As you know, our biggest petition and campaign calls on SA’s top asset managers to give you the option of not investing in planet-killing companies like Sasol. How did they respond? Read on to find out, and if you sign up to our mailing list, you can tell us who your financial service providers are, so we can engage them collectively.
It should be noted that despite the widely varying responses to our campaign, we believe that all major SA asset managers still fall far short of meeting their proper responsibilities to communicate the risks of climate change and continued use of fossil fuels to you, their clients. This means they are failing in their fiduciary duties. Research shows that asset managers rarely consider risks outside a five-year horizon – but we have reached an era in which there are enormous risks to climate and global financial stability, even within that horizon.
What would best practice for SA asset managers on climate change look like?
In essence, fossil fuel companies need to publicly commit to transition away from fossil fuels, or towards carbon neutrality (on a timescale consistent with the best scientific evidence; that is, by 50% by 2030, and 100% by 2050). Many companies are already doing this, and you can see them listed at Science Based Targets.
In essence, the role of asset managers should be to firstly ensure that investee companies have made this commitment, and then to track and monitor their progress against it:
- Actively communicate about the risks of climate change and continued investments in fossil fuels with pension fund trustees and non-institutional clients.
- For each portfolio/fund they manage, must annually disclose the explicit carbon risk of the portfolio under different scenarios over the recommended investment time horizon for the fund (as shareholders have required of Exxon Mobil).
- Research the likely long-term impacts of climate change on their youngest clients, that is, the economic effects of climate change over 15, 20, 30, and 50 years.
- Offer pioneer re-investors the option of divesting from fossil fuels.
- Robustly engage with investee companies to ensure that they have planned decarbonisation timelines consistent with the IPCC report from October 2018; that is, carbon emissions cuts of 45% by 2030 from a 2010 baseline, and 100% by 2050; and where investee companies fail to commit to such decarbonisation timelines, divest.
- Ensure that engagement with fossil fuel companies sets clear targets for improvements in the realms of carbon emissions (not just CO2, but also NO2 and CH4), air and water pollution, unremediated mining activity, corruption, community development, commitment to just transition.
- Adopt meaningful ESG screening for all investee companies.
- Seek opportunities to invest in ecologically sustainable companies and sectors.
- Support initiatives such as the Montreal Pledge, UN PRI, Climate Action 100+, Investors Group on Climate Change, Ceres, Asia Investor Group on Climate Change (AIGCC); Ceres; Investor Group on Climate Change (IGCC); Institutional Investors Group on Climate Change (IIGCC) and Principles for Responsible Investment (PRI).
- Engage with and report on their implementations of the recommendations of the Task Force on Climate-related Financial Disclosures
- Advocate for changes in government policy that support rapid decarbonisation; e.g., fully supporting the carbon tax, and urging a Green New Deal in SA.
This is a provisional specification of best practice for SA asset managers, and we’re currently refining it.
Asset manager and owner responses
We have engaged in dialogue with Allan Gray in the past, and we can tell you that their analysts are extremely well-informed about climate change. We did invite them to our campaign closing event. Their response was to say they do not agree with divestment as a strategy and they declined to attend. (Contrast this response with Investec, which attended and urged us to continue our campaign.)
“… through multiple engagements we have previously highlighted why we don’t believe this [divestment] is the best approach to addressing global warming issues. As it is an approach to investing we in principle disagree with, we feel it would be remiss of us to lend support to this campaign by attending.”
It’s our distinct impression that Allan Gray does not care to share its knowledge of climate and fossil fuel risks with its clients, nor the evidence that the investment paradigm that appears to have served them and you well to date rests on the continued and deepening exploitation of people and planet.
Allan Gray are particularly defensive about their substantial Sasol holdings. Note that Sasol’s total global emissions 67,6 million tons (Mt) of CO2 emitted in 2017 has an annual cost to society of R191 billion (compared to earnings of R17,7 bn for year ending June 2018) – and that cost still excludes the other externalised costs of their business model, such as air and water pollution. This means that Allan Gray is offering you an outsize share (your returns) in a pie (the global economy) that is being shrunk by their overall investment style. Fossil fuel investments are cannibalistic investments that increasingly destroy value in other economic sectors.
