Financing sustainable development
24 Feb 2020
Digital content specialist, Investec
An additional $2.5 trillion is required per annum to finance the inclusive, low-carbon and climate-resilient future envisioned by the UN’s Sustainable Development Goals (SDGs). Investec’s Fani Titi and the JSE’s Dr Leila Fourie are two of 30 global CEOs tasked by the UN to find this funding.
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Fani and Leila are the only South African CEOs in this group. At a recent Focus Talk, they spoke to Investec’s Head of Group Sustainability, Tanya Dos Santos, about what this role means to them, and why this alliance is so critical for the future of our planet.
Listen to the full discussion
Fani Titi and Leila Fourie on taking sustainability seriously, accelerating the speed at which we tackle the SDGs and climate change, and our commitment to not leaving anybody behind.
Read the full transcript of the podcast
TDS: Tanya dos Santos
LF: Leila Fourie
FT: Fani Titi
Why Leila took up the sustainability challenge
TDS: Leila, Fani always says that ladies first so I’m going to start with you. You’ve recently taken up this role as CEO of the JSE following in big, big steps as well, and at the same time you’ve moved countries and you’ve taken on this commitment to not only being one of the CEO’s on the UN's Global Investors for Sustainable Development (GISD) alliance, but you are actually a Co-Chair. How on earth have you taken that on and why? Why did the JSE see it as being important? Why did you personally see that as an important thing to do?
LF: Well Tanya, indeed it was a pretty interesting start because I joined on the 1st of October and on the 16th of October was the first GISD meeting in New York where I accompanied Fani, and I think I would take probably a personal and a commercial lens on this.
So on the personal side, I very much relate to the millennials where your value system needs to resonate with the company for which you work, and my personal value system is very much that I spend as much of my personal time when I am not working in the bush, in mountains, climbing and mountaineering and so combating climate change is a profoundly important value system for me.
In addition to that, social issues also play a very big role in my value system. So, there’s a personal component that resonates.
I think if we take a commercial lens on this, just like technology, people always tend to over-estimate the impact of climate change and social issues in the short-term and under-estimate it in the long term. And I think that we’ve seen a hockey stick reaction and attraction and focus on issues of climate and general, Environmental, Social, and Governance (ESG) and sustainability.
And so, the JSE has always placed a very high priority on sustainability. When I was involved with the JSE between 2002 and 2004 when I was consulting to them, we launched our first sustainable index and we were the first exchange in the world to do so.
So, this has been a very important part of who we are and in the recent past it has become a very important commercial driver for financial flows and particularly for the JSE. So it’s a great privilege and I feel very humbled, but what is particularly exciting is that as a female in an emerging market, it’s really a privilege to be able to represent other very senior CEO’s on the global stage and to co-chair that initiative.
And it’s certainly put South Africa on the map and I’m very grateful to have a committed partner in Fani, and we working very closely together on our national agenda and also on how we influence and use our influence and our convening power that our roles give us to further the sustainability agenda.
What is the sustainability agenda?
TDS: Can you explain just what that sustainability agenda is?
LF: So, the sustainability agenda is really an - and you’ll hear the ESG components loosely referenced and that’s really about the environment, the social agenda and the governance agenda. There are 17 sustainable development goals or SDG’s and these all centre on those three components. Things like alleviating or removing poverty completely, things like focussing on inequity and imbalance and social inequality.
Given that our country has the highest Gini coefficient, one of the highest Gini coefficients in the world, this is a very important and very relevant component for us. And so it’s really common sense and things that we should have been focussing on all along, and in pockets you had people with conscience, people who took to heart the types of values and the types of objectives that the SDG’s embrace. But I think it’s only recently, probably in the last three to five years, that this has taken a much more front and centre role in both political and commercial leadership areas of focus.
Why Fani took up the sustainability challenge
TDS: Fani, it’s your turn now. I came to you about 10 months ago with this and at the time you were deep into de-merger details and at the time I really didn’t think it was the right thing for you to be doing. I thought you had enough to focus on, but it clearly wasn’t up for me to decide. You grabbed it with two hands and said yes immediately, why? Why was it so important for you and for Investec for you to take up this role?
