%	20	17	–
B-BBEE scorecard level	0%	2	2	2
Total CSI expenditure (Rm)	14%	4.3	5.0	4.4
Electricity consumption at head office (KWh)	1%	8 266 929	8 203 799	8 634 176
Water consumption at head office (Kl)	7%	43 395	46 783	39 284

Our performance

Key risks	Mitigating actions
The risk of not responding to and/or implementing regulatory change in a way that will be compliant and that will support the business model or strategy	New, centralised approach and project management office (PMO) focus on regulatory change Centralised PMO planned for roll-out Standardised impact assessments and implementation approach
The risk of not meeting B-BBEE targets and dedicated transformation focus	Granular, regular monitoring of our performance against EE targets Focus on leadership programmes at the relevant levels Review of procurement process to enhance responsible buying
The risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events which gives rise to breaches or loss events	Completed assessments of major operational risks across the group to support the group’s own risk and solvency assessment submission Conducted off-site testing of the group’s business continuity programme Continued the implementation of the group’s risk-based anti-money laundering programme Refinement of group’s regulatory compliance approach and methodologies

Investing responsibly
Alexander Forbes views responsible investing as an investment practice that integrates factors that may materially affect the sustainable performance of assets, including those of an environmental, social and governance (ESG) nature. As stewards of our clients’ capital, and bound by the Pension Funds Act, Alexander Forbes Investments has a role to play in safeguarding our clients’ capital by ensuring that we, as well as the asset managers we select, consider and evaluate the risks and opportunities arising from ESG factors. Responsible investment is a permanent agenda item during monthly investment committee meetings.

Since the start of our responsible investment journey, we have focused on engaging with asset managers who manage equity portfolios in an attempt to understand how they incorporate responsible investment into their processes. We provide asset managers with detailed proxy voting guidelines in line with the requirements of King III, CRISA and PRI.

In 2016 we embarked on a responsible investing due-diligence roadshow, where we met with both equity and fixed income managers, discussing how they consider ESG aspects in their investment processes. This inaugural trip focused on assessing ESG integration across equity investments and in 2017 the scope was broadened to include ESG integration across fixed income investments. During the 2017 roadshow we met with asset managers who collectively manage approximately 94% of our local assets under management.

Outside of due-diligence trips, we require incumbent asset managers to provide evidence of ESG integration in their investment process, examples of material ESG risks within their portfolios and examples of any ESG-related engagements with investee companies during regular report-backs to the broader investment team. We also have ad hoc engagements with our incumbent asset managers outside of regular report-backs and due-diligence trips, on any topical issues including those raised in the media. Over the last year our manager research team conducted over 250 report-backs with local asset managers, where ESG considerations were an agenda item.

The research conducted during the due-diligence meetings is a key component in assessing asset managers’ approaches to responsible investing and in assigning an ESG rating. The ESG rating assigned is based on the following factors:

• People (ESG application across the investment team)
• Philosophy and process (ESG integration within the investment process)
• Integration of third-party research
• Engagement and activism
• Risk management
• Conviction (in the asset managers’ commitment to investing responsibly).

We include this ESG rating as an explicit factor in our Manager Assessment and Ranking System (MARS^TM) which scores factors such as people, process and philosophy to provide an overall assessment of the quality of an asset manager. We have a MARS I model for each portfolio which spans traditional specialist asset class portfolios, balanced and absolute return multi-asset class portfolios.

In 2017 we also completed our fifth responsible investing questionnaire with a record number of asset managers participating (71 asset managers, in a 60/40 local/global split). Our responsible investing survey, which examines how managers are progressing in their commitment to incorporating ESG considerations within their investment process, is the only one of its kind in South Africa.

