The good and the bad
ESG
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The debate around ESG has taken an interesting turn in recent months as the macro backdrop has forced investors to confront some of its complexities. Last year, some asset owners decided to exclude all defense contractors as being non-ESG stocks. But Russia’s invasion of Ukraine has forced them to think about whether national security is perhaps a real sustainability issue. The reality of higher energy prices has also brought a new focus on oil companies. To engineer a truly sustainable transition, questions are being asked about whether they need to be seen as part of the solution. Last month Elon Musk called ESG ‘a scam’ after Tesla was excluded from the S&P 500 ESG index because of its lack of a low carbon strategy and poor business conduct. This is a company that to many is an ESG darling. But, once again, differentiating ‘good’ from ‘bad’ is not that simple. In this special Citywire supplement, we examine current views on ESG in the South African market, and the challenges and shortcomings local asset managers face. We also speak to experts about the questions fund selectors should be asking to know just how seriously fund managers are taking some key issues. Enjoy the read!
Editor's note
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chapter two
Stephen Cranston talks to full-time ESG champions at three large asset managers.
CHAPTER ONE
The pressure to demonstrate ESG credentials is making it harder for South Africa asset managers to justify ‘dirty’ energy investments.
Content by: prescient
CONTENTS:
patrick cairns
editor, citywire south africa
Content by: investec
chapter tHREE
ESG is almost a business imperative for asset managers: most of them know that they have to at least pledge dedication to it.
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The pressure to demonstrate ESG credentials is making it harder for South Africa asset managers to justify ‘dirty’ energy investments. Parts of the South African asset management industry are quite uncomfortable explaining how they reconcile their coal mining investments – like Thungela Resources – with ESG. This is especially pertinent in the light of booming coal prices, which offer the temptation of super-profits and big share price gains. ‘I don’t feel compromised investing in a coal mining company. ESG is not my favourite topic as it is a pain in the butt,’ a portfolio manager who wished to remain anonymous and runs a fund with coal mining exposure said. ‘Managers are cautious about Thungela, as it is a cyclical business. Following the invasion of Ukraine, energy prices are elevated, and Thungela is making super-profits. ‘As a fund manager, what is my job? Is it to manage the environment, or is it to deliver decent returns for my investors? The second one is my job. ESG has been forced onto fund managers. You cannot say to a client: “We don’t care about ESG”,’ the fund manager added. ‘[Coal] has become a taboo topic in the investment industry. But the irony is that we get upset when there is load shedding and power costs are high,’ Perpetua Investment Managers deputy CIO Lonwabo Maqubela told Citywire South Africa. Perpetua owns no Thungela shares, but has shares in Anglo American, Exxaro Resources and Glencore. Another portfolio manager who runs a South Africa equity fund with coal mining exposure through two major mining companies said they hadn’t commented publicly on coal. ‘It is a critical issue that can be inflammatory,’ he said. Anglo American unbundled Thungela last year and its share price increased by more than 800% after that. In addition, if South Africa equity funds don’t invest in Thungela, they typically have coal exposure elsewhere. Among the nearly 200 equity funds in the Citywire South Africa equity category, it is hard finding one fund without coal mining exposure, either through Thungela, Anglo, BHP, Exxaro, Glencore or South32.
words by Justin Brown
Should local managers feel compromised for investing in coal mining?
chapter one
As a fund manager, what is my job? Is it to manage the environment, or is it to deliver decent returns for my investors? The second one is my job
‘Bold claims’ Just Share climate risk analyst Emma Schuster said that a year ago, several local asset managers tried to understand climate risk and engage coal mining companies about their transition plans. ‘Enormous increases in coal prices have revealed the hollowness of these climate commitments and how the rise in ESG integration is greenwash,’ Schuster said. ‘Most asset managers make bold claims about being responsible investors to attract clients. However, it is bad for business and your reputation if your clients know you are saying one thing and doing another,’ she added. Seven Fairtree funds have exposure to Thungela, running into hundreds of millions of rand, according to Morningstar. However, Fairtree’s head of marketing, Anlie Dalvit, declined to respond to Citywire’s questions. ‘We do not discuss the relative merits and details of the shares we may hold on behalf of our investors with the media,’ she added. Perpetua’s Maqubela said his company decided years ago that the local market was too small and resource-heavy to exclude entire industries. Momentum Investments ESG analyst Piet van der Merwe said Momentum had a similar view about why it invested in companies such as Thungela through a fund like the Momentum Resources fund.
