Individual South Africans are now starting to divest. Here’s one example of how to do it. Please tell us about your experiences – we’d be very happy to have your feedback.
Fossil Free South Africa has been looking into the prospects of establishing our own fossil-free fund, and while it’s proven harder than we hoped to get one going, we’re not giving up! Please email us if you would be interested in investing in such a fund.
Very quick summary of how to divest (or not):
- If you are confident managing your own share and investment portfolio, consider building one that excludes major emitters – most especially Sasol, Eskom (bonds), Anglo American, BHP Billiton, Exxaro, African Rainbow Minerals – and those who finance them.
- If you are not a confident direct investor, and rely on financial service providers for pension/provident/unit trust options, divestment, we have to admit, remains very difficult for ordinary people. We do hope that with the possible establishment of our own fund that it may become slightly easier. We can, as of January 2018, advise that a major international financial data provider may soon be launching products for the SA market that will assist in the creation of low-carbon funds.
Nedbank’s Green Savings Bond
One semi-green fund that we know of in South Africa is Nedbank’s Green Savings Bonds:
The Nedbank Green Savings Bond is a fixed term investment (18, 24, 36 or 60 months), offering great rates and capital security. In addition, it is the first savings bond in South Africa to offer consumers the opportunity to contribute towards the creation and development of the Green economy. It does this by earmarking the capital raised to finance renewable energy projects, at no risk or cost to investors.
Unfortunately, the appeal of the Nedbank Green Savings bond is somewhat dimmed by the fact that Nedbank continues to actively invest in new coal power in South Africa. For example, in October 2016, Nedbank joined a consortium of bankers financing the Thabametsi and Khanyisa coal independent power stations. See also this independent comment on how the product is advertised.
WWF-Prescient Living Planet Fund
WWF is supportive of divestment efforts, and in South Africa, manages a Living Planet investment fund that is lower-carbon than the JSE as a whole and ‘aims to deliver sustainable long-term capital growth within a framework that integrates environmental sustainability principles’. The fund excludes any ‘direct investments’ in:
• Arms & weapon systems
• Nuclear power production
• Coal-mining companies
• Trade in CITES Flora & Fauna
• Animal testing for cosmetic purposes
It also restricts investment in oil, gas, coal extraction, and companies with high water resource impacts.
As of June 2018, the fund does include a 2.3% share in BHP Billiton, a company listed on the Carbon Underground 200.
The minimum investment is R10,000, or R1,000 a month by debit order. The total investment charge is 1,66%. The annualised return since inception in May 2012 has been 6,74%.
Mergence Low Carbon Equity Fund
There is another low-carbon fund open to institutional investment: the Mergence Low Carbon Equity Fund
The objective of the Mergence Low Carbon Fund is to produce a level of return similar to that of the JSE Shareholder Weighted Index [SWIX] while investing in companies with a lower level of carbon emissions intensity on average than that of the SWIX Index… The global approach to exclude high emitters completely is difficult to implement in the South African context without producing a fund with a high tracking error relative to its benchmark. Our approach aims to overweight companies that produce a low level of environmental emissions relative to their economic activity and to underweight those companies that are less efficient or do not measure and disclose their emissions. Companies are compared within similar sectors and across sectors and the Fund is optimised to ensure the appropriate tracking error. This allows investors to invest in an environmentally responsible product that promotes emissions reduction without material impact on their financial return. Investing in this way promotes environmentally friendly practices and operations of listed entities.
This fund has been in existence since 2010, and deserves acknowledgement for making an effort to create a semi-decarbonised fund in a challenging environment, well before the global divestment movement achieved its current momentum. However, the bar it sets itself for decarbonisation is rather unambitious by recent divestment standards:
… the Fund has had an average emissions intensity of 77 tons of CO2 emissions per million Rand of revenue compared to an average intensity of 98 tons for the SWIX index.
There have been no updates on the fund’s performance posted since 2012.
Old Mutual Responsible Investment Equity Index Fund?