FT: Most people who know Investec will always know that we talk about living in society and not off society. Our goal has always been to support the societies in which we live, to support our clients and through their businesses our clients would lead to develop an activity within the societies in which they do business. So, it is fundamentally important commercially to us to see progress in society because that way we are able to sustain our business.
At a personal level, having lived in a shack not more than 30 or so years ago, it really is important that we as a business take very centrally the issue of sustainable development.
So, at Investec it is core to who we are, core to our philosophies and values, and core to our commercial success. So, both commercially and personally this is what is particularly important to us.
When the founders started the business some four decades ago, they always put the interests of clients, the interests of society at heart, so for us it may be something that looks fashionable today but it’s been part of us throughout our existence.
Solving climate change in a coal-dependent country
TDS: So, I’m going to take you in some deeper water here Fani.
FT: Let’s go there.
TDS: Well you know the goals are ambitious. We both know, we all know that they are very ambitious. You know to solve for poverty, hunger, unemployment, inequality is no simple task and here we are sitting in South Africa where solving for those problems is immense. It needs immense thought and creativity in order to for us to actually have solutions. But at the same time, we have to solve for climate.
What gives, somethings got to give? Ninety percent of our economy is driven by coal and energy drives growth. For me SDG 6 on water and SDG 7 on energy are the two critical goals for us to get right in South Africa to truly get the employment, the poverty, the no hunger right. How do we go about tackling climate change when we are not even able to tackle some of the other stuff?
FT: I think the way we look at the 17 SDG’s is that they are interconnected. If you talk about climate change, it affects economic growth, it affects our ability as an example in South Africa to be successful agriculturally. So, we look at them as interconnected but from a corporate perspective we have decided to choose 6 SDG’s and focus on them.
Education being one of them, you’ve talked about the provision of water, you cannot attack one without influencing the achievement on another, so we encourage corporates to focus on those SDG’s that are most relevant to them.
The estimates are that over the next 10 years or so, the need for investment in sustainability is at about $2.5 trillion, so the challenge is particularly significant. That’s why we’ve got to look at innovative ways in which we can bring capital to bear, bring skills to bear on trying to deal with these SDGs.
The Secretary General of the UN, His Excellency Mr Guterres, thought that bringing together a group of leading CEOs from across the world and bestowing them with the convening power of the United Nations that they would be able to catalyse to bring capital and to also bring skills to bear on the challenge.
So, the challenge is massive, time is limited, but the SDGs are inter-related. As an example, in South Africa while inequality is a big issue, while economic growth and issues of energy are pretty primary, we can see though the impact of climate change.
In the Eastern Cape we have seen significant droughts, in the Western Cape in recent times we have seen significant droughts, in Kwa-Zulu Natal we have seen significant storms that impacted communities in a great way. So, while climate change may not seem to be at the top end of our agenda, it remains an issue that affects us on a day-to-day basis.
As Leila said, sometimes in the short term we do not quite appreciate the impact of the risks and the dangers that face the earth, but in the long term, these issues are particularly real.
The JSE’s role in facilitating funding for the SDGs
TDS: I guess that’s the challenge, balancing the short-term focus with that long-term vision. Leila, the JSE has done a lot for sustainability over the years. They launched the first sustainability index back in 2004. They’ve also launched green bonds and I believe you are looking at blue bonds. What is the role of the JSE in terms of opening up the market for sustainable development?
LF: So, I think the JSE’s role is - there are two key areas. The first is on governance and the second is on stimulating the market and ensuring that we are able to capture and provide products that enable sustainable investment.
It’s estimated that around 35% of assets are being directed towards sustainable investments. Most of the people in the room I am sure would have heard about the largest asset manager in the world, Black Rock and Larry Fink who is the CEO, in his letter quite recently, very unambiguously, indicating the importance of sustainable development.
We saw Goldman Sachs recently saying that they won’t be arranging any listings if there are no females on boards. So, I think very rapidly what we are seeing in terms of the capital formation and flows of funds, is that sustainable development is becoming a genuine and very real magnet or attraction.