Anon Fund Manager
‘Any exclusionary policy would risk negatively affecting our fiduciary duty to our clients, many of whom depend on us for their retirement,’ van der Merwe said. Maqubela said because the market was worried about ESG, coal mining companies traded at low multiples and high-dividend yields. Allan Gray ESG analyst Raine Naude said Glencore was its clients’ top holding with coal exposure. The fund manager also owns Thungela, Anglo American, BHP and South32 shares. Abax Investments, Coronation Fund Managers, Ninety One, PSG Asset Management and Sanlam Investments all said they engage with the companies they invest in to improve their ESG records. Ninety One portfolio manager Unathi Loos said the fund manager held Thungela in many funds after Anglo unbundled the company. ‘Each strategy sold out at different times. We still hold it in the Ninety One Commodity fund because of the dislocation in energy markets,’ Loos said. According to Morningstar, eight Nedgroup Investments funds and four Amplify funds hold shares in Thungela. Abax runs some of these funds. Abax portfolio manager Omri Thomas said Abax engaged on ESG matters twice with Thungela since it was listed. However, where Abax believed there was insufficient attention to ESG or the progress was too slow, the fund manager divested from the company, he added.
Sustainable performance Coronation spokesperson Fiona Kalk said its ESG policy was about engagement rather than disinvestment, which achieved nothing. According to Morningstar, the Coronation Resources fund is the fund manager’s only unit trust with a stake in Thungela. PSG Asset Management has no Thungela shares, according to Morningstar. However, the R6.4bn PSG SA Equity fund has 5.7% of its assets invested in Glencore. PSG portfolio manager John Gilchrist said PSG was mindful of ESG issues. ‘Companies that neglect their social and environmental obligations will ultimately struggle to deliver sustainable long-term performance,’ he added. At least eight Sanlam funds own Thungela shares. Sanlam Investments’ senior resources analyst and portfolio manager, Andrew Snowdowne, said the fund manager believed all ESG aspects were equally important. A too-rapid shift to a green economy would put jobs at risk and have a devastating economic knock-on effect. Instead, the move to clean energy must be a ‘just transition’, Snowdowne said. He added that Sanlam Investments believes in a holistic and proactive ESG approach rather than exclusion.
