Sholto Dolamo, MD of Mergence Investment Managers
Asset managers and impact reporting
Asset managers are accustomed to reviewing the annual integrated reports of the companies in which they invest. However, it is worth considering how many asset managers create their own reports to communicate the social, environmental, and governance (ESG) impacts of their investment decisions, whether in public or private markets.
There is a growing global trend among asset managers to produce their own impact reports. This not only responds to market trends but is also a strategic move to align with investor expectations, manage risks, and contribute to broader sustainability and responsible investing goals.
Producing impact reports enhances transparency by providing stakeholders, including clients, investors, media, and the public, with detailed information about the social and environmental consequences of investment decisions. This transparency fosters accountability and builds trust.
Additionally, by demonstrating a commitment to responsible investing and reporting on positive impacts, asset managers can set an example and contribute to positive changes in corporate behavior and industry standards.
The Mergence 2023 Impact Report, available here, highlights our experience in measuring and monitoring ESG considerations in the companies in which we are invested. We believe that ESG issues often pose a financial risk to an investment and that excellence in ESG practices signals a better-quality company and management team.
Understanding and reporting on ESG factors contribute to better risk management – identifying and addressing potential environmental and social risks associated with investments can help mitigate risks and protect the long-term value of portfolios.
Measuring the impact and growing shared value
Regarding public markets, proxy voting and engagement with management can have a powerful impact on bringing about change to the benefit of all stakeholders As an illustration of proactive steps taken by us as asset managers in the 12 months to 30 June 2023:
- we attended 109 meetings, of which 98 were AGMs and 11 general meetings.
- we had 1,936 proxy votes, of which 1,683 were ‘for’, 252 ‘against’, and 1 abstention.
- our engagement with the Spar group, based on the Governance (G) in ESG, yielded some encouraging results.
In the realm of private markets, aligning investments with specific UN-supported Sustainable Development Goals (SDGs) is considered best practice. In the case of investee companies where we hold either equity or debt, we mandate detailed reporting from management on the impact generated by their operations. Increasing evidence suggests that companies with exemplary ESG practices are beginning to command a premium. For example, consider the following two instances:
- In the only two private water concessions in which we are invested, close to 300,000 of the 500,000 customers that the project serves are classified as indigent communities to whom we supply free basic water daily.
- In an aquaculture project in which we are invested in the Lesotho highlands 101 people are currently employed, mainly from the local communities, all of whom are remunerated well above the minimum wage, and receive healthcare, pension and disability cover as well as a funeral policy. Local contractors and hauliers are used. The project provides Mergence with a monthly beneficiation report which details the relationship with each of the surrounding villages from where the workforce is derived, where offshoot projects help to generate additional income streams for the communities and complement the investee company’s operations.
In conclusion, impact reporting encourages a more comprehensive and holistic approach to decision-making. It prompts organisations and asset managers to consider a broader range of factors beyond financial metrics, leading to more informed and responsible choices.
Impact reporting is not just a reporting requirement; it is a strategic imperative. It aligns organisations and asset managers with the evolving landscape of responsible and sustainable business practices, contributing to both positive societal impact and long-term financial success.
Below is a diagram highlighting the impact created by Mergence Investment Managers investments throughout SADC, as per our 2023 Impact Report
Click the image to open the full report in PDF.