Ninety One CEO Hendrik du Toit, who is attending the UN’s 26th climate-change conference (COP26), says there is a growing realisation among world leaders that developing nations need time to transition to less carbon-intensive economic systems.
Speaking from Glasgow, Scotland, where the COP26 conference is taking place, Du Toit said policymakers and investors in industrialised nations were open to the notion that emerging markets be allowed to make a “just transition” to achieving net-zero carbon intensity.
Nevertheless, he cautioned that regulators from industrialised nations were still more focused on their own markets and that countries like SA had to ensure they moved steadily towards reducing the carbon intensity of their economies if they wanted to retain access to lucrative export markets like the EU.
“The good thing that’s come from this COP26 is ... it’s definitely clear that transition matters more than immediate reduction in carbon intensity. There’s an increasing appreciation for a nuanced approach. It’s about the quality of transition plans for countries and for companies,” Du Toit told Business Day.
“It’s starting to develop. It’s early stage. Regulators are not quite there yet. They need to think a bit wider than the countries which they’re regulating.”
Financial services firms are under pressure from shareholder activists, climate lobbyists and investors to take more proactive steps to mitigate climate change by reducing funding for companies involved in carbon-intensive industries like coal mining or oil extraction. That leaves them facing a complex situation of having to embrace the global shift towards carbon neutrality, while delivering investment returns.
“As allocators of capital, one of our key jobs is to back the winners and make sure that the perennially destructive businesses change,” says Du Toit. “For us it is important to use our capital pool to transition SA and make it competitive and not leave it as one of the world’s biggest carbon emitters.”
Ninety One, formerly known as Investec Asset Management before being spun out of the banking group in 2020, has long argued that developing countries be allowed to gradually transition their economies to carbon neutrality.
The asset manager says that while emerging markets are responsible for more than two-thirds of annual global emissions at present, OECD member countries have produced three-fifths of cumulative historic emissions, which is seven times more than the rest of the world on a per capita basis.
That is why Du Toit says a myopic focus on “portfolio purity”, whereby capital allocators invest only in companies that make them look green, will not result in real-world carbon reduction across developed and emerging markets.
By way of example, he says a 50% reduction in exposure to Brazil, Russia, India, China, SA (Brics) plus Indonesia in a typical global equity portfolio will only reduce that portfolio’s reported carbon intensity by 3%. That’s because those emerging markets only have a cumulative weighting of about 8% in most global equity portfolios.
Du Toit argues that if asset managers adopt a “buy developed, sell developing” investment strategy it could starve emerging markets of investment capital at the same time they require an extra $2.5-trillion a year to finance their energy transitions. That is why he argues for a fair transition path for emerging markets, which still largely rely on dirty energy sources and are home to the majority of the world’s 7.9-billion people.
“If you do it immediately you run a risk of dividing the world, with the consequence that everyone isn’t working together to solve this common problem,” he says.
“If we overnight shift our portfolios to 100% clean or technology-related companies we can look very green but we wouldn’t have contributed anything.”
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