SA financial services firms face an increasingly difficult Catch-22: how to deliver investment returns while fostering economic growth and taking proactive steps to mitigate climate change.
Achieving that seemingly impossible balancing act just became that much harder due to the latest report by the UN Intergovernmental Panel on Climate Change (IPCC) that has been described as a “code red” warning for humanity.
The IPCC’s sixth climate change assessment since 1990 says the global reliance on fossil fuels is causing the earth’s surface temperature to rise at a faster pace than at any other time in the past 2,000 years.
With the COP26 climate summit less than three months away, the report is likely to put further pressure on governments and the private sector to take more meaningful steps to tackle climate change. But while SA banks and asset managers are already coming under increasing scrutiny over their role in financing carbon-intensive projects such as coal mines and gas pipelines, their options may be far more limited than their counterparts in the industrialised world.
“Climate change is very real and needs to be integrated into action plans. However, at the same time one can’t lose sight of the fact that SA’s economic situation continues to deteriorate,” says Chris Logan, a shareholder activist and chief investment officer at Opportune Investments.
“We cannot afford to end up in a Catch-22 situation where it is climate change initiatives at the expense of economic growth. We need better policies to address both climate change and economic upliftment.”
Tough questions
Some of SA’s biggest asset managers, including Old Mutual and Coronation, have said in recent months that environmental, social and governance (ESG) standards will increasingly inform their capital allocation decisions. Ninety One has also become the first SA signatory to the Net Zero Asset Managers Initiative, which seeks to promote investments that will enable the achievement of net zero emissions by 2050.
The asset manager that was spun out of Investec faced tough questions over climate-related matters at its recent annual general meeting. Shareholder activist group Just Share in particular wanted to know why Ninety One was not taking a stronger stance on Sasol to reduce emissions and why it will not rule out investing in new fossil fuel projects.
“This entire climate transition is a work in progress for the world,” Hendrik du Toit, Ninety One CEO, said in response. “There are no fixed templates, there are no clear answers. We still have a long way to go, we admit that, but the world still has a long way to go.”
Standard Bank is another firm that has faced a grilling over its role in financing carbon-intensive projects such as Total’s controversial East African Crude Oil Pipeline (Eacop). Africa’s biggest bank by assets has also faced criticism over certain board members with links to fossil fuel-exposed companies such as Trix Kennealy, an independent non-executive director at Sasol.
Emerging markets
Ninety One says emerging markets should be allowed to make a practical, sensible transition to more sustainable economic systems as they are not the historical culprits behind climate change.
“If you look at history you’ll notice that in the developed world … historic emissions are about seven times higher per capita than in emerging markets,” says Du Toit.
As about 60% of Ninety One’s almost $200bn in assets is invested in emerging markets, lobbying for a gradual transition is in its financial interest. Yet it is hard to see how a country like SA, which relies on coal to produce about 90% of its electricity, could rapidly transition towards a greener economy.
Robyn Hugo, director of climate change engagement at Just Share, says transitioning to a more sustainable economy can address SA’s energy and socioeconomic challenges simultaneously.
“No balancing is required, and taking action on climate change will ultimately boost growth, especially as new lower-carbon technologies open up additional job possibilities,” she says. “Failing to transition urgently, but fairly, to a low-carbon economy will leave the country far worse off.”
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.