Some of SA’s most respected asset management firms have defended their holdings of so-called Russian carbon bombs, fossil fuel companies in the country estimated to have more than a gigatonne of potential carbon dioxide emissions.
The rather inflammatory descriptor of investments in Russian fossil fuel companies is the work of LINGO (Leave it in the Ground), a Germany-based climate activist group that has an online database of asset managers invested in the controversial assets.
Though LINGO lists five SA asset managers — Ninety One, Coronation Fund Managers, Momentum Metropolitan, BlueAlpha Investment Management and Counterpoint Asset Management — as having invested in various Russian firms ranging from Gazprom to Lukoil, several of the local fund managers told Business Day the online database was not entirely accurate in terms of the values of current holdings as well as which carbon-intensive assets are held.
Yet, they did confirm holding certain fossil fuel assets in Russia, raising questions about their climate commitments and the ethics of doing so given the war in Ukraine.
Ninety One is listed on the LINGO website as being invested in Lukoil and Novatek. However, the asset manager told Business Day it has no record of having been invested in Novatek and while it previously held Lukoil debt it says it currently has no exposure to the oil and gas producer.
That is probably just as well considering September 1 media reports that Lukoil chair Ravil Maganov died after apparently falling from a hospital window in Moscow. Lukoil was one of only a handful of prominent Russian firms to call for an end to the war in Ukraine, prompting some critics to question the circumstances of Maganov’s untimely demise that follows a series of similar unexplained deaths of prominent Russian businesspeople.
Coronation is another local fund manager invested in Lukoil, a decision, it says, that was taken before Russia’s invasion and one premised on the country’s attractive valuations at the time.
‘Justifies investment’
“Russia in general was a run-of-the-mill emerging market,” Coronation said in response to questions. “This clearly changed with the invasion, but the stocks have subsequently become impossible to trade due to the suspension of listings and sanctions, so they have been written down to zero value. We could not sell them if we wanted to.”
While Coronation says it will act in the best interest of clients should the suspension in trading Russian assets be lifted, it justifies its investment in carbon-producing assets on the basis that “it is better to have responsible owners who will drive improved behaviour than unlisted, unregulated entities”.
“Investing in existing assets and being a responsible owner, harvesting and redirecting these cash flows, is good practice and is vastly different to investing in growing production,” Coronation said.
Counterpoint is listed by LINGO as holding Gazprom, Russia’s biggest oil and gas company. However, Piet Viljoen, director and portfolio manager of Counterpoint, argues the asset management industry should not be “vilified” for investing in natural gas, which he says has a carbon footprint about 50% lower than oil or coal.
“Gas isn’t the perfect solution, but it’s a good solution as it’s a useful intermediate step between coal and oil to eventually nuclear power,” he says. “It’s easy to scapegoat the asset management industry for investing in gas, but the fact is Europe is currently trying to buy as much Russian gas as it can. Solar and wind power don’t have sufficiently high energy efficiency for a wholesale renewable transition, unless you add enough nuclear into the mix.”
Counterpoint’s investment in Gazprom, which was done via its dollar-denominated global value fund and its rand-based worldwide flexible fund, occurred over about an 18-month period before Russia’s invasion of Ukraine. Viljoen also argues that he would happily invest in Gazprom again given the low valuations of Russian assets.
Limited exposure
“It’s responsible to invest in gas from a climate and an investment point of view because it’s a resource that has a relatively low carbon footprint compared to coal and oil that also happens to deliver good returns,” he says. “And I don’t buy the moral argument about not investing in Russia — there’s so much moral ambiguity in markets. Does one not invest in Treasuries because you don’t agree with US foreign policy?”
Momentum Metropolitan says it has limited Russian exposure via its global emerging markets equity fund (about 3%), but has written down the value of that investment to zero due to sanctions that restrict their ability to exit the investment. The firm is also not contemplating any further investment in Russia.
BlueAlpha Investment says its investment in Gazprom via its global equity fund was valued at $1.5m on February 22, just before Russia’s invasion of Ukraine, which it argues was not envisioned at the time.
“I would hazard most of Europe did not either, otherwise they would have made a plan not to be reliant on Russian gas,” Kirsty Minor, BlueAlpha’s COO and compliance officer, said in response to questions. “For our investors we have embarked on a process to recover some of the investment in Gazprom as the ADR [American Depository Receipt], which we held in our global fund is the subject of sanctions as trading has been suspended.”
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