The Lethabo Power Station, a coal-fired power station owned by Eskom. Picture: REUTERS
The Lethabo Power Station, a coal-fired power station owned by Eskom. Picture: REUTERS

If you are interested in the impact of climate change on investing, the guy you want to speak to is Jon Duncan, head of responsible investment at Old Mutual.

The asset manager has about R750bn in client funds over a 30-year liability horizon in its charge. For this reason, the potential impact of climate change on companies and other investments is something Duncan and his colleagues ponder — a lot.

Old Mutual was one of a handful of asset managers which, ahead of Sasol’s most recent AGM, jointly filed a shareholder resolution seeking greater transparency from the company on how its strategy to reduce greenhouse gas emissions and its executive rewards aligned with commitments under the Paris climate accord.

Speaking at an offshoot event of the 26th Investing in African Mining Indaba this week, Duncan said policy certainty is key in deciding where to invest.

“If you take, for example, the listed fuel sector: what is the liquid fuels policy strategy? Are we looking at liquid fuel companies as dividend companies? Or are we seeing these as growth companies?”

The carbon footprint of a company and the resultant liability under the carbon tax is also an important calculation, Duncan says. “You can do a net-present value of future liabilities and you can build that into your valuation and come up with a price.

“When you talk about Phase 2 of the carbon tax regime [which is expected in 2023] there is quite a lot of uncertainty. Depending how you model that, you can put PPC Cement, Exxaro and Sasol out of business today,” he says.

Straight-up disruption is another consideration, especially for mining companies. “Obviously we can do a like-for-like comparison of the revenue intensity from a carbon perspective for a particular company — that’s important. Also important is what the commodity mix of this mining house is and how well placed that is to manage this transition to a green economy,” he says.

“Those two data points help us think very carefully about whether we are going long on coal or putting more money into the debt side in renewables, for example.”

The coal question certainly looms large, and Old Mutual has decided on a slow and ordered retreat, especially as it is exposed to coal both through its corporate clients and its investment in state-owned entities exposed to coal.

“Despite this, we get a lot of retail and foreign investors saying we need to [become] carbon neutral tomorrow,” Duncan says. “But we have more carbon headroom to grow in this economy, and we need to grow that wisely”.

Duncan says Old Mutual is trying to find a middle path that won’t pull the rug out from under industries in SA in a way that will cause social disruption. “That’s not in our interest and not in the country’s interest,” he say