At the start of 2015 the World Wide Fund for Nature South Africa (WWF-SA) and Investment Solutions, now Alexander Forbes Investments, established a partnership to drive environmental sustainability in investment portfolios and to support the investment industry towards positive environmental impact transformation over the long term. In 2017 we launched an environmental questionnaire with the intention of enhancing the quality and content of environmental discussions between asset managers and companies. The questionnaire was a step towards building an industry standard that is focused on the E in ESG. The questionnaire was sent to 14 leading asset managers and we received completed questionnaires from 32 companies. Alexander Forbes Investments and the WWF analysed the information to identify standout environmental risks. The result has been improved alignment and co-ordination in company engagements on key environmental issues.

Actively practise transformation
Transformation is about more than meeting broad-based black economic empowerment (B-BBEE) regulatory requirements; it is an important aspect of our responsibility to society. We see diversity as an important competitive value proposition and thus take a deliberate approach to developing and recruiting black and female talent, to supporting black business and to empowering previously disadvantaged communities.

Transformation is overseen by the group’s social, ethics and transformation (SET) committee. It is a regular feature on the group executive committee’s agenda and is included in senior management’s performance scorecards.

Alexander Forbes is assessed against the Financial Sector Codes (FSC) and once again achieved a Level 2 in its latest assessment conducted in April 2017. However, an amended FSC is close to being finalised and is expected to be gazetted soon. While we are as yet unsure of the final form of the amended code, the element targets have been increased and it is likely that Alexander Forbes – similarly to most of its peers – will not retain its current empowerment level in its 2018 assessment.

Gap analysis over two periods

	Target	2017	2016	Variance
Ownership	14 + (3)	16.39	16.24	0.15
Management control	8.00	4.92	6.16	(1.24)
Employment equity	15.00	8.75	9.17	(0.42)
Skills development	10.00	9.04	9.00	0.04
Preferential procurement	16.00	15.55	15.05	(1.07)
Enterprise development	15.00	15.00	15.00	0.00
Socio-economic development	3.00	3.00	3.00	0.00
Access to financial services	14.00	10.79	12.73	(1.94)
Overall score	100.00	87.84	90.89	(4.72)
Empowerment contribution level		2	2
Level 2 = +85 on the scorecard.

During 2017 the group conducted an independent assessment to gauge how it was performing against (a) the generic B-BBEE Code and (b) the proposed amended FSC. Under the former we were measured at a Level 4 and under the latter a Level 6. This revealed the challenge that lies ahead in terms of empowering our business, but it also showed the areas where we need to focus our transformation efforts: procurement, skills development and consumer education.

Ownership
Based on the principle of continuing consequences, following our listing we retained an effective verified black ownership of 39%, which grants us maximum points for this element.

Our empowerment equity partners are Shanduka, the Staff Share Trust and the Alexander Forbes Community Trust, the last of which is categorised as a broad-based scheme in terms of the B-BBEE legislation. Collectively, these control a 4.26% shareholding. The trust holds a 0.3% equity stake in the group, translating into shares worth approximately R31 million. Our employee share ownership scheme (ESOP), which owns an effective 2.9% of the group, is a continued commitment to economically empower black women in line with the B-BBEE scorecard.

During the year under review African Rainbow Capital (ARC) acquired 10% of Alexander Forbes Limited (a wholly-owned subsidiary of the group) as a strategic empowerment partner.

Management control
The changes to senior management affected the group’s management control score, which fell from 6.16 to 4.92. The group intends to take the opportunities presented by turnover at senior levels to appoint black executives.

Employment equity
For our performance with regards to diversity and inclusion in the workplace, see the employees section.

Skills development
We contribute to the fight against youth unemployment through our learnership and internship programmes, which exposed 168 participants to the financial industry in 2017, where they gained work experience and mentorship. One of our focus areas for the year ahead is increasing the absorption rate of these interns.

R32 million spent on skills development for black people, of which:       R19 million benefited black women       R68 000 benefited employees with disabilities

For more on our efforts to develop our employees, see ‘Ensuring continual development’.

