David Levinson, Senior Investment Analyst at Nedgroup Investments, shares some of the initial findings of the Nedgroup Responsible Investment Research Report for 2021 with a focus on what local and global asset managers are doing in terms of diversity and inclusion both in their own companies and those that they invest in.
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Gender equality: mind the gap
Compared to the rest of the world, South Africa has made great strides when it comes to the proportion of seats held by women in national parliament at more than 40%. When it comes to the private sector in South Africa and female representation at non-executive or board level, there is still some work to be done. Companies, such as Redefine, Netcare and Woolworths are leading the pack with more than 40% female representation. Nedbank has set progressive goals in terms of broader representation with about 20% of the Non-executive Board being ACI female. This extends to the executive committee, the people making the day-to-day strategic decisions in the company. Nedbank’s executives are 23% white females and 23% ACI females, but they have ambitious goals to be more reflective of South Africa’s society.
Global flows into ESG funds
In 2008 and 2009, flows into funds stalled or were even negative as the market sought to de-risk during the GFC. Similarly in 2020, funds were not impervious to the Covid effect. What has been completely contrary however, is the flows into ESG-style funds. Completely bucking the trend, many are of the view that the virus has only served to heighten the ESG agenda and reinforced society’s relationship with the environment. Nedgroup Investments don’t explicitly label any of their funds as ESG, but instead perform a sweeping ESG or RI due diligence of their product range.
Asset manager review
Participation from both local and global asset managers increased from 18 in 2019 to 46 in 2020. Asset managers were asked to what extent they believed ESG factors could impact an underlying share price. The results showed that environmental has a greater weight than social. . Regarding Social, there was however a nice trend in the sense that those previously citing “fair amount” have moved into the “major influence” and “key determining factor” camps.
Asset managers were also asked to what extent ESG factors play a role in investment decisions. We’ve seen a complete shift in the curve in that in 2019, the majority of respondents said that environmental factors had a minor to a fair amount of influence in their investment decision making process. In 2020, this has shifted to having a fair amount or even a major influence. On the social front, we’re also seeing an encouraging shift in the curve, with the majority of respondents indicating that social factors have a fair or major amount of influence when it comes to investment decisions. Governance has always had a high weighting in terms of how asset managers assess companies through an ESG lens. All of our managers say that governance has a role to play in their investment decisions. One of the goals of our responsible investment drive is to elevate our managers in terms of how they score across all three pillars.
Three key areas of focus
The 2020 assessment has evolved to include three key areas of focus. These are the top 3 climate risks or opportunities and how they informed investment decisions and/or portfolio construction; the human or labour rights risks or opportunities in their portfolios and any biodiversity risks or opportunities in their portfolios. Participants were also asked whether they specifically address diversity issues with boards and executive leadership. 80% of respondents said they were engaging companies on diversity.
Are you of the view that greater diversity leads to enhanced strategic decision-making? Yes 94%
Do you believe your organisation is sufficiently diverse along demographic lines? Yes 58%
Do you believe your organisation is sufficiently diverse along gender lines? Yes 63%
Do you believe your organisation benefits from inclusion in its decision-making? Yes 68%