Just how deep is the support of South Africa’s asset managers for a transition away from fossil fuels to a safer global economy? It seems even those who are feted for being ahead of the curve, are not yet where we need to be in the face of an accelerating crisis. 

As we write this, the world is learning of the awful impacts of Storm Daniel in Libya. More than 10,000 people are reported dead following the collapse of dams near the city of Derna. Climate scientists have little doubt that Storm Daniel’s intensity was accelerated by climate change. This tragedy provides a textbook example of the fossil fuel resource curse — a high unemployment petrostate with an authoritarian government that collapsed into civil war, repeated foreign military interventions and civic fragmentation is now experiencing some of the worst possible effects of the compounding multiple vulnerabilities that attend excessive dependence on and use of fossil fuels.

It shows yet again how allowing these demonstrably amoral industries any expanded influence in our economy and politics — as the resurgent fossil gas lobby seeks to do — would be an unmitigated disaster even without climate change.

The draft declaration of the recent Africa Climate Summit in Nairobi clearly states that the world is far from being on track to staying within the Paris Agreement’s 1.5°C limit, which requires that global emissions be cut in this decade by 45%.

The summit also pointed to the fact that Africa is warming faster than the rest of the world and faces disproportionate climate burdens and risks which have massive humanitarian consequences, economic harms and risks around peace and security, and more.

The summit noted, “Global renewable energy investments need to almost triple, from an average of just below USD 300-billion annually in 2013-2018 to almost USD 800-billion annually to keep the rise in global temperatures within the 1.5°C objective set under the Paris Climate Change Agreement by 2050.” 

Yet, though SA asset managers have of late begun to make grudging moves towards ESG investment (environmental, social and governance investment — which too often falls far short of being significant climate action), and have invested substantially in local renewable energy, they have not taken the equally vital step of expelling fossil fuels from their portfolios.

Fossil-free investments

In fact, South African asset managers continue to be far too invested in the fossil fuel economy: Every cent that is invested in companies like Sasol, Exxaro, Thungela and their global counterparts is money that is lost to the most urgent transition in human history. It’s also money that is increasingly exposed to risks of asset stranding and climate litigation.

The organisation we represent, Fossil Free South Africa, is building a movement — our #InvestFossilFree campaign — of South African citizen investors who do not want their savings invested in the fossil fuel economy and want to invest in a just transition to a stable climate. These investors want the option of fossil-free investments from their asset managers. There is an opportunity for leadership among SA’s bigger asset managers here.

To date, we have seen the most support for this movement from clients of Allan Gray and Old Mutual. Allan Gray refuses to talk to us (despite us having the support of dozens of its clients for such engagement), so for now, we’re seeking engagement with Old Mutual, Sanlam and others. We are glad that Old Mutual has agreed to meet with us soon and Sanlam is currently engaging with us too.

Asset managers protest that divestment in South Africa’s narrowing equities market leaves portfolios under-diversified and threatens returns. However, the evidence from index builders and the two-year track record of one of SA’s most significantly fossil-free funds, the Select BCI ESG Equity Fund, strongly suggests that divested funds can perform well in South Africa. Asset managers may be primarily concerned about financial returns — but the feedback we get from many citizen investors is that they’re willing to sacrifice some short-term returns in exchange for greater long-term climate stability — although the evidence suggests no such sacrifice will be necessary.

We appreciate the release earlier this year of Old Mutual’s responsible investment report, which helps to clarify the progress the company has made — and has not made — towards meeting its profound responsibility of serving clients in one of the world’s most climate-vulnerable regions. But we have to point out that:

• Old Mutual’s overall approach to climate issues does not reflect the urgency of our current circumstances — a rapidly deepening climate emergency and an ever-more destructive fossil fuel industry that is now less, not more, committed to transition. Its largely incremental approach to climate risk is not an adequate response to a crisis that threatens an asset manager’s core business of helping build secure futures for their clients.
• The report makes reference to the rise of greenwashing and the need to avoid it. However, the report also aims to give the impression that Old Mutual’s overall response to the climate emergency is adequate. To the informed, it does not describe an adequate response. The report is therefore, we hope inadvertently, dangerously close to being greenwashing itself.
• The report states that the current implied temperature rise of Old Mutual’s South African listed equity investments is at 3.4°C. That means that the carbon emissions of Old Mutual’s local portfolio would contribute to a global temperature rise which is far above the Paris Agreement’s 1.5°C or even 2°C limit (a limit that has been set to keep the world from catastrophic consequences of global heating and climate crisis).
• This excessive carbon exposure has been squarely blamed on the resource-intensive economy of South Africa and the post-pandemic market recovery, rather than acknowledging this carbon intensity as a consequence of Old Mutual’s own choices for its portfolio.
• Despite a welcome commitment to new coal exclusion in Old Mutual’s portfolios, there has been an increase rather than a decrease in thermal coal exposure.
• Old Mutual has committed to the Net Zero Asset Managers initiative. But as the just-issued African People’s Climate and Development Declaration notes, “[Net zero targets are] distractions from immediate, transformative actions to Real Zero emissions and real solutions to the climate crisis. The Net-zero framing promotes business-as-usual through offsets and dangerous assumptions that non-existing, risky technologies will somehow come to rescue in the future.” The net zero framing all too often depends on carbon removal and offsetting; and reliance on targets that are so long-term as to make it impossible to hold current management in carbon-intensive sectors fully accountable.
• Old Mutual’s report appears to skirt around the issue of fossil gas — which is not a transition fuel, as is so often claimed — and must, like coal, be left in the ground.

It is encouraging to see that Old Mutual has increased its shareholder engagement with parties such as Sasol towards decarbonisation. While we consider engagement useful in some respects (and have engaged with Thungela and Exxaro this year), fossil fuel companies are increasingly using small strategic investments in decarbonisation to conceal an overall lack of progress, or even reversing their climate commitments, despite massive engagement from asset managers. 

Fossil fuel companies become more radicalised

Nothing about our own engagements with Thungela and Exxaro gave us any confidence that they truly grasp the full dimensions of the climate challenge, much less seek to transform themselves in time to meet it.

Sasol has a particularly high bar to clear in demonstrating it is now serious about climate change. Its continued lobbying against emissions regulations, multiple past failures to meet targets and failure to set meaningful short-term decarbonisation targets do not offer any confidence.

Fossil fuel companies have in a sense become more radicalised by the climate crisis. Although there are one or two instances in which they have undertaken genuine transitions, most, it seems, are now staffed by people who either don’t want to know about or don’t care about climate change. We regularly reach out to these companies — and are mostly ignored, rebuffed or fobbed off with boilerplate greenwash.

We suspect that most people who understand and take the crisis seriously no longer want to work for these companies. Engagement has rarely if ever succeeded in persuading companies to change their core business model — which is what is required. Lack of success in engagement has also driven institutions such as the Church of England, the pension fund of ING Bank and others to ramp up exclusions in fossil fuels or divest from it entirely.

Partial divestment would strongly signal that the current transition strategies of fossil fuel companies are inadequate while preserving some scope for engagement.

We have focused on Old Mutual in this analysis, but it is, if anything, still ahead of many of its peers, who should equally be held to account by investors.

We believe that if asset managers like Old Mutual were to now create a deep green fund (divesting from fossils and reinvesting in sustainability in a way that does not just meet but exceeds the requirements of the Paris climate agreement), it would be a very important milestone in the quest for decarbonised investments in SA. It’s a milestone for which we, and many of their clients, will continue to campaign. DM