SA investors choose service and fees over climate-change concerns
Many incorrectly believe that you will compromise on returns if you invest in sustainable investments
South Africans think more about personal service, online access and the fees they will pay than they do about making sustainable investments. They also ranked not losing money as more important than sustainability.
This is according to a global study of investors’ views carried out by UK-based investment manager Schroders. The study of 25,000 investors included hundreds of investors from SA.
About 67% of the investors expected climate change to impact their lives and their investments either significantly or to some extent. About 69% said they believed their individual investment choices can make a difference to building a more sustainable world.
But the survey notes that only 22% of South Africans have actually invested in sustainable investments that are intended to shift investors’ funds to companies that are doing the right things.
Investors told Schroders they would put more money in sustainable investments if their advisers provided them with easy-to-understand information and if the sustainability of investments was independently rated.
SA unit trust funds are, however, already being given a sustainability ranking by fund rating agency Morningstar and you can ask your fund manager or your financial adviser how the funds in which you invest score.
Both Glacier by Sanlam and Old Mutual are also working on ratings for funds on their investment platforms used by many retirement annuity and tax-free savings account investors. Sanlam is collaborating with the World Wildlife Fund for its ratings.
Investing in sustainable businesses will deliver better returns than other businesses because these companies can achieve better operational performance and will maintain this for long periodsSchroders fund manager Charles Somers
The Schroders survey found globally many investors incorrectly believe that if you invest in sustainable or responsible investments, you will compromise on returns.
You may think that if you invest sustainably you cannot invest in many big profitable companies like SA’s mining companies or the likes of Sasol.
But Schroders fund manager Charles Somers says Schroders believes investing in sustainable businesses will deliver better returns than other businesses because these companies can achieve better operational performance and will maintain this for long periods.
He believes that many investors underestimate and undervalue these characteristics of companies engaged in sustainable practices.
Proving his point, the Global Sustainable Growth Fund that he manages has returned 10.5% a year since its inception in December 2010, while the fund’s benchmark, an index that tracks the fortunes of more than 1,600 companies around the world and is used as a benchmark by many global equity funds, the MSCI All Country World Index, returned 7.9% a year over the same period.
The Schroders Global Sustainable Growth, an offshore fund domiciled in Luxembourg, is now available to SA investors who want to invest in US dollars.
The fund invests in between 30 to 50 companies that the manager believes are engaged in sustainable practices and it excludes the shares of companies with material exposure to alcohol, tobacco, weapons, gambling, adult entertainment, high-interest lending, human embryonic cloning and industries that negatively affect climate change like tar and coal.
Investing sustainably does not always mean excluding companies that are doing things that are bad for the environment or society.
Often it is about investing with companies that are starting to do the right thing and engaging with them to ensure they improve their environmental, social and governance practices.
Somers says Amazon shares are probably the most controversial stock the fund owns because the company has a big carbon footprint.
The international online retailer recently revealed that is carbon footprint was 44.4-million metric tons, which was reported by Associated Press to be close to the pollution rates of some small countries.
Amazon founder and CEO Jeff Bezos recently unveiled the company’s climate pledge is to reduce the carbon footprint to zero by 2040 and includes ordering 100,000 electric vans to deliver its parcels, converting all its energy supplies to renewable energy by 2030 and targeting 100% recyclable packaging materials.
Somers says in addition Amazon’s cloud computing is half the enterprise value and it is taking servers out of companies and putting them in the cloud where utilisation is much higher and energy efficient as the data centres are largely powered by renewable energy.
The manager does not only look to invest in companies that are improving their environmental impact and improving society, but also those that are receptive to engaging with it on environmental, social and governance issues, he says. For example, Schroders plans to engage Amazon further on its employee practices at its fulfilment centres which have been subject to strikes.
Some asset managers, like SA’s Old Mutual, offer index-tracking investments which screen out or exclude the shares of companies represented in an index like the MSCI World Index that have been been involved in human rights, labour, pollution, data privacy or governance issues.
But to ensure you get similar returns to the index, the fund then invests more in the shares of other companies in the index giving more weight to those who score well on environmental, social and governance issues.
The manager also uses its voting rights to actively engage companies with unsustainable practices to mend their ways.