Emma Schuster Just Share
Enormous increases in coal prices have revealed the hollowness of these climate commitments and how the rise in ESG integration is greenwash
ESG plays an essential role in closing the gender equity gap
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Responsible investment, of which Environmental, Social and Governance (ESG) principles are a key tenet, is becoming increasingly mainstream but it is the social element, particularly gender diversity that has become increasingly topical in the investment world. The need to improve gender equity on the Boards of Directors of public companies and at Senior Executive level is one of the key areas we’ve prioritised internally and seen grow in importance externally. WHAT IS DIVERSITY, EQUITY, AND INCLUSION? Diversity, Equity and Inclusion goes beyond the narrative of implementing policies, procedures and staff-count. Diversity is considered when there is a presence of variety or differences within any given setting. These may include, but is not limited to unique characteristics, backgrounds, experiences, or perspectives. Equity in this context refers to the practice of ensuring that everyone is provided with equal, unbiased resources and opportunities required to reach an equitable outcome. Inclusion in the workforce is defined as the active state of being included and the sense of belonging. DIVERSITY THINKING: THE “WHY” Growing evidence shows that companies can only reach their full potential if they truly embrace diversity, with equitable gender representation on boards and at a senior management level. The 30% Club, a global campaign led by Chairs and CEOs to increase gender diversity to 30% at board and senior management levels asserts that only those organisations that foster truly inclusive cultures - cultures that embrace women who look, act and, importantly, think differently - will reach their full potential to positively impact their people, their markets and their communities. Their position is further supported by research from the Coalition for Women in Government that confirms boards with greater diversity are more effective. Diversity, including gender balance, drives innovation because individuals have different ways of approaching challenges and finding solutions. Recent research also finds that when women join boards, they contribute more than men to the diversity of functional experience, which is often missing at board level. Women are found to possess a wider range of functional experience than their male counterparts and thus women board appointments expand the breadth of skills. Investors are increasingly incorporating gender diversity and equity considerations in their company assessments because JSE-listed companies are required to have a gender policy at board level. According to a recent study by PWC, of the South African non-executive directors (including chairpersons), only 5% of women are in CEO positions in Africa - falling significantly short of the 50% target. Of those, there’s only one female CEO in the top 40 JSE listed companies, Maria Ramos, CEO of Absa Bank. DOES FEMALE REPRESENTATION POSITIVELY IMPACT FIRM PERFORMANCE? Investors are constantly looking for evidence that shows whether investing with an ESG lens generates superior returns compared to traditional strategies. Research from the MSCI World Women’s Leadership Index, which represents the performance of companies that are committed to achieving gender diversity on their board of directors and in leadership positions, showed that US companies with at least three women on the board of directors between 2011 and 2016 experienced median gains of 10 percentage points in return on equity (ROE) and earnings per share (EPS) of 37%. S&P Global research also highlights that firms with a high gender diversity on their board of directors have been more profitable than firms with low gender diversity. According to ISS ESG research, strong female representation at senior corporate levels was associated with better financial returns. Boards with at least two women outperformed the average Russell 3000 returns over 3-, 4-, and 5-year periods, while male-dominated boards underperformed the index over the same periods. Over a holding period of four years, the spread between the two groups was greater than one percentage-point annually.
Disclosures • Prescient Investment Management (Pty) Ltd is an authorised financial services provider (FSP 612). • The value of investments may go up as well as down, and past performance is not necessarily a guide to future performance. • There are risks involved in buying or selling a financial product. • This document is for information purposes only and does not constitute or form part of any offer to issue or sell or any solicitation of any offer to subscribe for or purchase any particular investments. Opinions expressed in this document may be changed without notice at any time after publication. We therefore disclaim any liability for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered as a result of or which may be attributable directly or indirectly to the use of or reliance upon the information. SOURCES • Bernardi & Threadgill 2010; Glass, Cook & Ingersoll 2015 • http://www.scielo.org.za/scielo.php?script=sci_arttext&pid=S168419992017000100023#:~:text=The%20balance%20of%20evidence%20shows,(Seierstad%20%26%20Opsahl%202011). • https://www.gobyinc.com/closing-the-gender-equity-gap-esg-essential-role/ • https://www.msci.com/documents/10199/dac417f1-4a01-4ba5-8429-67f52fd33443 • https://www.pwc.co.za/en/press-room/women-emerging-on-corporate-boards.html • https://www.spglobal.com/en/research-insights/articles/how-gender-fits-into-esg • https://tuesday.co.za/about/ • https://www.businessengage.africa/state-of-gender-on-jse-listed-boards/ • https://www.news24.com/fin24/companies/many-jse-listed-companies-still-have-no-women-in-their-boards-report-20211110 • https://corpgov.law.harvard.edu/2020/07/14/maximizing-the-benefits-of-board-diversity-lessons-learned-from-activist-investing/ • https://www.diligent.com/insights/board-diversity/the-importance-of-gender-diversity-in-the-boardroom/ • https://www.frontiersin.org/articles/10.3389/fpsyg.2018.01351/full • https://hbr.org/2019/03/when-and-why-diversity-improves-your-boards-performance • https://www.gendereconomy.org/corporate-boards/
