By Gontse Tsatsi, Head of Retail Client Management at Old Mutual Investment Group
For an asset manager that invests responsibly with the sustainability of our future at the centre of every investment decision, there is great alignment with the theme for 2022’s Earth Day, which is “Invest in our planet”. The theme focuses on Climate and Environmental Literacy, Ending Plastic Pollution, Conservation and Restoration, Food and Environment and Acting on Climate Change.
With over 1 billion people mobilised for action every Earth Day across 190 countries according to earthday.org, how often is the conversation had about using the power of retail investments to bring about change?
Of course, the Earth Day focus areas are worthy and deserve every minute for people to reflect and act on them. However, the fact that Responsible Investing is not listed as a focus area is a major missed opportunity.
Responsible Investing is rooted in an understanding that how we invest today determines the quality of our future. Simply put, if we continue to invest in unsustainable companies that erode public trust, pollute the environment and perpetuate inequality, we should accept that this is the kind of future we will bestow on our children.
The surprising thing though is that this exclusion is not for lack of interest. Responsible Investing, which incorporates Environmental, Social and Governance (ESG) factors in investment decisions, is an investment theme that is now moving from the periphery to the mainstream, according to Bloomberg. In 2021, assets under management in responsible investing portfolios reached $35trillion due to heightened concerns about climate change, environmental degradation, and other social issues.
In South Africa, the market for retail ESG funds is still in an infancy stage, with only a handful of funds on offer, however, we expect this to grow steadily over the medium term. Indeed, in Old Mutual Unit Trusts’ own client survey there was a distinct interest in investing in ESG products for those 35 years and under. This is also proven by new investments into our ESG funds being relatively higher from millennial and generation-Z clients.
Old Mutual Unit Trusts launched the first retail-focused ESG index funds in 2018, followed by the actively managed ESG Equity Fund in 2020 which remain the only ESG fund focusing on South African companies with good ESG scores at 31 March 2022. The fund’s investment mandate is to invest in instruments included in the FTSE/JSE Capped Shareholder Weighted All Share Index. The fund primarily gains exposure to equity securities with a superior Environmental, Social and Governance (ESG) score, targeting a significantly lower carbon footprint and a higher ESG profile relative to the benchmark.
We currently manage six responsible investment funds available to retail investors; these are the Old Mutual MSCI World ESG Index Feeder Fund, Old Mutual MSCI Emerging Markets ESG Index Feeder Fund, Old Mutual ESG Equity Fund, Old Mutual Albaraka Balanced Fund, Old Mutual Albaraka Equity Fund, and Old Mutual Albaraka Income Fund.
In 2021, Old Mutual collaborated with MSCI, a global leader in investment research, to get all Old Mutual Unit Trust Funds listed on the Old Mutual Wealth platform rated from ESG perspective. The platform became the first in South Africa to provide and publish an ESG rating for all the listed funds, thereby informing and enabling investors to invest with purpose.
MSCI ESG Research provides ESG Fund Ratings on a scale of AAA (leader) to CCC (laggard), according to exposure of the underlying assets held to industry specific ESG risks and the ability to manage those risks relative to peers.
In an ESG Asset Manager Survey recently published by 27four Investment Managers, Old Mutual Investment Group was named in the top three asset managers as measured on Policy, Resources and Governance; ESG implementation; Active stewardship; Transparency and disclosure, and Climate change. The survey was open to South African-domiciled asset managers who manage South African listed equity mandates of at least R100 million.
Controlling the purse to create impact or encourage those in power to act responsibly must surely be one of the most effective ways to bring about change. If you don’t believe me, look at the placing of sanctions on governments when they are not abiding by international law or norms.
There is relatively more information on Responsible Investing directed at institutional investors than individual investors, yet those institutional assets are made up of individual investments, whether it be in the form of retirement funds, insurance, risk etc.
Individuals are the ones who are at the coalface. They live with the consequences of environmental degradation, social unrest and poor governance. Indeed, the recent extreme weather patterns, senseless conflicts and wars, pandemics – all have human faces. We relate to people losing loved ones to disease or conflict because we know the gap it leaves. We are touched by stories of failing businesses not because we liked their logos, but because we empathise with the people in the organisation.
Over the years, Old Mutual Unit Trusts has run various educational campaigns to highlight the power that investors have in their hands, to bring about change and create a better world for future generations.