Read the full transcript of the podcast

• N: Narrator
• FT: Fani Titi – Investec Group CEO
• DR: David Rubenstein – co-founder of The Carlyle Group
• MMB: Lord Mark Malloch-Brown – Investec board member and former UN deputy secretary-general
• ADB: Alain de Botton – British philosopher and The School of Life founder
• MR: Marc Romberg – National Wealth Management joint head, Investec SA
• CH: Chris Holdsworth – Chief Investment Strategist, Investec Wealth & Investment SA
• APP: Aunnie Patton Power – founder of Intelligent Impact
• LF: Leila Fourie – CEO of the Johannesburg Stock Exchange (JSE)

• Introduction

  N: A time-traveller from last year from last year might be forgiven for thinking they’d stumbled onto the set of a dystopian science fiction movie. And for good reason: not since the last world war has a single event altered our way of life so dramatically in such a short space of time.

   

  From the onset of the Covid-19 crisis, Investec Focus has been documenting this seminal moment in a series of discussions with experts in a broad range of disciplines, all of which you can listen to in full in previous episodes of Investec Focus Radio.

   

  In this series, we shine the spotlight on a specific question that runs through these discussions: will this surreal detour in human history lead to lasting changes in the way we live and work, how we think about money, or even the dynamics of global trade and the political economy?

• Fani Titi: "We have to be inclusive in terms of capitalism and growth"

  FT: I think that the moment has come where business leaders, from banks to leaders of large corporations to large multinationals, have come to accept that we have to be inclusive in terms of capitalism and growth, that the health of our workers, the health of our communities is really important as we go forward.

   

  N: That was Fani Titi, CEO of Investec, addressing a United Nations summit in mid-June.

   

  Clearly, we’ve come a long way since the laissez-faire capitalism of the 1980s, championed by economists like Milton Friedman, who argued that a business’s only obligation is to maximise shareholder returns.

   

  As issues like climate change and social inequality assume ever greater urgency, corporations have been compelled to account for the societal and environmental impact of their actions. But it’s arguably only in the past few years that these concerns have begun to extend beyond the marketing and CSR departments to the desk of the CEO, as businesses come to realise that doing good is not a perk of doing well, but rather a prerequisite to long-term survival.

   

  The Covid-19 pandemic has accelerated this trend, exposing the fault lines in society and illustrating just how far we still have to go in forging an inclusive, sustainable future for generations to come.

   

  In this third episode of our series on preparing for a post-pandemic world, we consider whether the crisis will serve as an inflection point in the way businesses perceive their role; as actors in society and inhabitants of a fragile planet.

• David Rubenstein: "We have what I call the Covid crater"

  DR: In the United States we've had about 30 million people out of work so that's produced a very economically challenging situation. 

   

  N: While none of us has been unscathed by the economic impact of the pandemic, it’s the most vulnerable that have been hardest hit, even in some of the wealthiest societies. Bloomberg TV host, philanthropist and legendary investor David Rubenstein noted that we can expect to see deepening inequality as digital acceleration leaves behind those lacking in technological skills or access.

   

  DR: Income inequality in the United States is as bad as it's been since 1920's when we had the Great Depression, but it's getting worse than even that now.

   

  We have what I call the Covid crater: those people that don't have technology resources, don't have access to the internet or work in jobs that just are not going to be essential going forward; they are going to lose their jobs or they're not going to be able to work as effectively as people like you and I can and as a result they are going to be more likely to have greater income inequality and further lack of social mobility than they ever did before, so it's not a pleasant situation.

• Fani Titi: "Business leaders need to be unequivocal about fighting for equality"

  N: Recent events have also drawn the world’s attention to the persistence of racial inequality, seen at its ugliest in the murder of George Floyd in Minneapolis in May.

   

  As the son of a black farm labourer in Apartheid South Africa, Investec CEO Fani Titi is no stranger to racism. And he believes that business can lead the charge in combatting it.

   

  FT: It is really important for business leaders to be unequivocal about the moral imperative of fighting for equality.

   

  N: At the UN Global Compact Leaders’ Summit, held in mid-June this year, Titi likened the present moment to the one that changed the course of South Africa’s history and set it on the path to democracy.

   

  FT: Forty-four years ago in South Africa, we had what we call the Soweto protests or the Soweto riots where young people stood up against a system of oppression called Apartheid. It was a fundamental revolt against discrimination and in 1994, that action, with other actions of course that had been taken, led to the dawn of democracy in South Africa.