Morningstar Global Sustainable Fund Flows - Q2 2020
A forward-looking ESG momentum strategy focused on the improvements of material ESG factors at an industry level appears to be a promising approach to create alpha
Michelle Green Credit analyst at Prescient Investment Management
Russell 3000: Average Annual Active Return
PRESCIENT’S APPROACH At Prescient, we have adopted a systematic approach to ensure unbiased ESG screening through our in-house ESG-scoring tool. The “Prescient ESG scorecard” is quantitative and data-driven, with data dating back to 2008. This process is integrated across our entire investment process by providing an in-depth measure of each ESG pillar when considering investment opportunities. Given our integrative investment approach to ESG, it enables us to value investment opportunities on a risk-adjusted basis. When assessing Diversity, Equity and Inclusion, we incorporate metrics in both the “S” and the “G” components of ESG. Board structure, Independence and Diversity are some of the key factors in the “Governance” pillar. These factors consider (among others), the percentage of non-executive directors, whether there is ESG-linked compensation for the Board, the percentage of women and female executives on the board. Vital to this is Diversity at the workforce level, which falls under the “Social” pillar. Here, we consider the make-up of the Employee base. We consider (among others) the ratio of women relative to the workforce, as well as the percentage of women and minorities in management and senior positions. This process, along with targets set by companies, allows us to assess the progress being made and ensures the potential for greenwashing is diminished. Importantly, our corporate DNA embraces the mutually reinforcing values of commercial success, long-term sustainability, and investing for positive change. Notably, we do not believe in exclusionary practices and make it clear to our investee companies that we positively view sustainable practices. Companies who embrace and meet sustainable targets are thus more likely to improve their cost of funding and/or garner further support from us. THE WAY FORWARD With the increased focus to enhance corporate governance, ESG strategies and high-quality disclosures, key considerations in any boardroom discussion today should also centre around closing the gap on gender equity. To date that shift towards gender diversity has not been sufficiently significant even though the benefits are clear. Thus, companies should be doing more to promote and implement transformation in order to close the gap for gender and racial diversity on boards.
Stephen Cranston talks to full-time ESG champions at three large asset managers. ‘It is difficult to say what is more important when it comes to environmental, social and governance considerations,’ says Rob Lewenson, head of ESG at the Old Mutual Investment Group (Omig). Lewenson recently took over from Jon Duncan as head of responsible investment at Omig, and before that was in charge of the fund manager’s stewardship initiatives. But he says that the priorities in South Africa are very different from those in the developed world. ‘It is only since the Paris Accord in 2015 that developing countries have been expected to meet environmental targets. But we certainly can’t be expected to follow Europe by reducing our carbon footprint by 7% a year and eliminating it on a net basis by 2050.’ In an interview with Citywire South Africa, Lewenson said that the ESG context in South Africa is dominated by inequality in the country, in particular civil unrest – which hit KwaZulu-Natal hard in July 2021 – and the diverse workforce.
words by Stephen Cranston
No longer just ‘fluffy PR’
The priorities in South Africa are very different from those in the developed world
‘But these considerations can’t be seen in isolation from climate change, as we are experiencing more frequent extreme weather events, which are affecting economic growth.’ Lewenson said: ‘Recent weather patterns have debunked the myth that climate change is not man-made.’ He added that Old Mutual can provide ESG-related services at different levels. ‘Our Super Fund umbrella fund offers stewardship services to clients, which can exercise client proxies at AGMs for issues such as climate resolutions.’ Lewenson said Omig had been proactive at putting forward climate resolutions at Sasol AGMs. ‘We have a very active dialogue with Eskom. Our liability-driven investment team is a large holder of Eskom bonds.’ And it is constantly under pressure from its parent company, the Old Mutual Life Assurance Company of South Africa, which is one of the country’s largest asset owners through its life portfolios. ‘Green’ is the corporate colour and an important part of the brand identity,’ Lewenson said.
