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• MA: Michael Avery – TV and radio personality and Business Watch host on Business Day TV
• MG: Maxine Gray - Strategic Development, Investec Wealth & Investment
• BS: Barry Shamley - Portfolio Manager,  Investec Wealth & Investment
• AG:  Andrew Gilder - Director of Climate Legal

• 00:00 Introduction

  MA: Welcome, you're watching Climate Conversations on Business Watch with me Michael Avery as we build up to COP26 to discuss whether we're turning the tide on climate change brought to you by Investec. And so far it's been a busy few weeks, we've spoken to Minister Barbara Creecy about what the overall focus is going to be for the South African government heading into this super COP. We've debated the race to net zero and whether the science is congruent with the promises and the greenwashing and the looming climate finance fight.

  Now we turn our attention to how this is shaping responsible investing and I'm joined by Barry Shamley, Portfolio Manager at Investec Wealth and Investment, South Africa; Andrew Gilder, Director of Climate Legal, our content consultants, and Maxine Gray, Strategic Development at Investec Wealth and Investment as well.

  Maxine SDG ESG, there's just too many TLA's can you just talk us through the alphabet soup of sustainability in terms like responsible investing and impact investing because I think investors sometimes use them interchangeably, but they are quite distinct.

• 01:27 Making the right investment choices

  MG: Absolutely Michael. So for me, it's not necessarily about understanding the terms themselves as a starting point, but rather about understanding your beliefs and how your intentions can be actioned through your consumption or investment choices.

  So from an investment perspective applying this, I would say someone may want to just exclude an investment out of their portfolio because of the perceived negative impact that it may have on society or the planet, this could be achieved through something known as ethical or responsible investing.

  Or someone may have the intention to invest in companies that are actively integrating sustainability into the core of their business strategies, as well as wanting active engagement often achieved through their investment manager with those companies to guide them on this journey, that we speak about as sustainable investing.

  If we want to take it one step further however and be very intentional around the impact that we want to achieve through our capital investments, we are able to then embark on a journey of impact investing. This word impact though however, is very loaded, it is broad based, it is not standardized, and it is multifaceted.

  So for me the core comes in where we need to start with defining and understanding what impact means to us and then I'm sure we can find a term and an investment strategy that meets that. The Sustainable Development Goals are effectively 17 global challenges where we can start thinking about impact, they form a framework that is universal, and that we can use as a shared language in order to have this conversation.

  So this is around people planet prosperity, and it is a way for us to engage and educate ourselves as to what challenges we can solve, and how we can start having these impact conversations. And we understand that there's a spectrum of understanding and knowledge around this space.

  So the class of 2030 is really there to try and take people take us all on this learning journey with the class, irrespective of how far you are, how much or how little you know, it is about directly enabling and engaging with us to join this journey, and then start applying that to the choices we make through our investments as well as our consumption.

  03:47
  

  MA: I think Maxine on that point let's watch that introductory video now of your class of 2030 learning experiment with its very interesting cast of characters.

  03:59
  

  Video playing.

• 06:06 The Class of 2030 experiment

  MA: Well, I think a very unique, very innovative way of unpacking all of the issues around sustainable investing, responsible investing, and Barry, what else have you learnt from your class of 2030 learning experiment so far?

  06:21
  

  BS: I'd say the most important thing is education. So I think that was when we started off on this journey of devising an investment opportunity for our clients but realised it'd be futile without our clients actually understanding a bit more about sustainable development and the 17 goals that Maxine has alluded to.

  So for some background, these goals were born at the UN Conference for Sustainable Development in Rio in 2012 they were adopted in 2015 and they universal goals that aim to meet the urgent environmental and social challenges facing our world.

  We found that they were a perfect framework for our investment fund just because of the aims or the goals of these. So for an example, you've got SDG6 clean water and sanitation, SDG7 affordable and clean energy. And this is a great framework for us to sort of analyse with the companies we are investing in and assess whether these companies are in fact, aiding these goals, either through their revenue or their operations.