So, it’s our role to ensure that we unlock that new flow of capital and that we become potentially global leaders particularly in so far as the emerging markets go.
Social bonds and sustainable bonds are really debt-funded instruments that enable social project funding. We are also working on a social-impact bond and if we get this right that will be the first in the world to be listed.
There are impact bonds that are listed, that are funded in the private space, and effectively what an impact bond does is that the terms and conditions are linked to the impact to the economy or to the impact to the social environment rather than just simple objectives.
And so, it will be about how many people did you reach in building schools in certain rural areas for example. So, there will be a quantifiable impact that is defined as a target.
So, we are also very heavily focussed in the sustainable investment indices in fact, and I know that the purists would probably cringe at this, but our social responsibility index with FTSE has outperformed our two benchmark indices over the last three years.
Now those indices are compiled differently and so it’s different to compare mathematically appropriately, but nonetheless I think it’s really important to realise that there is economic benefit that is flowing from these sorts of listings.
In so far as the governance goes, the JSE has been a global leader around transparency relating to sustainable goals. We introduced a number of measures whereby boards were required to disclose gender and race equality on boards, they are also required to disclose remuneration policies.
Where this might head in the future, and particularly in our role in chairing the GISD, is to use our convening power to engage with other exchanges and ensure that we have a globally equivalent approach to transparency, to measuring sustainability, so that you avoid what the so-called "green washing" or companies who are reporting that they are sustainable but when you actually dig deep into exactly what it is that they are doing, it is very far from sustainable.
So, there is a role that we have to play to ensure that the governance and transparency drives a consciousness, it drives measurement and therefore it drives action. And that would be in both the climate- related areas as well as the social areas, so for example gender pay parity, for example the Gini coefficient between the least paid and the highest paid employee in an organisation.
So, ultimately our role in summary is really about creating innovative and relevant products which allow investment into social or climate- related or sustainable development products and creating governance standards that keep our corporates honest, that keep our corporates transparent and open.
Accelerating change around gender parity
TDS: So, you mentioned gender a couple of times. The recent World Economic Forum Gender Gap Report came out with quite a sobering message. It said that neither this nor the next generation of women are likely to experience gender parity in their lifetime. How do we fix that, what do we need to do? It’s got to be more than just a reporting requirement. What do we do, especially if you think that is only in the listed space. How do we really accelerate action around gender parity?
LF: So, the stats indicate that if you extrapolate the difference between what men are paid and what women are paid that it will take between 200 and 250 years to close the gap. Now that is assuming that the past trajectory is, you know, if you are driving looking in the rear-view mirror that what you see in the rear-view mirror is indeed what is coming ahead of you.
I would argue that the future is definitely female and that in the same way that you are seeing a much stronger consciousness on climate change, equally you are seeing a focus on gender parity.
Interestingly, having been in Australia for three years and moved back, I think that as a country we are way ahead of many of our global peers, and particularly in the developed world, in empowering women and appointing women to senior roles.
Are we where we need to be? If we look at the number of females in CEO roles, less than five on the JSE, in fact a lot less than five, I think we have a long way to go. Unfortunately, there is a conscious bias that people enact in their succession planning, in how they promote people and people tend to hire in their likeness, consciously or un-consciously.
And so, until we get more senior women on boards and in CEO roles, you are not going to see that transformation happening. It’s an unfortunate thing that gender pay parity is as severe as it is, but I believe the transparency will be an important trigger because there is a strong social consciousness in both the customers as well as employees.
And those companies who demonstrate that they are taking pay parity by way of example, or gender equality or general equality seriously, will attract top talent and particularly in the future of the economy which is in the millennial phase.
So, millennials will not be attracted to work for a company that doesn’t resonate with their value system. So, I do think for the future workforce it’s an important value to project and to be transparent about.
What’s slowing down the funding of the SDGs?
TDS: And we seeing that very result here at Investec so we agree with you on that. Fani, the very existence of the GISD means that there is either a lack of funding, or that there is a lack of interest or appetite from investors, or there’s a lack of viable projects. What is it? We know what the opportunities are, we know what the need is, why is this not happening?