He adds that it is not just direct emitters that are targeted, but heavy electricity users such as Anglo American Platinum and coal producers such as Exxaro. ‘But to screen out heavy emitters would not be practical given the high proportion of resources shares on the JSE.’ Head of sustainability at Ninety One, Nazmeera Moola, said that as an international fund manager with its origins in South Africa, Ninety One was well-placed to provide the perspective of emerging markets at international conferences. ‘Our CEO Hendrik du Toit made a personal commitment to playing an active role in the Just Transition at last year’s COP26 conference in Glasgow.’ Moola was moved from her senior job as deputy MD of Ninety One South Africa (in charge of the investment team) to champion sustainability full time at the beginning of this year. She said that she will be driving Ninety One’s ESG initiative from Cape Town. ‘Zoom has made it feasible for me to reside in Cape Town and still drive this initiative from South Africa.’ Sanlam Investments recently appointed Jonathan de Pasquallie as a full-time ESG analyst. He was formerly an executive at the South African chapter of the United Nations Principles for Responsible Investment.
De Pasquallie says that fundamental social issues such as water and food security are intertwined with climate change. At a different level, Sanlam’s index fund provider Satrix has made a contribution towards the social pillar of ESG with its launch of a diversity and inclusion index tracker last year. Sanlam hopes that its ranking will improve in the 27four ESG survey, launched this year, in which Old Mutual, Ninety One and Aeon Investment Management were the top three managers. Last year, Sanlam formed an oversight committee to drive its sustainable investment initiatives and evaluate the progress in the priority projects. Governance is the best defined of the three pillars of ESG, and Lewenson said that with the King Code it is an area in which South Africa has made significant progress. ‘We have learnt lessons from seminal events such as the Steinhoff collapse. And with the development of integrated reporting, it has become central to all JSE companies.’ Integrated reports reflect the ‘triple bottom line’ of shareholders, employees and communities. ‘In fact, over the past decade, ESG has moved from a fluffy PR nice-to-have into something central to investing,’ Lewenson said.
Fundamental social issues such as water and food security are intertwined with climate change
chapter TWO
The evolution of responsible investing – from exclusion to measured impact
In 1976 Milton Friedman said that businesses’ primary responsibility was to look after their shareholders and maximise profits. This is the primary thesis that our economic system and business models were designed around. What may however have been overlooked is that Friedman also said this was with the assumption it is the role of government to look after society and the planet, and thus the parameters in which businesses were to maximise profits would be set accordingly. It has been just shy of five decades since this thesis shaped the world and minds of business leaders and investors across the globe. In 2018 the first prominent voice of change came through a shareholder letter written by Blackrock CEO Larry Fink, who declared that businesses should have a social purpose. Fink said companies should benefit all of their stakeholders including shareholders, employees, customers and the communities in which they operate. The world has changed, and the business models, leadership mindsets and investor expectations are changing too. With our natural world being exploited to the brink of severe imbalance and an increasingly unequal society, businesses are increasingly being called into question via shareholder activism, the voice of millennials, changing regulation and demands of heightened risks. Likewise, investors are seeking this change through the integration of environmental, social and governance (ESG) considerations into businesses reporting and decision making. The evolution of ESG The adoption of ESG was initially driven by exclusionary policies that excluded any company or industry deemed to be causing harm. Over time this has evolved into responsible investing policies that look at how ESG factors are being factored into decision making. Global challenges including climate change, Covid-19 and the invasion of Ukraine are testing the depth and robustness of ESG integration, including its application by fund managers. Pre the Ukraine invasion, world headlines were largely dominated by the climate crisis and its related impact on sustainable investing. The Covid-19 pandemic was the first global challenge that heightened the prevalence of the ‘S’ and ‘G’ aspects of ESG. The ‘S’ of ESG is now dominating global headlines because of the global food crisis that that has been