Investors can no longer afford to view sustainable investing as a nice-to-have afterthought, with sustainable economic growth having become the primary source of financial return. It is therefore crucial for all participants in the financial ecosystem (asset owners, asset managers and issuers) to play a proactive and coherent role in creating long-term sustainable outcomes for all stakeholders.
Ultimately, industry and government leaders have a responsibility to engage in precompetitive collaboration to address issues concerning the creation of a sustainable economy.
This is according to Khaya Gobodo, Managing Director of Old Mutual Investment Group, who, while speaking at the Batseta Winter Conference 2018 this week, said that there is enough evidence to suggest that, if addressed correctly, environmental, social and governance (ESG) investing can be a source of not only competitive advantage, but also of attractive investment returns.
“We are at a pivotal point in the search for sustainable solutions for South Africa and there is an increasing opportunity for capital allocators to partner with Government in driving these solutions,” said Gobodo.
“We have seen a call to action with the launch of the UN Sustainable Development Goals (SDGs) in 2015 that made it clear that the global community relies heavily on the private sector to solve some of the most urgent sustainability problems it is facing,” he added. “Both companies and institutional investors are being asked to contribute to the SDGs through their business activities and investment decisions.”
“In South Africa, the leading current thinking around sustainability for the country is what is currently in the National Development Plan, where there is considerable alignment with SDG.”
Gobodo believes that investors should be placing more emphasis on the social element of the ESG lens. “One of the most significant impediments to a truly sustainable economy is the unbridled inequality we experience in this country. This is why black economic empowerment and transformation are such pivotal conversations for us to have as South Africans.”
He added that beyond the transformation of the industry, driving increasing investment in social infrastructure will lead to the kind of change that positively affects the lives of ordinary South Africans.
Old Mutual Investment Group has invested some R12 billion in these kind of alternative assets, with the aim of addressing gaps in social infrastructure, affordable housing and quality education. Gobodo believes that an increased emphasis by asset owners, asset managers and issuers on the creation of long term sustainable outcomes for all stakeholders will drive further investment in these kind of impact assets.
“Historically, sustainable impact has only been measured for impact funds and has tended to focus on the number of jobs created, number of schools opened and the number of houses with access to electricity and sanitation. But should impact be limited to impact funds only?”
Gobodo noted that investors should be asking how to measure the social impact of change via alternative investments such as new roads, less pollution and alternative energy such as wind and solar, which ultimately improves the quality of life for many. However, there simply isn’t enough reporting by traditional funds and by corporates on the social impact of their chosen activities.
“Regulation 28, via draft guidance currently out for public comment, will potentially change this, including for retirement funds and its members.”
The draft guidance sets out the requirement of funds to report on sustainability practises.
When considering long-term capital for change, Gobodo points out that the future will bring a changing landscape for non-traditional asset classes.
“Renewable energy has been the most recent innovation we’ve seen in this space, which attracted significant amounts of capital and contributed to the country’s energy needs. Ultimately, a corporative and engaged state paved the way for this success, providing a clear framework and revenue security.”
“Water may be the next frontier, with access to basic sanitation and water to rural parts of SA and affordable healthcare infrastructure presenting further opportunities.”
Batseta is a leading industry body which actively contributes towards the advancement of the retirement fund industry through engaging with appropriate authorities and stakeholders. It undertakes interventions that ensure that consumers are financially literate and protected, that the regulatory environment is conducive to foster a culture of retirement savings and that retirement funds are active owners of the assets under their care.
Batseta aims to contribute towards the personal development and growth of its members in order to provide services of high quality in the interest of retirement fund members and beneficiaries.
Batseta promotes transparency, cooperation and collaboration as well as the highest ethical and governance standards for retirement funds and their fiduciaries.