   

  So this moment can be that moment on racism for the world, for leaders specifically to commit to make a fundamental change not just change because you have people in the streets, but really a fundamental commitment to do things differently and to make a significant contribution around racism.

• Lord Mark Malloch-Brown: "There will be a very different post-Covid business environment"

  N: But can business really play a role in alleviating age-old and seemingly intractable social ills? This question topped the agenda at this year’s World Economic Forum, which took place in Davos in February, just before Covid-19 was declared a pandemic. And the answer from business leaders was a resounding yes.

   

  A term used extensively at Davos was “stakeholder capitalism”: a reorientation of corporations to serve the interests not just of shareholders but the communities in which they operate, and indeed the planet itself.

   

  Lord Mark Malloch-Brown is a former vice chair of the World Economic Forum and also sits on the board of Investec. During a Focus Talk earlier this month he told us that the momentum evident at Davos – particularly on climate action – has only accelerated in the wake of the pandemic.

   

  MMB: We’ve seen a moment where not just the demand in society for change, but increasingly the demand of regulators, the focus on a Covid recovery which has got a lot of green incentives in it; all of these things are aligning to make for a very different post-Covid business environment, one where climate change and the policies we adopt to address it is going to be more upfront than we’ve ever seen before.

   

  N: Lord Malloch-Brown also served as a minister in the British cabinet under Gordon Brown, as Vice President of the World Bank and as deputy UN Secretary General under Kofi Annan. In this last role he was instrumental in defining and driving the Millennium Development Goals, the precursor to the United Nations Sustainable Development Goals, or SDGs, which were adopted by UN member states in 2015. These 17 interconnected goals seek by 2030 to address global challenges, including poverty, inequality and the degradation of the environment.

• Fani Titi: "You need a level of collaboration across many stakeholders"

  N: Fani Titi is one of the CEOs on the Global Investors for Sustainable Development alliance, which has been tasked by UN Secretary-General, Antonio Guterres, with finding ways to finance the inclusive, low-carbon and climate-resilient future envisioned in the SDGs. The ask is around $2.5 trillion over the next decade: an eye-watering sum, but not unachievable, says Titi, if a broad range of stakeholders are committed to working together.

   

  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.

   

  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.

• Mark Malloch-Brown: "Governments need to show they're committed to reversing climate change"

  N: Lord Malloch-Brown elaborated on this idea, talking specifically about climate action, which is encapsulated in goal number 13 of the SDGs.

   

  MMB: What really works is when you know government sets a regulatory level playing field and shows that it's committed to climate change and then the private sector marshals behind that because when it's just the private sector you have problem of free riders where you know, some companies don't make the change and at least in the short term way may get some temporary price advantage because you know, they're using cheaper dirtier manufacturing methods, for example, or you know remaining using coal as an energy source long after there are options to transition to something else.

   

  You know, but similarly, if government alone does it and the private sector doesn't align behind it you're not going to get the progress either and you need behind in lock-step with that the public we citizens to do the same in terms of our own personal behaviours. 

• Alain de Botton: "Companies are being asked to do too much"

  N: So even if businesses recognise that they have a critical role to play – even if their hearts are in the right place – they can only have a real impact as part of a wider effort by multiple actors. Here’s an extract from a July Focus Talk with British author, philosopher and founder of the School of Life, Alain de Botton. 

   

  ADB: Corporates can't in themselves try and save the world and change society.  I think part of the problem is that companies are being asked to do too much. You know, I think that a company is an institution within a society it's not the only institution. Companies are very powerful arguably too powerful, but a good society is one where people's identities exist on a number of levels.

   

  Everybody's a member of a family they're a member of a policy a polity they are also a member of a company etc. and these different groups have different value systems different goals different objectives etc. And I think that sometimes companies have very good motives, but they sometimes end up in a position of kind of overreach and they get confused about what their purpose really is.

   

  And I think they need to work with other organisations outside of their own in order to try and achieve multifaceted goals because if you are just trying to do everything within a company, you're going to have a problem.

• Alain de Botton: "We are only as safe as the weakest link in society"

  N: De Botton also stressed, however, that the Covid-19 pandemic has served as a reminder to all of us – individuals, businesses and policy makers alike – that our own welfare is ultimately tied to that of society as a whole.