Preferential procurement
During 2017 we launched a campaign to create awareness around preferential procurement. A group guideline in this regard has been shared with employees and all suppliers were informed of our B-BBEE policy. All our suppliers have been strongly encouraged to comply with Alexander Forbes’s B-BBEE requirements, particularly with regards to their level of black ownership. Many of our suppliers are now compliant with the group’s policy.

Total measured procurement spend	R’000	%	Points achieved
Procurement spend from all suppliers	2 160 291	99	8.00
Procurement spend from QSE or EME	359 761	17	3.00
Procurement spend from 50% black-owned suppliers	257 586	12	2.47
Procurement spend from 30% black-women-owned suppliers	144 417	7	2.08
			15.55

Enterprise development
In 2017 the group continues to be recognised for its investment of R12 million in 2015 into the ASISA Enterprise Development Fund, which will count towards the scorecard for a period of five years.

In addition, as part of the group’s enterprise and supplier development initiatives we continue to offer free operational space to eight B-BBEE service providers at our Sandton office and one provider at our Durban office. These enterprises provide goods and services to Alexander Forbes and its employees such as coffee, deli food, dry cleaning and fitness services. In 2017 this equated to R9.4 million in recognised enterprise development support, which is calculated using the equivalent rental and maintenance costs that the providers would ordinarily be charged.

Socio-economic development
Our efforts with regards to socio-economic development are executed through our corporate social investment (CSI) programme. For more detail, see ‘Community development through corporate social investment’, below.

Contributing meaningfully towards social protection
Our aim is to help people attain peace of mind through securing their financial well-being, now and in the future. While we achieve this primarily through the advice and financial products we provide to our clients, we also extend our impact to support the broader well-being of society.

Building financial well-being throughout society
We pride ourselves on using our knowledge of the financial services sector to positively impact the societies in which we operate. Our strategic partnerships with Mercer and ARC ensure that we remain at the cutting edge of local and global trends and thought leadership in financial services and asset management.

We share this knowledge by publishing our research in an accessible manner. In 2017 approximately 63% of media coverage about Alexander Forbes was assessed as thought leadership. In addition, every year we publish our ‘Benefits Barometer’ which provides an overview of the employee benefits landscape in South Africa. This year we deliberately wrote and structured the report to be more accessible.

Providing holistic financial solutions to our clients requires that our current and potential clients have sufficient knowledge to make appropriate financial decisions. To ensure this the group holds member education sessions around financial literacy at various institutional clients throughout the year. In 2017 our member education unit delivered 1 259 presentations, reaching 18 722 employees.

Community development through corporate social investment
Our community investment is an important demonstration of our company values and our commitment as a group to building a better South Africa for all. While each business division has a small discretionary budget to sponsor charitable initiatives, group CSI is managed through the Alexander Forbes Community Trust. The six trustees meet twice a year to review activities of the trust and report to the group’s SET committee. In addition, trustees conduct two site visits per year to gauge the impact of the CSI programmes.

In 2017 the trust received R4.2 million from the company. In addition, as a shareholder of the company, the trust received dividends of R1.7 million and over R200 000 in interest income, totalling R5.5 million in income.

Our flagship programme, In 4 Life, continues to offer support to orphans, vulnerable children and their families from early childhood development through to tertiary education. The programme supports eight non-profit organisations (NPOs) in communities across Gauteng, KwaZulu-Natal, Eastern Cape and Western Cape. Six of these offer day- and after-school care, and two offer disability care. These partners report back to the trust on a quarterly basis through a newly developed web-based reporting system, which assists the group to understand and measure impact, and allows the NPOs better to track their own outcomes and impacts. This system became operational in 2017.

The total number of children supported decreased by 20% year on year because the trust did not allocate funding to Hlengimipilo Primary School in 2017. The trust continues to provide stipends through the In 4 Life community projects, indirectly creating 62 jobs, two more than in 2016.

