Business Maverick

DAILY MAVERICK WEBINAR

Covid-19 has presented a reset button – use it

Daily Maverick associate editor Ferial Haffajee, left, Futuregrowth head of responsible investing for Africa and Middle East, Nicole Martens, centre, and Futuregrowth head of listed credit Tarryn Sankar. (Photos: Gallo Images / City Press / Herman Verwey | Photo supplied | Photo supplied)

Will the Covid-19 crisis change the way we invest and the types of investments we make? Can societies afford to transition to sustainable and responsible investing? And, more ominously, can they afford not to? In a recent Daily Maverick webinar, these issues were vigorously debated.

 

In 2020, the world came skidding to a halt, stopped by the Covid-19 pandemic which spread across the globe in 120 days, ignoring borders and impervious to race, class or creed.

The world – one where crass consumerism and material gain reigned supreme – fell silent. Factories, cars, ships and planes stopped belching fumes, and human beings climbed off their often myopic treadmills.

It was an opportunity for a reset. The planet, spent and unable to replenish her resources at the rate that they were being guzzled, gasped for oxygen.

And people, with time to reflect, began to imagine a different life, one that could be more inclusive and less extractive.  

In a now-famous essay for the Financial Times, novelist Arundhati Roy offered a glimmer of hope for the future when she said:

“Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between one world and the next.

“We can choose to walk through it, dragging the carcasses of our prejudice and hatred, our avarice, our data banks and dead ideas, our dead rivers and smoky skies behind us. Or we can walk through lightly, with little luggage, ready to imagine another world. And ready to fight for it.”

How exactly we set about reshaping this economically and environmentally resilient post-Covid-19 world is a multi-layered issue that is not quickly or easily unpacked.

In a recent Daily Maverick webinar, associate editor Ferial Haffajee,  the Head of Africa & Middle East at Principles for Responsible Investing, Nicole Martens and Futuregrowth head of listed credit, Tarryn Sankar,  added grist to this mill.

“Will the crisis change the way we invest and the types of investment we make? Can societies afford to transition to sustainable and responsible investing? And, more ominously, can they afford not to?” challenged Martens.

“We have been on an endless treadmill of maximum return,” she says, “but there are no returns from a dead planet populated with troubled societies.”

Of course, responsible capitalism, which seeks to move corporate culture beyond shareholder primacy, is not a new concept and the principles are well captured in the various codes for responsible investing. 

Increasingly, companies are recognising that employees and customers seek out those companies that are focused on the triple bottom line: people, planet and revenue.

In South Africa, health products retailer DisChem learned this lesson early on in the lockdown, firstly when it was accused of price gouging and secondly, when management reportedly asked for a rent reduction, despite being deemed an essential service provider.

“People care about these issues and increasingly, investors are becoming aware too,” Sankar says. “It is not just the financial metrics – increasingly, ESG [environmental, social and governance] issues will affect asset allocation.” 

The evidence is clear. In the US, in the first quarter of 2020, seven out of 10 sustainable equity funds finished in the top halves of Morningstar categories, and 24 of 26 ESG-tilted index funds outperformed their closest conventional counterparts.

In addition, a group of 300 mutual funds that integrate ESG factors into their investment decisions attracted $21.4-billion in new money in 2019, compared with $5.4-billion a year earlier, according to data from Morningstar Inc.”

Last week, energy giant Shell wrote down the value of its assets by roughly $22-billion. This offered hope that life, post-Covid-19, will not return to the way it was. That’s because Shell’s announcement was not just an accounting technicality, but an indication that fundamental change is underway in the entire oil and gas sector.

“In the past, we did not account accurately for risk,” says Martens. “What is becoming clear is that if you include ESG risks in your modelling, you will generate upside. It is not true that ESG investing means that you forgo results.”

Of course, it is impossible to divorce companies from their political and policy environments when assessing them on the sustainability curve.

“What about the role of government’s and regulators?” asked Haffajee.  Governments should create an enabling environment for investments that are good for society. This includes policies that enable a transition to a low-carbon economy, but also secure workers’ rights and livelihoods as the economy shifts to sustainable production, says Sankar.

Yet South Africa’s policies still promote nuclear energy and clean coals ahead of greener alternatives. 

