While investment managers have come a long way in the past decade in recognising the importance of environmental, social and governance (ESG) factors in investing, worldwide geopolitical and financial shocks have slowed progress in this regard, according to the latest annual Nedgroup Investments Responsible Investment Report
David Levinson, head of responsible investment at Nedgroup Investments, says that 2022 has been a complex year for responsible investing (RI) as the world tried to deal with the effects of the Covid pandemic as well as newer shocks such as the conflict in the Ukraine and subsequent energy shocks – all of which have had an impact on how companies approach RI and ESG.
“ESG has come under the microscope in a big way this year and our report shows that while it is definitely top of mind for key players in the asset management industry, global forces have certainly impacted the progress made in certain aspects of the RI agenda,” he says.
Locally, the droughts in the Eastern Cape and flooding in Kwa-Zulu Natal brought home the immediate effects of climate change and the realisation that the environmental crisis is indeed a social one, too. Levinson explains that as global prices for gas, oil and coal soared, funds with the ESG label that exclude fossil fuel exposure have underperformed by some margin. “Although a rather over-simplification, as no two approaches to ESG are the same, this has bolstered the platform of ESG’s most vocal critics.”
The survey, now in its third year, canvasses the asset management industry of South Africa alongside its global partners on the extent to which ESG factors play a role in their investment decisions.
According to the data, 86% of fund managers disclose their AGM voting results to investors and the public, up from 78% in 2021.
Impressively, 96% of fund managers interact with boards and executive leadership teams in an attempt to influence the company’s management of ESG factors, and a further 69% specifically look to address people diversity issues – however, only 52% of those surveyed have an engagement policy in place.
“This is an encouraging indication that transparency in the industry is being driven from the top, but there is still a need for a more structured and consistent approach,” says Levinson.
It’s also clear that the past year has brought the human and social risks to the forefront for many asset managers. Two-thirds (66%) of managers surveyed identified human or labour rights risks to their portfolios – such as labour rights in mining, human rights risk in supply chain and unsettled labour and union strikes, among many others.
Levinson says RI can and should also be applied across passive investments (those fracking indices, which do not involve active investment decisions). The report states: “While passive asset managers do not have a say in the weights assigned to certain investments – they can still contribute to the discourse on how invested capital can be used sustainably in the long run.”
For more details on the survey results, you can download the full report here.
PERSONAL FINANCE