Ethical investments for a greener future

The private sector is relied on to help governments achieve the goal of reducing greenhouse gas emissions and limiting the global temperature increase to 1.5 degrees by 2050. This pact, called the United Nations (UN) Paris Agreement, was agreed upon by almost every nation at the 2015 United Nations Framework Convention on Climate Change to address global warming and the negative impacts thereof.

The Principles for Responsible Investment (PRI) encourages investors to adapt to climate-smart investing in companies by focusing on the long-term positive effect clean energy has on the environment and society. Responsible Investment is a strategy that integrates environmental, social and governance (ESG) factors into investment analysis and decisions.

Chief Executive of The Principles for Responsible Investment (PRI) Fiona Reynolds said, “The strategy is an opportunity to harness the power of the finance sector to incorporate environmental, social and governance factors”. The PRI is a group of international investors supported by the United Nations in a bid to encourage investors to put the principles for responsible investments into practice to create a sustainable global financial system.

Energy is vital for our existence, but it comes at a considerable cost to the climate. The primary sources of energy used are coal, crude oil and gas. The impact of these greenhouse gas emissions into the atmosphere has a devastating effect on our environment.

The University of Cape Town’s director of environmental sustainability, Manfred Braune said, “This begs the question about how it might be possible to shift entire economies and its investments into economies with more responsible behaviour and investments that will get us close to the ambitious Paris GHG emissions reduction which targets to produce cleaner, healthier, productive environments for Society.”

Braune added, “Every country, including South Africa, needs a pathway towards a decarbonised economy – and investor behaviour is a key component of this pathway. While governments continue to debate on how developed countries must support developing countries in their fight for climate-change mitigation and who will pay for this, investors in the interim have a responsibility to allow their money to make a meaningful difference in society and have a positive impact – besides the financial returns that they expect. There are a variety of actions investors can take that will directly or indirectly impact these pathways towards decarbonised, cleaner economies.”

Fossil Free South Africa is an NGO that promotes the divestment in fossil-fuel-based companies in South Africa and has had increasing support as investors are opting to invest in more environmentally friendly companies.

BlackRock, The world’s largest fund managers, joined investor initiative Climate Action 100+ earlier this year and announced it will be contributing to the fight against climate change by introducing new measures in its investment approach; including lowering its exposure to fossil fuel companies

BlackRock’s statement followed the release of a report at the Financing the Future summit in Cape Town, which showed a vast increase of support from investors committed to divesting in fossil-fuel-based companies. With investors holding assets worth US$11 trillion pledging a shift from fossil fuels.

Braune said, “Sadly, in many cases, other buyers are found for these shares, which means the problem is simply displaced. In some cases, however, it is becoming increasingly hard for organisations to find investors for certain fossil-fuel-based projects, such as new coal-fired power stations. Such assets are thus becoming what’s termed ‘stranded assets. But it remains unclear if this kind of action alone will get us to the Paris 2050 targets and how exactly economies will transition out of their dependency on these energy sources.”

Local investors are actively looking for opportunities to invest in South African companies who practice environmental initiatives. Unfortunately, South Africa is one of the world’s largest emitter of greenhouse gases due to its heavy reliance on coal which makes SA’s transition towards a low-carbon society slow to take-off. This market remains emerging in South Africa and leaves few choices for the investors.

The Old Mutual Alternative Investments and the Mergence ESG Equity Fund, are two local investment products that support the principles of responsible investments.

The Just Transition project supports the principles of responsible investments and aims to find sustainable energy solutions to service all in a social and economic environment.

A Harvard Business Review article titled “The Investor Revolution” found that the ESG criteria is at the forefront for investors looking at investment opportunities, which has encouraged companies to adapt to a more energy-efficient business model to secure investments.

Just Share is a South African NPO doing revolutionary work in support of active ownership and responsible investments which drives good corporate citizenship by South African-listed companies. Standard Bank saw two of its board members.

UCT established the University Panel for Responsible Investment (UPRI) committee to manage the institution’s plan on responsible investment in relation to the university’s endowment fund. Braune explained that the UPRI developed a draft policy this year for responsible investment, which will affect how UCT invests its endowment fund, which is requested to be shared with various stakeholders.

UCT members of its Retirement Fund were also asked for their opinions on responsible investment issues and how contributors felt about various issues of sustainability.

Braune said, “This was the first time in my working career of about 22 years that a retirement fund manager asked me about what value the fund should place on ESG criteria – a sign that this space is changing.”

The MSCI South Africa ESG Leaders Index shows that ESG leaders recorded 14.45% annualised gross returns over a 10-year period, compared with 9.75% for MSCI South Africa (which is an index tracking the performance of South African equities). This Indicates that investors are becoming more aware of the effects of climate change and are opting for more ethical and responsible investments.

UCT will be hosting an open online event on Wednesday, 19 August 2020 – 14:00 to 15:30, to discuss responsible investments and the impact of investor action on achieving the emission reduction targets by 2050.

Originally written by Penny Haw, UCT News

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