“Policy coherence is important for long-term capital and investment,” she adds. “We monitor this closely because it is critical to making investments bankable. Also important is the ability to follow through on policy – the bidding windows on the renewable energy independent power producer procurement programme have been blocked – why can’t we unblock them?”

Asset owners – from the funds that manage money on behalf of pension funds to individual investors have a role to play in driving change.

“Everyone in the investment chain has a responsibility. If you don’t say something, it’s assumed you are happy with the status quo,” says Martens. 

National Treasury has published a draft paper for comment on “Financing a Sustainable Economy”, as a framework for financial institutions to better disclose public information on their green practices and investments. 

“They have put a lot of effort into it. Right now, there are working groups on how to turn that from policy to implementation.”  

Change is happening, but it is taking too long.

“The Climate Emergency is real. As a country, we have targets in the form of our commitments to the Paris Agreement, and these are not just ‘nice to dos’ – they are essential,” she adds.

Important work is also happening at the FSCA, South Africa’s financial markets regulator, which is working on a green finance taxonomy. This defines the specific criteria that make a project sustainable.

“We need to measure our progress in terms of our Paris commitments. This standardisation is important,” she says. “Because we don’t want to be paying lip service to this thing.”

While the Covid-19 crisis poses an existential challenge for many businesses, it does not have to hinder efforts to pursue a future path of sustainable growth. 

The panellists were unanimous that we as individuals, businesses and governments cannot allow ourselves to slip back to a status quo that ignores people and planet in pursuit of profit. DM/BM

‘Shareholders should hold investors accountable for responsible investing’

Nicole Martens, head of Africa & Middle East of international responsible investment monitor PRI, and Tarryn Sankar, listed credit head at asset manager Futuregrowth, joined Daily Maverick’s Ferial Haffajee in a webinar to discuss responsible investing and “shareholder activism”.

Sanker said asset owners need to start interrogating investors about what they are investing in and whether these investments are helping to build the sort of communities they would like to see.

Martens commented that social responsibility means not only investing in something that brings high returns but something that also has a beneficial impact on communities.

“What this [coronavirus] pandemic has taught us is the interconnectedness between human health and planet health,” said Sanker. “We also see the interconnectedness between financial and non-financial risks.”

Martens added it has become clear investors should be interested in sustainability goals because “you can’t make profits off a dead planet”.

Though “there’ll always be winners and losers” in transitioning to a greener economy, “there could be a focus on people who are dependent on the fossil-fuel industry”, continued Martens. “How do we retrain them? How do we redeploy them? Lots of private sector companies are doing research on this, on how they can pivot and still keep their workers.

“As a global community we’ve made commitments to the Paris Agreement, which is related to carbon emissions, and the longer we wait [to transition] the bigger the gap between losers and winners will be.”

But, “globally trends are changing and there’s been a massive shift in attitude. This has come with the rise of mass movements to disinvest in the fossil-fuel industry,” Martens told Haffajee.

“It’s also important to have policy regulations that are conducive to social responsibility. Sustainability goals aren’t nice to have, they’re important to have.”

If asset owners are serious about investing in companies that reflect their values, they need to start asking tough questions.

Sankar picked up the theme: “As an asset owner, reach out to your financial advisor and ask them, ‘Who’s managing my money?’ Retail investors should look at their top 10 holdings. Ask them if they have a policy on responsible investing; what does it look like. Attend investment days. It’s about showing up and owning your power.”

Being a responsible investor isn’t a one-size-fits-all strategy. “That’s not to say, because I’m a responsible investor I won’t invest in mining. It’s about educating yourself,” said Sankar.

A webinar listener wanted to know if an increase in shareholder activism was, in fact, likely, to which Sankar replied that global protests in support of the Black Lives Matter slogan felt like “a special moment” in time. “It’s become too hard to look away. We’re going to see people realising their power and using it.”

As much it would be good to see shareholders hold investors accountable about the kind of companies they invest in, Martens said she’d prefer to see “stakeholder” activism: “Because you don’t need to own shares [in a company] to use your voice.”

Martens encouraged both shareholders and stakeholders to engage with important issues and show up at local and municipal discussions on them. – Karabo Mafolo

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