Allan Gray’s latest stewardship report, reflecting our engagement with them, says:
We have received requests to offer fossil fuel-free or low carbon funds. In practice, no fund can be 100% fossil fuel-free. If we take solar energy as an example, it is undeniably a cleaner energy option than a coal or gas power plant, but manufacturing solar photovoltaic (PV) panels is extremely energy-intensive and currently much of that energy is supplied by fossil fuels. Is investment into a solar PV manufacturer therefore fossil fuel-free and suitable for inclusion in a clean energy fund?
The answer given by most scientific researchers is yes. It’s true that solar panels “embody” fossil fuel-derived energy, but that embodied cost is paid back many times over in the course of their lifetimes. Allan Gray raises a valid question but then fails to answer it honestly.
We have had one past meeting with Coronation’s chief investment officer, in which he assured us that he is deeply concerned about the environment, and later conceded by email that Coronation could do better in communicating environmental risks to clients like you. We invited him, and some Coronation board members to attend our campaign closing event. He indicated he was not available on the date, but no other representatives were sent. Board members did not respond to our invitations. (Contrast this response with Investec, which both attended and urged us to continue campaigning.) The Coronation website will tell you nothing about carbon and climate risk.
Investec attended the event, and indicated a deep understanding of the issues that concern us. Investec indicated that they support our work, and think we should continue doing what we’re doing. We believe they could be doing a lot more – but this early engagement is encouraging.
Sanlam have been willing to engage with us, which we appreciate, but seem to remain convinced that fossil fuels are an essential component of development rather than understanding that they now fundamentally undermine development. They have advised us that they are “incorporating Sustainalytics data into our core investment investment processes, both equity and fixed interest, to raise awareness of ESG issues”, and that they “will look out for opportunities to invest in fossil fuel replacement projects, which initially are likely to be funded with credit, pending listings.”
Sanlam incorporates ESG (environmental, social and governance factors) metrics in its credit approval process, and plans to “investigate” the viability of ESG investment products.
Sanlam has also indicated that it has “the capability to incorporate environmental damage costs into company valuations, to prepare for transition”, and we look forward to hearing more from them on that.
“SA will need to manage the trade-offs for our society and our environment as we decarbonise,” they conclude in their response to us.
Old Mutual indicated they would have liked to attend in person, but were unable to do so. They did, however, send an in-depth response indicating, amongst other points:
Old Mutual is committed to finding solutions to open up low carbon investment opportunities for the retail market. To begin with we have been going through the process of registering our ESG Index series, developed markets and emerging markets, for the retail market (previously these were only available to institutional investors) … I acknowledge that these products might not meet the requirement of investors who want full divestment, however I see this as a half step towards that outcome.
Government Employees Pension Fund
The GEPF was unable to attend our event (their main offices are in Pretoria). They sent a statement, saying that:
The GEPF supports a just transition to a more sustainable South Africa, as reflected in our Responsible Investment Policy and investments in clean energy.
We recognise the impacts and implications of climate change amongst many other key ESG issues within our investments. When considering these Environmental, Social and Governance issues however, the GEPF recognises the distinctive challenges arising from the country’s reliance on fossil fuels with regard to current energy (electricity and petrol) supply and associated feedstock (mining). These industries are encouraged to operate in sustainable ways.
But these industries are inherently unsustainable, so the GEPF’s idea that they can “operate sustainably” is either misguided or disingenuous.
Furthermore, the GEPF acknowledges and promotes change in this regard through collaborative engagement through our proxy voting and support of initiatives such as the UN Principles for Responsible Investment (PRI), to which we are a founding signatory, and other local and international developmental priorities.
We appreciate the GEPF’s response, but feel their responsibilities – caring for the futures of millions of South African public servants – demand a far more robust approach to the massive risks posed by climate change.