Old Mutual Investment Group has highlighted water security, social inequality and a just transition to a low carbon economy as the most pressing ESG risks to address as part of its responsible investment strategy and pro-active stewardship programme, in recognition of the material impact that these risks continue to have on our local economy, environment and society.

Tebogo Naledi, Managing Director at Old Mutual Investment Group (OMIG), opened the asset manager’s ‘Tomorrow: Investing for a future that matters’ event (held in Johannesburg and Cape Town recently) with an acknowledgment of the industry’s critical role as custodian and steward of financial capital, and the savings of ordinary South Africans. He went on to share three urgent strategic priorities that will assist in achieving the country’s long-term sustainability ambitions.

“Our first ESG priority is the just transition to net-zero greenhouse gas emissions, where our focus is not just on carbon emission-reduction but on ensuring that commitments are made by corporate South Africa to decarbonise in line with just transition principles,” Naledi said.

OMIG became a signatory to the Net-Zero Asset Managers Initiative in February 2022 and is working, in partnership with its clients, to set decarbonisation goals to reach net-zero emissions across its entire assets under management by 2050.

“We recently submitted our interim target of at least 24% of our assets under management being aligned or aligned to net-zero outcomes by 2025,” he said, to resounding applause, outlining a move that sets a tangible commitment to its net zero commitments. The key focus under this heading is to drive sustainable change in the South African listed market.

However, he pointed out that the energy crisis is not the only environmental and social threat facing the country, although it is certainly exacerbating other critical ESG risks to SA’s sustainable development.

“Many have singled out a looming water crisis as secondary to our electricity crisis,” Naledi said, singling out water as the firm’s second priority focus area. “South Africa is a water scarce nation that receives insufficient and unreliable rainfall. Approximately one-in-five citizens in rural areas lack access to reliable water supply; one-in-three do not have basic sanitation services; and only two thirds of households benefit from safe, reliable access to water,” he explained.

“Water impacts every component of our economy and society and a company’s water usage can have significant environmental and socio-economic impacts – we aim to ensure that the companies that our clients own, through the investments we make on their behalf, develop strategies and policies to ensure responsible water usage,” he said.

The asset manager’s third ESG priority is inequality.

“South Africa, statistically speaking, is the most unequal country in the world, with a Gini coefficient of 63,” Naledi said. He stressed the need for firms to focus on paying decent wages and creating opportunities for career progression in addition to new jobs. The asset manager is working for change in inequality through active stewardship.

“We are focusing our engagement efforts on what strategies our investee companies have in place to ensure the responsible management of issues of diversity, equity and inclusion, including making commitments to measure and disclose data on pay gaps by gender and by race,” Naledi said.

Rob Lewenson, Head of Responsible Investment at OMIG, observed that eradicating poverty was among the most important of the United Nations 17 Sustainable Development Goals.

“As a group, Old Mutual has invested around ZAR150 billion into the developmental economy in South Africa and beyond, of which ZAR80 billion or so is invested into renewable energy; schools; housing and various impact funds as well as listed equity products with a specific ESG focus,” he said.

However, there are concerns over friction between the environmental and social outcomes of large sustainability focused projects.

“We have to start having real conversations about what we are invested in and the actual impact on the ground, and we must ensure that whilst we are solving for climate, we are also solving for important concerns around exacerbating inequality in the process,” Lewenson said.

Among other issues reflected on at the event was the fact that the world is now beset by a polycrisis. Stakeholders are trying to navigate environmental and social issues, while faced with geopolitical conflict and fragmentation and the compounding impact thereof on the recovery from the Covid pandemic, inflation, cost of living crises, energy crises and polarisation within societies.

Asset owners who are struggling to meet their ESG commitments against a backdrop of a country (and world) beset by this polycrisis can take comfort in the fact that a just transition is an evolution rather than a revolution, as Naledi pointed out. And they can participate in this evolution knowing that investing for impact does not erode investment returns.

“There is abundant evidence of the financial value-add of incorporating ESG considerations and proactive stewardship programmes into investment decision making – over the longer term, we do not foresee any sacrifice of returns from investing in assets that are managed according to a strong responsible investment thesis,” said Lewenson.

Naledi concluded by calling for industry wide introspection, where he encouraged stakeholders to ask themselves some important questions: How do we make a better tomorrow for our true principals? And how can we ensure progress in the critical evolution to an investment world where risk and return are considered on equal footing with impact.