FT: Look, I think the risk around climate change has always been on the horizon but the urgency around it is now at our door. As Richard [Wainwright] indicated at the World Economic Forum, issues of sustainability ranked particularly high on the agenda so there has been a lack of urgency around these issues of sustainability.
There has been a lack of action on behalf of governments, on behalf of corporates, but as we were at Davos this year, there was a level of interest and commitment that has not been seen in quite a long time in matters around sustainability.
Shareholders and asset owners are showing significant interest in this area. In fact, as we go forward the commercial opportunity around investing in sustainability will really drive a lot of progress with respect to capital coming into these areas.
Obviously there needs to be a level of facilitation for capital to move into sustainable projects.
As you will know at Investec, we are in the process, for instance, of launching an equity fund that would look to invest in renewable projects - creating a level of liquidity for developers and bringing capital from developed markets specifically through instruments that are tradeable on the stock exchanges.
So those types of innovative solutions to attract more capital to create instruments that allow collective investments schemes to be able to invest and also allow capital to move into development projects.
I think these are all the things that are required to speed up the process of execution around sustainable development projects. I think for the larger funds like PIMCO, like CalPERS, like for instance the State Employment Fund of Japan, for them they would seek much larger projects.
As an example when we were in Davos, we were talking about investment in renewable energy, the scale of investment for some of the larger funds required that there be more significant funds. So I think that as the interest and the commitment to speed up investment in sustainable development grows, you will see both from the availability of capital, to the creation of instruments that allow that capital to be deployed in particular in projects. In emerging markets you will see that flow happen at a higher rate, but there is a need though to speed up investment in these types of projects.
Global collaboration required
TDS: And of course, you need the enabling environment so there is a lot of collaboration across many parties.
FT: As the Secretary General of the United Nations likes to say: to attack the biggest problems in the world, you need a level of collaboration across many stakeholders. You need governments for instance to be urgent in their policy formation.
In South Africa, if our energy policy formulation and implementation had been much more urgent, we would have been able to invest more in renewable energy. We have now a new integrated policy around energy that will allow, as an example, large corporates to invest in their own generation that will allow more urgent investment in renewables.
For instance, if you get policy makers, you get the financial players like banks, insurance companies, asset managers and you have developers co-operating. I think that collaboration will lead to much more progress and of course you also do need civil society to be active.
We all know about Greta Thunberg, we all know about the millennials and the kind of urgency that they have around climate change, so we all need to collaborate around the delivery of the sustainable development goals.
The GISD working group in South Africa
TDS: Ja, the youth have a very critical role to play in all of this. So last question for you Leila then I think we will open it up to the floor. Next week, Investec and the JSE are hosting the United Nations and a number of representatives from the 30 banks around the world are coming to both our offices and spending two days workshopping. What is that all about, what are they hoping to achieve from that?
LF: So basically, the GISD working groups are centred around three key goals and these goals are all really focussed on addressing governance, addressing social issues and addressing the environmental issues.
The idea is not necessarily to create new projects but really to coalesce and to ensure that funding is funnelled quicker and more appropriately to where it is needed.
So the idea ultimately is to ensure that all of these participants who are represented by the largest asset managers, the largest banks across the world, manufacturers, insurance companies, are working together to unlock the funding that is required to achieve the GISD goals, the SDG goals.
TDS: Thank you Fani. Thank you, Leila. I think it’s clearly time to stop talking and start doing. They are talking about this being the decade of action and I think that’s truly what the GISD is all about, it’s about really mobilising swift action and starting to see results, starting to see tangible impacts.
And of course, it comes back to that very important point you made Fani about collaboration across all stakeholders and the most important thing is we all have a role to play. It doesn’t matter what business you’re in, it doesn’t matter what area you are in, it doesn’t matter who you are, how high up you are or how low you are, everyone has a role to play. So, thank you for your participation.
About the author
Lead digital content producer
Ingrid Booth is a consumer magazine journalist who made the successful transition to corporate PR and back into digital publishing. As part of Investec's Brand Centre digital content team, her role entails coordinating and producing multi-media content from across the Group for Investec's publishing platform, Focus.
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