   

  ADB: Well, I think you know one of the things that the virus has brought home is that we are only as safe as the weakest link in society that you know, this is a disease that you can have as much money as you want but unless your society is functioning, unless your healthcare is functioning, you know, your advantages are as nothing and so very dramatically, it's brought home a lesson in what gets called kind of communitarianism. That it's the quality of the community that matters more than the success of the individual and that we should make sure that the community is in good shape as opposed to merely the individual.

   

  N: The implication here seems to be that while the urge to act on social and environmental issues might stem from a sense of morality and empathy, the strategic rationale to do so may be based less in altruism than in the long-term self-interest of shareholders and the firm. 

• Marc Romberg: "There's a massive trend towards ESG investing"

  N: This idea is gradually coming to be reflected in financial returns and stock market valuations.

   

  Here’s Marc Romberg, joint head of Investec’s national wealth management desk in South Africa, talking about the appeal of so-called ESG investments – which consider environmental, sustainability and governance metrics alongside financial ones. 

   

  MR: I think there's no doubt that there's a massive trend towards ESG investing and particularly from your young investors. the impact that those investments have on the environment, the world as a whole are in many situations as important and that has shifted investors’ expectations and their demands from investment managers.

   

  I think investors are starting to realise that not only are those sustainable investments, you know important for them in terms of the legacy that they leave but even from a financial return perspective, you often find that those are companies that are better managed and will over time deliver better financial returns then those companies that are not sustainable.

• Chris Holdsworth: "In emerging markets, ESG stocks tend to outperform stocks that screen poorly"

  N: Romberg’s colleague Chris Holdsworth, who sits on the global committee responsible for steering Investec’s investment strategy, adds that the link between sustainability scores and financial performance tends to be stronger in emerging economies than in more developed markets.

   

  CH: We are increasingly incorporating ESG into our investment process and it's based on a number of factors some of which Marc has alluded to already but also importantly if you look at performance of stocks that screen well from an ESG perspective, in emerging markets they tend to outperform stocks that screen poorly.

   

  It's not as true in developed markets and perhaps you could argue in developed markets the regulatory framework acts as a screen by itself and so perhaps ESG screening doesn't add as much. But in an emerging market it is certainly the case that if you were to have structured your portfolio along ESG considerations for the past few years you would have materially outperformed.

   

  So you need to incorporate it because A) there is increasingly regulatory demand to incorporate it, but B) it is actually good for your clients to do so as well. And that is more than sufficient reason to get going and increasingly make sure that your investments are ESG compliant.

• Aunnie Patton Power: "There are more people around the table"

  N: Ironically, one of main drivers of stakeholder capitalism within listed companies, is shareholders themselves. That’s often because the lens of sustainability reporting can help to identify and mitigate against systemic risks. But it’s also because of a growing realisation that narrow market incentives to maximise profits and growth are simply not working – not for staff, communities, the environment, nor, ultimately, for companies themselves.

   

  APP: I have always been an optimist, and I think that in the past few months, the climate emergency that we’re in now, has become just more apparent.

   

  N: That’s Aunnie Patton Power, speaking to Focus last year. A self-described “reformed M&A investment banker,” Patton Power lectures internationally and consults on Impact Investing – a field that involves making investments into organisations that strive for a positive social or environmental impact alongside financial returns. 

   

  APP: What is exciting, and what’s interesting, is when both private and public sector institutions are saying that the way forward, is for us to create functioning societies; because A) I mean, totally self-servingly, right? We don’t want mass-migration, of people into our countries, we don’t want to have to change everything about how we farm and we want to be able to like live the lives we want to live, and so from a self-serving perspective, we need to figure this out.

   

  And so I think what I see, the thing that’s positive, is there’s more people around the table, there’s more people asking how you do this, you have life insurance companies that are coming and saying, listen, we need to figure this out, if we don’t figure out droughts, if we don’t figure out the flooding, we actually can’t sell these insurance policies to farmers, and then a huge chunk of our business goes away; or re-insure, saying, listen, our models don’t actually work with once in a hundred year events, happening three times in a year; like that doesn’t work for us.

• Aunnie Patton Power: "How do we incentivise companies to behave sustainably?"

  N: The institutions Patton Power is referring to are investment institutions – pension funds, investment banks, hedge funds and the like – who collectively control a large proportion of the money flowing in and out of capital markets.

