Continued investment in fossil fuels poses the following grave risks to both investors and society at large:

• Continued under-investment in the green economy needed to avert the worst dangerous climate change.
• Continued social licence for an industry that has become very dangerous, exploitative and corrupt.
• Continued decline or crippling of the South African economy by the negative external effects of fossil fuels: climate breakdown, missed development opportunities, economic volatility, deadly air pollution, excessive water use, continued corruption, poor governance (strongly associated with these industries) and global (the fossil-fueled Ukraine war) and regional conflict (the insurgency in Mozambique).
• Loss of returns on investments due to these factors (asset stranding).
• Missed opportunities for investments in the green economy.

Possible sharp loss of capital in a carbon bubble scenario.

• Fund managers are the financial specialists who decide how most of the money you save in your retirement fund or unit trust is actually invested: e.g., how much of it goes offshore, how much is invested in bonds, how much in property, how much in which companies.
• Fund managers have enormous power in society. As one SA asset manager says, asset managers “decide how the valuable savings or resources of a population are allocated for growth and development”. But at the moment, South Africa’s asset managers have effectively allocated many of our resources not for a thriving economy and healthy environment, but for a crippled economy and devastated environment. They didn’t do this maliciously or deliberately. But they’re still applying the investment logic of the 1960s when the evidence is now overwhelming that this is a recipe for disaster. Many of them are very concerned about climate themselves, but say they need you, the asset owners, to first start noisily demanding this kind of change so they can beat institutional inertia.
• None of them, to our knowledge and despite their purported concern over climate change, have meaningfully educated or canvassed their clients on the issue.
• Overseas fund managers do already offer many fossil-free investment options. They’re easy to find if you live in the US, UK, Europe or Australia. The world’s biggest asset manager, Black Rock, has also to some degree made addressing climate change a priority. But there are still no fossil fuel-free options for ethical and responsible South African investors. We have to change this. In the long term, all investment should be responsible (or better regulated).
• So-called ESG investment can be helpful, but can also be a mass smokescreen for inaction and greenwashing. We like ESG mostly only when it leads to outright exclusion of the worst permitters.

South Africa’s biggest asset managers collectively manage over R2.7 trillion. Over 10 million South Africans participate in various forms of collective investment via savings, retirement funds and unit trusts. Even more are connected to financial services. This represents enormous potential power for creative change, if even a small proportion of this capital is redirected towards truly environmentally and socially responsible investment.

Of course. You have standing wherever you have money invested.

We’re still some way from seeing actual fossil-free funds created. It’s possible you may get lower returns, but there are many good reasons to think that fossil-free funds in South Africa can get acceptable or even improved returns. The two substantially fossil-free funds that we are aware of are delivering acceptable performance. Divesting will help protect you against stranded assets and the sharp loss of returns threatened by a possible carbon bubble.

Yes, we’re all still dependent on them. But we have to phase them out very fast, in favour of reduced energy demand and renewable energy sources such as wind and solar. We’re NOT asking that all fossil fuel companies shut down overnight, just that they start cutting their emissions at the speed that scientists have figured out is needed to keep average global warming below 1.5C; that is, at least 7.6% emissions reductions annually. Unfortunately, despite their claims, few if any are doing so.

Your asset manager has had 30 years (since the UN Framework Convention on Climate Change was signed, marking the establishment of a global consensus on climate change), to push investee companies to responsibly manage emissions. But most of them have only belatedly started engaging on climate issues in the past two years. None of them are yet insisting that investee companies meet scientific targets for emissions reductions.

When your asset manager tells you they need to be invested in fossil fuel companies to secure changes in those company’s practices, ask them for the evidence that their engagement is working. Ask them for examples of when, where and how their shareholder advocacy has secured actual, measurable and sustained emissions cuts. Shareholder engagement can indeed be effective with some companies on some issues. But there is very little evidence that it is effective in persuading fossil fuel companies to change their core business models. This may be because while it was once possible to argue that these companies served the public good, that time has long since passed.

Fossil fuel company executives who are not setting ambitious emissions reductions targets should be prosecuted for environmental crimes, not treated as respectable corporate citizens as shareholder engagement implies. In 2020, after years of mounting evidence of the climate crisis, these executives would not hold these positions if they had any interest in the social good.

Lastly, divestment does not preclude continued shareholder engagement. Asset managers can partially divest and continue to engage while threatening further divestment if targets are not met. We ourselves own one share each in the coal companies Exxaro and Thungela so that we can support shareholder advocacy led by Just Share. 

Unfortunately, in our experience, asset managers only begin to become champions of shareholder engagement when pressured to divest. But it’s dishonest and evasive to use shareholder advocacy as a figleaf for inaction in a global climate crisis.

We’re not saying the asset managers should immediately sell off all their Sasol shares if they and most of their clients don’t want to. We’re just saying they should make it possibly for those of us who do want to divest, to do so more easily.

We think any credible fossil fuel-free fund also needs to exclude destructive industries such as tobacco, armaments and intensive meat production; and that all investable companies should be screened to ensure they score well for their environmental, social and governance (ESG) practices.

Please do connect with us and ask. We’re big on dialogue and low on judgement.