During 2017 the trust funded 18 students (for the 2016 academic year) studying towards various bachelor’s degrees, mainly in commerce, accounting and actuarial science. The trust also partnered with the Maharishi Institute, financially supporting 10 final year students studying Bachelor of Business Administration degrees, bringing the total number of bursaries offered to 28. All 10 students from Maharishi passed at the end of the 2016 academic year, and four were recruited in the group’s internship programme. In addition, all 13 In 4 Life interns recruited since 2012 have been offered permanent positions at Alexander Forbes.

	2017	2016	2015	2014
Children	3 607	5 170	5 483	6 063
Adults	1 729*	1 513	1 711	1 582
Total	5 331	6 683	7 194	7 645
* Including 62 project staff members: administrators and caregivers.

Katha Day Care Centre

Katha is a community project that supports and cares for orphans and vulnerable children in Katlehong on the East Rand. It is our biggest CSI beneficiary. The centre offers four programmes: Early childhood development – foundation stage development interventions for children aged 3 – 6 years. Isibindi safe park – addresses child- and youth-headed households. Katha cares for children before and after school, provides meals and homework assistance, and offers life skills training and psycho-social support. The drop-in-centre offers information and a range of supportive community services relating to vulnerable children and poverty alleviation. After-school classes The project has been running for 15 years and has grown to a staff of 65, many of whom are trained child and youth care workers. ‘Alexander Forbes Community Trust has helped us to transform young minds, ignite the will to perform and create an impact in the community. To date three young Katha beneficiaries have completed their university degrees with the support of Alexander Forbes and have gone on to do internships and join the Alexander Forbes working team as full-time employees. Phambili Alexander Forbes Trust, Phambili.’ Katse Matsebe, Programme Manager

In addition to financial support, bursars also benefit from mentoring and coaching with Alexander Forbes line managers and quarterly sessions addressing issues affecting youth. We were pleased this year to launch our Junior Board mentorship programme. Unfortunately, due to budget constraints, we were only able to host two In 4 Life bursars for vacation work in June and were not able to launch our job shadowing initiative as planned. We hope to host more vacation students in 2018 and to launch the job shadowing programme.

The #FeesMustFall movement negatively impacted our bursars, resulting in lower pass rates. The average pass rates of our bursary students fell from 90% at the end of 2015 to 61% at the end of 2016. Seven bursary recipients of a total of 18 did not pass their subjects at the end of 2016. Their bursaries have not been renewed, but no penalty has been imposed to pay back the trust. #FeesMustFall protests also resulted in some students not attending lessons and practicums offered by Headway, a beneficiary of the trust.

We encourage Alexander Forbes employees to get involved in supporting community initiatives, including In 4 Life. In 2017 employees at five of our South African offices supported Nelson Mandela Day through donations and community work. We also aimed to host at least one community-related event per quarter, which we achieved. During 2017 these included donating stationery, upgrading the vegetable garden at Katha, and tours to SABC and Volkswagen SA manufacturing plant.

Environmental stewardship

Highlights	Change %	2017	2016	2015
Electricity consumption at head office (KWh)	0.8	8 266 929	8 203 799	8 634 176
Municipal water consumption (head office) (Kl)	7	43 395	46 783	39 284
Diesel consumption (generators) – head office (l)	86	9 538	66 726	39 548
Paper consumption – head office (tonnes)		51	–	–
Recycling – head office (kg)	25	22 982	18 422	16 035
Waste to landfill – head office (kg)	36	106 600	165 950	130 851
Data centre’s power usage efficiency rating (total energy entering data centre (KW)/total energy used by data centre (KW))	–	1.6	1.6	–

As a service-based business, the group’s direct environmental impact is limited. Nonetheless, we strive to make the most efficient use we can of our natural resources. Our greatest impacts lie in the electricity, water and paper consumed in our buildings as well as the general office waste generated.