   

  APP: We have trillions of dollars in the world, that creates motivations, for individuals, for companies, for governments, and so aligning those motivations, to try and optimise for social and environmental impact, means that we are going to have to make choices, that are not necessarily trade-offs, but we are going to have to think about, how do we incentivise companies to actually behave in a sustainable manner.

   

  So when companies are told by their shareholders, that the only thing we want you to do, is to maximise your earnings, quarter-on-quarter, it becomes impossible for us to think about other things. And so there is.. Unilever is a great example here, Paul Polman, the CEO of Unilever, stopped doing quarterly reporting, he said, this is not how I want to run my business. He’s been ousted since, but in that time, Unilever beat every one of its peers, and all the benchmarks, in the time that he ran the company. 

   

  And so I think that one of the things that it’s important for us to switch to is, what does it mean to have sustainable growth? It means to invest in sustainable companies, that are operating sustainable practices, that take into account, shareholders and stakeholders; and that, in the long term, should be a good pay-off, over the long term.

   

• Leila Fourie: "Gender parity needs to be explicitly measured and disclosed"

  N: There are, of course, other incentives for companies to chase targets not traditionally mentioned in quarterly earnings calls.

   

  Leila Fourie, CEO of the JSE, Africa’s largest stock exchange, noted that companies’ ability to attract talent is directly correlated with their commitment to addressing issues like gender equality, and indeed any other issues that a new generation of professionals consider ethically important.

   

  LF: 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.

   

  N: Which is not to say that the ancillary benefits of doing the right thing should ever overshadow the intrinsic value of the goal. Fourie, who sits on the UN’s Global Investors for Sustainable Development alongside Fani Titi, insists that companies have to be sincere about issues like gender pay parity, setting measurable and transparent targets, and openly challenging others to do the same.

   

  LF: This is a real problem and it's endemic across the world… The World Economic Forum predicts that it will take more than 250 years based on the rate of change that we've seen over the last decade or two for that gender pay gap to narrow and particularly emerging markets like South Africa it's a genuine problem. And so, I think we as leaders need to use our voices to demonstrate and to shift that narrative.

   

  I think that what needs to happen is that it needs to be more explicitly measured across both listed and unlisted entities and it needs to be publicly disclosed. And only when those numbers are explicit and in the public domain, I think will we start to see action being taken.

• Alain de Botton: "Corporate sustainability efforts have to be authentic"

  N: And, as Alain de Botton points out, tackling issues that matter need not involve grand ambitions to solve the world’s problems, because in most instances it simply isn’t in a company’s remit to do so. Companies should focus on the areas where they can realistically have an impact on improving people’s lives.

   

  ADB: It's got to be authentic otherwise it would just be form over substance… not some sentimental guff about you know, stopping the icebergs melting because most corporates are not involved in that. It's you know probably a very specific thing, you know we help people to park their cars more efficiently in large parking places. It doesn't need to be saving the world something can be meaningful and not be connected up to the highest possible goals.

• Leila Fourie: "It's the softer issues companies should be looking at"

  N: An example Fourie cites, again on gender equality, is the seemingly small things that companies can do, or indeed will naturally be inclined to do, if they are sincere about the issues they claim to care about.

   

  LF: It's the softer issues. It's about ensuring that meetings aren't held after hours or at very early times when mothers might be taking their children to school. It's about forgiveness when children are sick and just in giving them a little bit more slack.

   

• Conclusion

  N: And as we grapple with the crushing hardships that the Covid-19 has inflicted on so many lives and livelihoods, we can take some comfort from signs that business leaders are more conscious now than ever of their role – and their obligations – in our collective effort to build a brighter future.

   

  In the next episode of this series on preparing for a post-pandemic world, we’ll cast a gaze across the global economic landscape to see how Covid-19 has accelerated shifts in political power structures, globalisation and patterns of international trade.

   

  For this, or previous episodes, or to listen to the complete interviews with any of the people featured on today’s podcast, please subscribe to Investec Focus Radio wherever you get your podcasts. And if you’re enjoying the content, please take a moment to rate us.

   

  Thanks for listening.

• Disclaimer

  Focus and its related content is for informational purposes only. The opinions featured on the site are not to be considered as the opinions of Investec and do not constitute financial or other advice. The information presented is subject to completion, revision, verification and amendment.