  So it could well be that a company for instance, like Vestas, which manufactures wind turbines, through its products and services is helping achieve the goal of affordable and clean energy. Or similarly, you could find another company that is not necessarily producing something that sort of achieves the goals but how they manage their operations, do they use renewable energy in their operations, are they slowly transitioning and aiming towards those net zero goals and ensuring that they effectively have maximum efficiency in their operations.

  And, you know, I mean it's the companies that we're looking at most of these companies, the quality companies are already doing things like this. It's not that you having to sort of stretch and find sort of 10% of the market a large number of companies are already incorporating these sustainability objectives in the way they manage their businesses.

• 08:30 Investment risks in developing countries

  MA: Because it just makes good strategic business sense very often to ensure that you future proof yourself from any of the risks. Now, Andrew, in a recent New York Times opinion piece, Larry Fink, the Chairman and CEO of the $10 trillion financial giant BlackRock and he's a very outspoken advocate for ESG investment argues that rich countries, the OECD plus China, per his classification should annually provide $100 billion in climate mitigation aid to developing countries certainly aligned with Paris that. And he also assess that to decarbonize developing countries need to invest about a trillion US dollars annually in new technology and infrastructure.

  And while the maths is a bit unclear, I think he means that institutional investors will be providing the remaining 900 billion US dollars, because developing country governments don't have the resources, overseas institutional investors, and many such as BlackRock are going to need to step in.

  The problem is that these investors fear political risks and the poor institutional infrastructure in developing countries. So how do we overcome or reduce the political risks that institutional investors might fear?

  09:38
  

  AG: Thanks for that Michael. Aren't those numbers staggering, I remember in 2009 looking at the Copenhagen Accord and the number 100 billion occurs in that and I kind of reread it a few times going sorry were they not, did they not make a mistake, did they not mean 100 million.

  To respond to your question there's quite a lot of learning that investors can take from the way climate finance is dispersed by development finance organizations around the world. So typically the way climate finance, public sector climate finance is dispersed. So there's two things to say about how that finance is brought to bear on mitigation and adaptation projects around the world. So the first thing is that very often those big institutional investors, so public sector institutional investors have fairly complicated auditing and governance requirements that they seek to impose on recipient countries.

  That can become quite tricky because quite often, the level to which the level of governance or the complexity of governance around those funds is a hurdle in dispersing the funds to various countries. I mean, I'll give you a simple example if one wants to apply for funding to a large institutional investor, it's quite likely that you will need a very complicated management structure and at a simple level a strong and firm internet connection to submit your applications. Well, what if you're sitting in the Gambia, maybe you don't have a firm internet connection but maybe you need it.

  11:25
  

  So the way a lot of that finance is being dispersed tries to take two parts, both of which private sector institutional investors can learn from. The first one is to cause the governance requirements to become less onerous and simultaneously to provide support and training capacity building for the recipients of the funding.

  But secondly, and this ties very nicely into the idea of governments being the recipients, and the dispersers of that funding, is you're seeing a rise of nationally bespoke climate funds under a rise of climate legislation. I mean, a simple example is both Uganda now and Kenya have national climate funds that sit within the national fiscus as a means to disperse the funds.

• 12:26 COP26 and responsible investing

  MA: And, you know, quite often a way to follow the hard work and the legwork that the DFIs have already done for private investors to then say, well, you know, if the money has flowed to these organizations, they've already been due diligence, that can potentially fit in with my framework. Now Maxine, where does COP26 fit into this whole world of responsible investing, because we're talking now beyond just climate conversations, the SDGs are extremely broad based.

  12:59
  

  MG: Absolutely Michael. To me, it starts with understanding that the challenge of climate is an exponential one and it is one that requires exponential solutions and innovations. Now innovation in the commercialization of ideas does not come from trying to do something it comes as a by-product of solving a challenge on the journey to do something is how we achieve this.

  And if I go back to when JFK declared to put a man on the moon, it was not necessarily in the act of achieving such that was a true value add to society and that really reshaped the world of business and innovation. It was really the journey to get there, the spin offs, the policy changes, the engagement, the power of the public narrative of possibility in solving this shared challenge, that really led to a lot of what was perceived to be value, irrespective of the actual event itself.

