By Gontse Tsatsi, Head: Retail Client Management at Old Mutual Investment Group

Cape Town, 24 April 2023: Despite its acknowledged shortcomings, BEE plays a vital role in South Africa's economic transformation and in addressing intergenerational inequality. However, to ensure sustainable economic growth, another component is needed, and that is where ESG comes into play.

ESG and BEE (including Broad-Black Based Economic Empowerment – B-BBEE) principles are essentially about achieving economic sustainability, which means that they share a common objective of promoting inclusive economic growth. However, both approaches are often viewed cynically, and we may be overly focused on their shortcomings rather than their goals.

The need for this sort of economic transformation is not unique to South Africa, as investors around the world have increasingly aligned against practices that prioritise profits over social and environmental responsibility. The 1970s saw a surge in such efforts, driven in part by opposition to issues like apartheid, the Vietnam War, and consumer product safety. In 1984, the Forum for Sustainable and Responsible Investment was established, followed over 20 years later in 2006 by the launch of the United Nations Principles for Responsible Investment (UNPRI). These milestones marked the beginning of widespread adoption of ESG considerations in investment decision-making across the globe.

Despite experiencing a volatile year of growth in 2022, with widely publicized market swings especially in the third quarter, sustainable funds (excluding money market) still attracted £27.6 billion, according to Rifinitiv. The fact that the demand for ESG investing has remained strong despite these challenges suggests that rumours of its demise have been greatly exaggerated.

The financial services industry has been a trailblazer in both BEE and ESG, having been the first to propose a blueprint for collaboration through the Financial Sector Charter in 2003. Financial services companies were also among the first signatories of the UNPRI, which led to the development of the Code of Responsible Investing in South Africa in 2011. Given their role as guardians of South Africans' savings and investments and as a vital driver of the economy, it is fitting that the financial services sector takes the lead. With long-term savings, they can invest in critical infrastructure projects such as transport, electricity, and food production, generating countless jobs in the process.

Proper implementation of BEE and ESG can positively impact South Africa's credit rating. A junk credit rating lowers the chances of foreign direct investment and limits government and corporate borrowing for significant infrastructure projects that create job opportunities. It also results in low investment confidence and reduced trust in the government. Therefore, equity and income equality are crucial in growing the economy, making B-BBEE and ESG critical components of this growth. The negative effects of social polarisation and resentment within societies cannot be overlooked.

As the asset manager of a responsible financial services group and custodian of over R1.3 trillion in savings and investments, we aim to generate sustainable, long-term returns that beat inflation for our investors. We believe that B-BBEE and ESG are essential in creating an environment where growth is sustained. Our commitment to implementing B-BBEE and ESG responsibly aligns with our drive to fight social ills, ensuring prosperity for our employees, clients, and communities.

We are particularly proud of the significant strides we have made in promoting both BEE and ESG. In 2021, we partnered with MSCI to rate Old Mutual funds listed on the Old Mutual Wealth platform according to MSCI's methodology. As of June 2022, all Old Mutual funds on the platform have been rated, with 35 rated as leaders (AA-AAA) and 19 rated as average (A-BB).

Our ESG efforts have also been widely recognized, as evidenced by the following accolades:

• Most Sustainable African Investment Manager 2022 from Global Banking and Finance Awards

• Best ESG Responsible Investor Africa 2022 from CFI.co

• Top 3 Best Responsible Investment Manager 2022 from 27four

We remain committed to our responsible implementation of B-BBEE and ESG to fight social ills for the benefit of our employees, clients, and communities. We are dedicated to creating a sustainable environment for growth, where we can continue to generate long-term returns for our investors.