Responsible investing – A South African perspective
As the world focuses its attention on sustainability, the environmental and social impacts of economic progress are being increasingly scrutinised to fit in with the expectations of a more conscious society. Businesses, and by default, investors, must now actively mitigate their impact on the environment and increase their commitment to foster a more transformed society, lest they fall out of favour with the current zeitgeist.
According to Kudzayi Ziso, Multi-asset-class Portfolio Manager at Momentum Investments, it is incumbent on investment managers and asset allocators to consider how they drive the climate and social agenda.
Climate vs transformation
“As investors, we must always consider the global and local implications of climate change in the context of responsible investing,” says Ziso.
With the recent flooding in KwaZulu-Natal providing a devastating example of how unprecedented and extreme weather events can quickly upend an economy, Ziso says it is important that investors start actively managing the environmental impact of their portfolios.
Despite the historic reliance of developing and industrialising nations like South Africa on fossil fuels to spur economic growth, Ziso says global learnings are pointing to a carbon-free future. However, she notes how the current Russia/Ukraine crisis has shone a light on the first world’s dependence on oil and gas – noting that the green pendulum of consciousness may be swinging back towards economic needs over environmental concerns.
“While the burning of fossil fuels, fracking of oils and deforestation contributes significantly to climate change, we must acknowledge that the everyday actions such as the carbon footprint of the brands we use daily also affect it – and their performance is measured as such,” Ziso says.
In South Africa, Ziso believes you can’t talk about the global issue of climate change without addressing the issue of structural inequality. She says we need to address what moving to clean energy will mean for unemployment in our country. “What is critical in South Africa is to improve our reporting on our carbon footprint and look towards the collective efforts of the country’s largest employers,” Ziso adds.
She believes all this focus on climate highlights the ever-growing conflict between the E, S and G of Environment, Social and Governance-based sustainability efforts. “While climate change has taken more prominence recently, another key factor to consider, especially in South Africa, is transformation,” she says.
Momentum Responsible Investment approach
Across all Momentum Investment portfolios, Ziso says therein lies a process to ensure focus and accountability. “ESG sits alongside our overarching objective, warranting a fully integrated approach with active ownership as a key lever. We do similarly with the transformation theme, favouring broad-based transformation.”
To that end, Ziso says Momentum has generated its own detailed dashboard to monitor more granular metrics as it strives to facilitate and focus on engagement with investors and investment managers. “This leads to more diverse and transformed investment teams and more women in senior decision-making positions across both the large established firms as well as the smaller boutiques,” she adds.
Momentum developed an in-house proprietary investment rating model to help the business establish a foundation of responsible investment practices in every investment. Indicators in Momentum’s
Responsible Investing rating model include:
The Investment Management Organisation – Is ESG embedded in the culture of what they do
Resources – is there oversight and accountability to ensure RI practices are upheld
Skillset – Do the portfolio managers and analysts have the skillset to identify and interpret the ESG risks
Active ownership – to what degree do they use their rights to influence the activities of the companies they invest in.
Thus far, Ziso says putting responsible investing at the core of Momentum Investment’s value proposition aligns with the universal economic goal to positively impact the world.
“By developing an integrated approach that puts responsibility at the centre of your investment journey, you put yourself in a better position for growth in the future. Progress can only go in one direction, and we chose forward,” Ziso concludes.