  13:57
  

  To me this is about understanding that there is a need, there are these grand challenges that we are facing, and we need a catalytic vision, we need a shared purpose we need leaders who are charismatic, who are debating and engaging with society and with the media, and then the actions that follow that.

  And potentially climate action and investing in a green economy, the engagements that happen with society, with leaders, with the media and the actions that follow from something like COP26 can potentially be our woman on the moon, and who knows what will come from that. So for me it's crucial. It's about taking the next step.

  It's about creating this shared vision. It's about creating purpose and being quite intentional about taking steps to get there in a way that is a shared solution to solving this broad-based challenge. So potentially a bit of an indirect answer there, but it's just a perspective to reshape this and see this for not the direct possibilities, but the indirect possibilities and opportunities that investors may have through being a part of this journey and investing along the way.

• 15:12 The Global Sustainable Equity Fund

  MA: Barry, you're managing the top performing equity fund in South Africa and recently launched your Global Sustainable Equity Fund, which you're also managing what was the process behind the creation of this fund? Was ESG enough?

  15:24
  

  BS: Yeah, Michael, that's a good question. We spent several months thinking about this, just going back to the sort of the spectrum of responsible investing, Maxine was chatting about earlier, in terms of that sort of alphabet soup, the sort of different silos of responsible investing. You start on the left-hand side with your sort of ethical, exclusionary investing, you move a bit to the right to your ESG or ESG integration, then sort of more than midway across you get into sustainable investing.

  And then all the way to the right, you have your impact investing, which is really the space more of venture capital, private equity, private capital. We thought we've got to marry sort of our core expertise, which is equity investing, while at the same time going as far right on that spectrum as possible and sustainable investing was as far right as we could go. And we decided on using those sustainable development goals as our framework to ensure that the companies we were investing in had that sort of net positive impact on society, either through their revenue or their operations.

  16:33
  

  I think, now that like in hindsight, I think we all starting to understand now, maybe not so much in emerging markets, but certainly in developed markets ESG is not a nice to have anymore, it's a need to have, I think it's part of your fiduciary responsibility and really, it's just a deeper framework for analysis. It's really just about understanding what risks and opportunities there are in each of those separate pillars of ESG and then pricing them into the particular company that you're looking at.

  So for us, that's not really an exclusionary mandate that's really just trying to find who are the best companies at sort of disclosing what they're doing, if they're doing the correct thing, managing the risks that are inherent in their portfolio. Like I said we wanted to take that a step further, and really look at companies that were making a difference or helping achieve those Sustainable Development Goals.

  You mentioned those big numbers, $6 trillion a year is required to meet the Sustainable Development Goals up until that target date of 2030. I think we're well behind but hopefully, with the sort of ideas like our fund we can help channel money towards some of those ideas and help achieve those goals in the medium term.

• 17:44 ESG and sustainability developments

  MA: And that really is the positive out of all of this, the fact that we're seeing capital markets so alive to the role that they have to play here in being those screens and funnels of savings and investments into these new areas.

  But you know, Andrew, to bring you in, the sceptic will say there's been an explosion of ESG and sustainability related developments around the world and it's probably only been matched by the growth of greenwashing because we see companies looking to really sanitize their environmental images. How do investors sift the dirty laundry here from the clean, so to speak?

  18:16
  

  AG: And the sceptics are right, Michael. I think the savvy investor is observing context, much more than perhaps in the past. So there's a lot of, we've seen the rise and the rise in this country in particular of a very activist green civil society driven by the 1996 constitution.

  The work of a lot of those organizations is highlighting instances where instances of greenwash I mean their mandate quite unabashedly is to name and shame organizations that are doing this. So if I'm a sensitive and a savvy investor, I'm keeping a very close eye on the targets of those kind of organizations. Who does civil society go after and why?

  19:01
  

  MA: Now, Barry, on the issue of greenwashing, there's also been an issue here of trade-offs. Is there a trade-off between responsible investing on the one hand, and performance? Can I contribute to a sustainable future and make a profit as well?

  19:19
  

  BS: We don't believe so. I mean, certainly from the research we've seen companies that embrace ESG and that think about sustainability are generally companies that are thinking about the long term. I think, unfortunately markets, investors, management have become very short term in the way they manage companies looking for sort of maximizing short term profit.