unleashed by the war, along with a renewed focus on a country’s right to defend itself and its citizens. The defence and weapons industry has long been on the grey list for many investment houses, citing ESG concerns specifically around who the related weaponry was being supplied to and how it was used. In addition, the flow of money for the purchase of weapons has been scrutinised, meaning that firms also had to consider their risks according to money laundering legislation. However, post the Ukraine invasion we have seen increased investment in the defence industry, with the prevailing narrative that “it is a social right to defend our borders”. We have witnessed governments sending additional help and weaponry to Ukraine in support of this right. This has rapidly shifted the exclusionary approach of defence stocks to increased investments in these sectors being justified. With Ukraine unable to export its grains and suppliers unable to procure from Russia as a result of the economic sanctions, the world is now facing dramatic cost increases to basic food products including wheat, barley and maize. Governments are being urged to move fast to offer either financial aid or social protection to avert a humanitarian disaster. Banks and other international institutions need to assess this when providing finance and financial assistance to ensure that all stakeholders are being considered in their processes and decision-making. ESG should not be seen as a one-size-fits-all, exclusionary process but rather as a framework that overlays risk analysis, with a key focus on quantifying stakeholder impact. We believe the most efficient and effective approach is one that enables investors to assess the environmental and social impact of their investments. However, the measurement of that impact is not as easy to define in practice; simply put, you can’t manage what you can’t measure. Quantifying impact Impact measurement starts with companies tracking the environmental and social metrics relevant to their operations. Companies that are unaware of the impact their business may have on the environment and all stakeholders are at a distinct disadvantage. As investment managers, it is our role to ensure companies are measuring and disclosing beyond traditional financial metrics to include all relevant data. Until recently, companies assumed that our natural resources are infinite and that any negative externalities were a cost to be borne by society and not by shareholders. As cited by Friedman, there was an assumption that governments would provide oversight and regulation to ensure that companies behaved in a responsible manner. This has unfortunately not been the case. Lobby groups funded by the private sector have furthered corporate interests at the cost of society. Politicians funded by corporates are often compromised in their decision making. Management have been incentivised with a focus on short-term growth and profitability rather than long-term, sustainable profitability. Operating sustainably requires capital expenditure to ensure that businesses operations have the lowest possible impact on the environment and that employees are safe, motivated and adequately compensated. This translates into companies, products and services that are not only relevant today but also for future generations with a greater emphasis on sustainability. In the paper ‘Corporate Sustainability: First Evidence on Materiality’ by Harvard’s Kahn, Serafeim and Yoon, it was observed that companies with good performance on material sustainable issues significantly outperform firms with poor performance on these issues. As an active investment manager, we believe it is a vital part of our fiduciary responsibility to assess corporate sustainability as part of our research and investment decision making. We believe the United Nations 17 Sustainable Development Goals (SDGs) provide an ideal framework to assess sustainability. The SDGs address the global challenges we face, including poverty, inequality, climate change, environmental degradation, peace and justice, and provide a blueprint to achieve a better, more sustainable future for all. Using the Institutional Shareholder Service (ISS) methodology for quantifying net impact across each of the 17 SDGs, we can aggregate that data to quantify whether a company has a positive or negative net impact and then base our investment decision making and engagement activity on that output. This enables us to root our thinking in an evolving global economic system where the hearts and minds of investors and companies are being challenged, where impact measurement is rapidly being enhanced and where all stakeholders are placed at the centre of a shared value equation. The Investec Global Sustainable Equity Fund invests in world-class companies that are aligned with the UN's Sustainable Development Goals (SDGs). Find out more here.