The four-star green star rating of our Sandton head office by the Green Building Council of South Africa was renewed during the year. Refurbishments during the year to our Durban office has offered electrical and water efficiencies in that building.

This year we began to establish baseline data for the group’s water and electricity consumption, using consumption figures from all of our sites. We hope to use this baseline data to define and measure future reduction targets. Measurement of waste production remains limited to our head office. Our consumption trends are consistent, affected mostly by the weather.

South Africa continues to experience extreme water shortages during the year. We are conscious that, as a group, we must do our part in conserving this resource. In this regard, we are proud that only recycled water is used in the bathrooms at our head office in a full recycle process. In 2017 the group experienced one unfortunate water leak incident at our head office due to a burst pipe. Due to the lack of stop valves on the line a considerable amount of water was lost from the fountains before the leak could be brought under control. This water was replenished with municipal water.

Our electricity consumption remains fairly constant, having dipped significantly only in years when we were affected by load shedding. Our data centre’s energy efficiency profile is measured in terms of a power usage efficiency rating. In 2017 it remained at 1.6, well ahead of the industry norm of 3.0. Our head office remains the only site on which we operate a recycling and waste measurement programme. The total volume of recycled waste in 2017 was 107 tonnes.

None of our sites are situated on, or adjacent to, biodiverse habitats and the group received no environmental fines or penalties during the year. None of our sites are covered by recognised environmental management systems.

Conducting ethical business

Conducting business ethically and protecting against fraud and corruption is an important component of preserving the trust of our key stakeholders. Our code of ethics and ethics policy are accessible to all employees on the company’s intranet. In 2017 we also published an internal ethics awareness training video on the intranet. By year-end 2 300 employees had signed a commitment to the code through our internal e-learning platform.

Our independently managed whistle-blowing programme enables concerned individuals to anonymously report conflicts of interest, fraud and corruption. We ensure that, where appropriate, management makes independent investigations and takes appropriate follow-up action on such reports.

Dealing with fraud and corruption

Any business that conducts financial transactions is inherently vulnerable to exploitative behaviour including attempts of fraud, corruption and conflicts of interest and, unfortunately, Alexander Forbes is no exception. In 2017 we experienced: 29 instances of crime (2016: 20), mostly relating to theft of assets, such as employee laptops R0.8 million (2016: R2 million) in total crime exposure R2.9 million (2016: R1.3 million) incurred losses, of which R2.3 million related to the settlement of an external fraud matter, and was covered by the group’s errors and omissions insurance During 2017 Alexander Forbes focused on acting to close various gaps highlighted in its 2016 financial crimes assessment. This included increasing and centralising the group’s forensic capacity. Another financial crimes assessment will be conducted in the coming year.

In 2017 the whistle-blowing line received seven allegations regarding fraud or corruption (the same as in 2016) which were all investigated. In each case the complaint was reviewed and appropriate corrective action was taken. A further 16 reports were made regarding ethical matters, such as diversity, discrimination or misuse of company resources (2016: six).

Looking ahead

As part of our ongoing commitment to integrating ESG considerations into our investment process, we will be focusing more on including ESG factors when selecting, engaging with and monitoring asset managers in the fixed income space, in addition to the work we are already doing with our managers in the equity space. We have also initiated a number of projects to investigate how we can better report on how asset managers are voting proxies and better engage with asset managers on ESG risks within their portfolios, and look forward to taking these into 2018.

In 2017 our approach to transformation was based on an understanding that the FSC would be aligning to the generic codes and we have planned accordingly. We are looking forward to the publication of the finalised amended FSC so that we will be in a position to formulate a cohesive transformation strategy.

Finally, the group has designed and approved a new property efficiency and renovation plan which will come into effect during the next year. The plan commits the group to reducing its space density and carbon footprint across all divisions, introducing greater technological efficiency into all of its buildings, optimising its real estate and delivering a consistent customer experience through improved service delivery. We have also begun to implement measurements to quantify the group’s carbon footprint.