  But we find that the high-quality companies, the companies that are thinking about the long term, that are investing now ensuring they have sort of efficiency in their water usage, reducing their energy costs, reducing their emissions, those are the companies that are going to thrive and those companies that are also developing solutions for the sustainable issues that we've got going forward.

  So, you know, I think in the short term you can be certain that there will be times of underperformance of sort of quality slash sustainable names, but I think in the longer term, these are the companies that will survive. And I really would believe that these companies would do as well, maybe even better than the market as a whole, because of the quality of management and the foresight they have.

  20:22
  

  MA: And Maxine to bring you in. I mean, some might say that the healthy dose of scepticism that we're seeing is also indicative of a slightly more maturing market one that is being looked at far more closely with a bit more rigour.

• 20:22 Sustainability: it is not the what, it's the how

  MA: And Maxine to bring you in. I mean, some might say that the healthy dose of scepticism that we're seeing is also indicative of a slightly more maturing market one that is being looked at far more closely with a bit more rigour.
  

  20:37

  MG: Yes Michael, there's a nuance though in this for me, and that is that sustainability is not something that companies should do. It is how they should do everything. It is not the what, it's the how, and to me, that's key. So it's about the companies that get this and that integrate this into the core of their operations are the ones that are going to benefit over the long term, as Barry has alluded to.

  And the opportunity for investors is to capture and maximise on this growth, as we mature further, to your point, Michael. So for me, it's not about foregoing financial returns to have an impact it's about capturing financial returns that are gained from activities and from practices and the way companies are run that have a positive impact.

  So in short, we know now, we understand more than we ever have before, as Andrew has shared we have access to more information than we have ever had before. And what that gives us the opportunity to do is to make more informed assessments and choices about what our expectations are when it comes to financial return as well as impact and to be able to ask more questions and thus be able to direct our capital towards things that align with what we believe in, as well as what best practice and what as Barry has explained, is potentially sustained value over the long term.

• 22:00 Measuring and monitoring performance

  MA: Andrew, what do you see as the challenges here in actually measuring and monitoring performance in this space? I mean, what is considered good, who decides and how is that disclosure enforced?

  22:12
  

  AG: So there have been a number of metrics that have arisen over the years, and I suppose the one that is gaining a lot more traction internationally is under the TCFD or the Task Force on Climate Financial Related Disclosures. Barry made a point quite an important point I think which was that these kind of issues are part of the fiduciary responsibility of corporate governance of the Exco level of a company.

  The TCFD has developed a reporting framework that seeks to interrogate and to report on these particular issues but what we are seeing more pronouncedly in South Africa now is the likes of the JSE, for example, are coming up with guidelines around climate change related disclosure.

  The Institute of Directors has recently released a similar guideline for directors. So it may I say it's not about scrambling around for matrices or mechanisms to use to report they're there, people must use them, directors of companies must engage with these.

• 23:28 Responsible investing

  MA: Just lastly Barry if I'm looking to start investing and using my capital in a way that is going to shift the needle around the SDGs what are the things that I should be asking my financial advisor about when it comes to responsible investing?

  23:43
  

  BS: I think as a bare minimum one should be asking about the stewardship activities of your investment manager. Your company vote is a core element of your asset ownership and I think as important as your vote for a political party.

  There's still a large number of companies that have policies or resolutions that aren't aligned with local regulation or best corporate governance practice, and they continue to get away with voting these resolutions through just because of poor voting practices. I think from a sustainability point of view, I think a simple question you can ask your investment manager is if they measure the carbon intensity of the portfolio or fund you're invested in.

  If they can't answer this question, then they probably aren't taking your sustainability considerations too seriously.

  24:28
  

  MA: That was Barry Shamley, Portfolio Manager for Investec Wealth and Investment SA joined by Andrew Gilder, Director of Climate Legal our content consultants and Maxine Gray, Strategic Development at Investec Wealth and Investment SA with Climate Conversations here on Business Watch as we build up to COP26. We're discussing whether we're turning the tide on climate change, and it's brought to you by Investec.

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