Simone Smith Barry Shamley and Maxine Gray
ESG is almost a business imperative for asset managers: most of them know that they have to at least pledge dedication to it. But fund selectors who really want to know how seriously asset managers are taking these issues must forgo ambiguities and get into the nitty gritty of specifics. Unfortunately, since ESG is still somewhat of a vague concept, it isn’t hard for asset managers to obfuscate. One example of this is prevalent in South African asset management – where companies often declare that they engage with companies they invest in, giving them the pretence of good practice without any evidence to back up their claims. This is why, for Tracey Davies – executive director of Just Share – and David Le Page – coordinator at Fossil Free South Africa – the questioning should not be left there; it must be followed by a scrutinous line of enquiry. The two experts suggest putting the following set of statements to the management in question.
words by Patrick Cairns
Words to action: Seven questions to corroborate companies’ ESG claims
chapter three
For the most part, ‘engagement’ is the only active ownership tool deployed, and escalation is rare, even when there is little or no improvement
Question 1: What are your timeframes for engagement? This is a critical question that many asset managers might struggle to answer. For instance, just about every asset manager invested in Sasol will tell you they have ongoing engagement with the company’s climate policy. But, in some cases, these engagements have been going on for more than a decade. If you’re still engaging on the same issue for that long, are you really getting anywhere? Question 2: When you start an engagement, are you clear on the outcomes you want to achieve? When will you take action to escalate your engagement if these outcomes are not achieved? ‘There are very few managers in South Africa who will be able to answer this in the affirmative,’ Davies says. ‘For the most part, “engagement” is the only active ownership tool deployed, and escalation is rare, even when there is little or no improvement.’ The point is that if there is no threat of escalation, a company faces no incentive to change practice.
Tracey Davies Just Share
Question 3: Do you believe that ‘behind closed doors’ engagement is more effective than public activism? If so, please provide an example of a successful engagement which you think would have been jeopardised by a public statement? Asset managers in South Africa are wary of making public statements about what they are discussing with companies. There may be good reasons for this in some instances, but is it always the case? Might public statements and combined action be more forceful in some instances? If asset managers have truly thought this issue through, they should have good answers to these questions. If not, it’s worth questioning how much is really being achieved ‘behind closed doors’. Question 4: If you hold shares in Sasol, Exxaro or Thungela Resources, what is your engagement strategy with these companies in relation to emission reductions in line with climate science? Please describe how you view the transition risks associated with investment in these companies? If asset managers have seriously engaged with climate science, they should have informed answers to these questions. If they struggle to articulate a response, do they really understand the risks facing these companies and what they hope to achieve through engagement?
Question 5: What do you regard as sustainability expertise? Do you or your team have it? Do any of your ESG analysts or fund managers have non-financial qualifications related to sustainability or climate change? ‘It should be a red flag for investors if managers have no ESG analysts or researchers with specific expertise in ESG issues,’ says Davies. ‘And it should be an even bigger red flag if they claim that all of their analysts are ESG experts, or trained in ESG integration.’ There are specific skills required in this field, and dedicated resources are a minimum for showing genuine ESG integration. Question 6: Give us examples of when and how you have prioritised values and ethics over returns in your investment practice? This is a real test of an asset manager’s commitment. ‘A more ethical society is better likely to sustain long-term value for investors,’ says Fossil Free’s Le Page. ‘Investors that claim to prioritise returns are in fact destroying the prospects for achieving them.’ Question 7: What key global and national risks do we face, and how are your investments mitigating them? ‘The answers should reflect that both general common sense and the Global Risks Report of the World Economic Forum identify the following general key areas as being of major concern: climate action failure and environmental destruction, and the erosion of social cohesion,’ Le Page says. This may be the key question, because if asset managers claim to have ESG credentials, they should, at a minimum, be able to articulate why ESG is important. And they must be able to say what they actually hope to achieve by employing it.
David Le Page Fossil Free South Africa
The answers should reflect that both general common sense and the Global Risks Report of the World Economic Forum identify the following general key areas as being of major concern: climate action failure and environmental destruction, and the erosion of social cohesion
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