This fund was established in 2016. It is, again, an institutional fund. Though a retail offering was promised by October 2016, it has yet to materialise so far as we know:
The Old Mutual Responsible Investment Equity Index Fund invests in a local universe of shares that are assessed using a two-step ESG screening approach: the MSCI ESG Impact Monitor screening tool and the MSCI ESG Intangible Value Assessment tool. These tools continually monitor the South African universe not just against their local peers, but also against their global peers.The impact monitor assesses whether the companies adhere to the internationally responsible investment norms. A breach of these norms or principles would typically exclude the company from the Index.
There is no available information on the make-up of this fund.
One factor that makes it difficult to create decarbonised or ethical funds in South Africa is that there appear to be few available indices on which to base new funds. The JSE’s Socially Responsible Investment Index, established more than 10 years ago, lost credibility over its inclusion of companies like African Bank and Lonmin. As Old Mutual observes:
The [JSE SR] index however received much criticism over the years around lack of transparency, the selection criteria and underperformance relative to the parent index… The flawed selection criteria was demonstrated by the inclusion of stocks like Lonmin and African Bank in the index. And as the repercussions of the Marikana tragedy played themselves out and several issues emerged regarding Lonmin’s financial stability, it continued to be part of the SRI Index. Similarly, African Bank remained in the index until its suspension in August 2014. This has left very little confidence from investors on the quality of the index’s screening.
The JSE has now established a new ‘Responsible Investment’ index. However, the top 30 companies listed in this index, as at November 2016, included major carbon emitters such as Anglo American, BHP Billiton, Exxaro and Sasol… The JSE’s social and responsible investment efforts, in other words, amount to little more than greenwash.
The Kigoda Sustainability Basket on the EasyEquities platform
Kigoda Consulting has recently established a “sustainability basket” on the Easy Equities low-cost trading platform, which you can read about here. This is not specifically a low-carbon fund, but it is another good step towards creating a sustainable investment option for the SA market.
Steps to divestment: overview
- Please challenge your financial services provider by asking them for alternatives!! Remember, there’s no need to be defensive about this request. If they have put your money in fossil fuels with absolute returns their bottom line, they are arguably neglecting their duties, as investments without fossil fuels in fact outperform funds that include fossil fuels:
MSCI, which runs global indices used by more than 6,000 pension and hedge funds, found that investors who divested from fossil fuel companies would have earned an average return of 13% a year since 2010, compared to the 11.8%-a-year return earned by conventional investors.
- If your pension/provident fund has funds invested offshore, consider divesting these funds first. Examples of international institutional fund managers offering fossil-free funds include:
Examples of overseas fossil-free funds accessible for individual investors:
- Screen your investments for exclusion of the Carbon Tracker 200.
Other articles on how to divest
These are for the US context, but may be helpful at least for South African investors seeking to divest their overseas investments.
Write to your financial services provider
Template letter 1: If you’re a member of staff or faculty at UCT with pension benefits.
Template letter 2: Non-specific pension fund letter.
Template letter 3: Letter to financial advisor/investment house/bank.
Look at offshore options
South Africans can invest offshore, up to certain limits. While first prize for us is definitely seeing local fossil fuel-free funds created, it’s reasonable to start with supporting offshore funds too. These can be located at Fossil Free Funds and there’s a further guide to divestment offshore hosted by DivestInvest.
Lifestyle and consumption
Because we currently live in an extremely fossil fuel-intensive global economy, most consumption contributes to fossil fuel usage. Broad guidelines for reducing consumption in South Africa would include buying locally and sustainably produced food (less fertiliser means less fossil fuels), driving less, flying less, cutting Eskom electricity consumption (through, for example, better home insulation or turning to home solar).
There are a host of guides to personally greener living, though, and greener living is not the focus of this guide: divestment as a campaign is guided by the recognition that the kind of system change required to swiftly address climate change is beyond the reach of personal changes in consumption, especially given the degree to which fossil fuel companies actively block change. For example, it’s harder to buy solar-generated electricity when coal companies are lobbying government to invest in coal power; and harder to afford electric vehicles when oil companies are still getting immense government subsidies.
Perhaps consider where you buy petrol. Of the energy companies operating in South Africa, Total appears to have the most genuine commitment to renewable energy, holding a 66% share in the world’s second largest solar company, SunPower.