Responsible Investing - Mind the ambition gap

By David Levinson

On 26th January 2021, we hosted our annual Nedgroup Investments Responsible Investment Summit.

A cornerstone of responsible investing rests with 'engagement', how we as asset managers engage with the companies we invest in, their many stakeholders, and ultimately how we relate this back to our clients. We have historically held the summit in person, at our offices in Cape Town, with an educational element that encouraged audience participation. On a personal level, this meant the online edition came with a sense of trepidation, can we successfully produce a webinar that provides the same experience as a live and engaged event?

What we have learnt since the inception of the virus and our sudden introduction to the 'work from home' culture, is that we are more adaptable than what we may have previously believed. Our faces filling the screens of your home PC may be sub-optimal from a human interaction perspective, but it allows us to reach a far wider audience and, importantly, get more people curious about responsible investing which we believe will be a - if not the - major theme to play out over the coming decades.

The virus has only served to heighten the ESG (environmental, social and governance) agenda, as companies have been forced to contemplate deeply on their role within society. The experience at Nedgroup Investments has been no different, outside of our philanthropic efforts during the lockdown, responsible investing is arguably where we can have the greatest impact - both direct and indirect.

Antonio Guterres, the UN Secretary General, said recently that "2021 must be the year to reconcile humanity with nature." The investment industry has for the most part excused itself from the global discussion table when it comes to battling such challenges as climate change, social inequity, and biodiversity destruction. Responsible investing aims to bridge the disassociation we have between our investments and their real-world impacts.

Reflecting on our summit, we often hear of the ESG knowledge gap that persists within the asset management industry. One of our summit speakers, Peter Uhlenbruch, had conducted a review of global asset managers and highlighted something more telling - the 'ambition gap'. For an industry that prides itself on looking at the longer rather than the short-term, we too often get teased into focusing on the immediate at the expense of the bigger picture trends playing out. Psychologists often point out that in times of fear we compress our horizon, in the sense that we overemphasise the present and struggle to look at what may lie behind the bend.

A big part of this comes down to educating ourselves, our staff, our fund managers and our clients. The speakers we brought together for our Responsible Investment Summit was very much done with intention, to offer the views and learning experiences of thought leaders in the sustainability challenge.

In this article I'd like to present my main personal takeaway from each speaker and how it may affect the way I personally, and Nedgroup Investments as an organisation, move forward with responsible investing.
 
Walking the walk
Clem Sunter spoke of four 'flags' which could influence the global landscape over the comings years:

  • The anti-establishment or populism flag
  • The environmental or green flag
  • The pandemic flag
  • The work-has-changed flag

On second look one sees the interrelation between all these flags. Without going into each, the first flag illustrates the need for companies to behave responsibly, with social media comes a greater public scrutiny. This is, for the most part, a good thing. But should a company 'slip up', the reputational damage can be very difficult to undo. With the internet comes information and the power to call companies out on any unsavoury or unpopular behaviour. Nedbank have publicly acknowledged a 1.5-degree Celsius global warning scenario and will no longer finance any new coal-fired power plants. They will now have to walk the walk. We at Nedgroup Investments have similarly published our responsible investment policy in the public domain and will now need to hold ourselves to the highest standard.

Prioritise and simplify
Our second speaker, Mark Mobius, through numerous anecdotes illustrated the unique advantages one gets from deeply engaging with investee companies. During our 2019 Asset Manager Responsible Investment Review, we encouraged our partner managers to 'prioritise and simplify'. What this meant was, choose the ESG factors that resonate with your internal corporate culture and value system - be it plastic, health and safety, human rights, carbon emissions etc - and use that as a touch point with your investee companies. With most of our assets run by external partner managers, the notion of corporate engagement has, up until now, been indirectly enacted. Mark's presentation drove home the questions of a) are we doing enough and b) what we can be doing differently?

Our investments have real world implications
Peter Uhlenbruch and his team at ShareAction have conducted a wide review of global asset managers and their efforts on responsible investing. We have bounced around a few ideas with Peter over the past couple of years. During our Responsible Investment Summit, Peter stressed the significance of the UN Sustainable Development Goals as a guiding framework and put forward ShareAction's three major ESG focus issues going forward: Climate Change, Human Rights, and Biodiversity.

Biodiversity within asset management does not often get the same attention as the other two, and as Peter states, "We think this will be the hottest ESG topic in 2021. There is an enormous amount of finance at risk, not to mention life on earth itself, and is as big a risk as climate change."
My takeaway from this is that we have a lot of work to do on our side when it comes to understanding the global and local biodiversity risks currently playing out, and how we as a business are being affected, and what we are contributing towards.

The below diagram supports the significance of ShareAction's renewed focus on Biodiversity. Conceived by Johan Rockström and a team at the Stockholm Resilience Centre, this has become a well know representation of the current state of the planet. According to the authors, the planet has exceeded its safe operating boundary with regards to climate change, the nitrogen cycle, and most notably, biodiversity loss.

 

Collaboration is key to progress
The responsible investment journey can be a personal one. And to echo a key message from our Summit, one can begin by merely asking the questions. The value chain of our industry, from our clients to ourselves, to fund managers and the companies we invest in, all have an important role in ensuring that our investments and pensions contribute positively to the global challenges.

Collaboration is a key component of progress, and to address many of these issues mentioned above requires the breaking down of historical silos. At home, our responsible investment journey has led to greater collaboration with Nedbank, this has steepened our learning curve. As mentioned, Nedbank have publicly pledged to align the business with the 1.5 degree global warming scenario, and this means that each cluster - be it the retail bank, the investment bank, the insurance division, and Nedbank Wealth - we all have to come to the party.