Net Zero Asset Managers initiative | ESG Conference

Speaker 0:
Hello and welcome to this E s G Summit panel On the Net zero Asset Managers Initiative. I'm Rory Palmer, and I'm delighted to be joined by Rob Leinen, head of responsible investments at Old Mutual Investment Group and AA Brower, Sustainability analyst at 91.

Speaker 0:
Anna, if I could just start with you What is the Net zero Asset managers initiative And what are some of the requirements for signing up?

Speaker 0:
Thanks so much, Rory. So, Net zero asset managers initiative, um, was started. I think it was December of 2020. Um, initially, a group of about 30 signatories, um, uh, came together under, obviously a commitment to net zero, which is, um, you know, in line with Paris agreement, we have to be net zero by 2050. And how, as asset managers do we

Speaker 0:
think about, um, how that affects our portfolios, how that affects our decision making and what we need to do to start kind of driving down those emissions from an allocated perspective. So started small and then built some considerable momentum over the course of 2020 and 2021. Um, today I think there are almost 300 signatories about 66 trillion in assets under management.

Speaker 0:
Um, and this includes ourselves 91. Um, we joined in June of 2021.

Speaker 0:
Some would say that's a bit slow on the uptake, but I think the reason why we sort of thought about it before we joined is we weren't 100% sure of what that meant. So what we've you know realised is obviously, with this commitment to climate and Internet zero, it's very,

Speaker 0:
very important that you have an understanding of the implications of target setting what that means for where we invest, how we invest. And we weren't 100% sure that, um of the types of methodologies that existed at the time aligned with

Speaker 0:
how and where we invested. Um, so we signed up after taking our time thinking about it and within, you know, within becoming a signatory, you need to stop setting targets. So within 12 months of signing up,

Speaker 0:
uh, as an asset manager, you have to set targets,

Speaker 0:
and those targets can be set against a number of methodologies. Um, one of the more popular methodologies is the science based targets initiative for financial institutions. Um, the other is the Net zero, um, asset managers investment framework that was that was created by, um, the A G C C. Now it's super important when joining the asset Managers initiative or any of the Net zero initiatives to ensure that you can, um, set your targets

Speaker 0:
in line with the recommended guidance. Otherwise, you sort of run the of of green one. And I think we found it very useful to be a part of an ass managers initiative, because the guidance, um, along around target setting is is very sort of grounded in reality.

Speaker 0:
Um, so we have set our targets and we are on the journey, um, to to our our our first target, which is, um, 2030. And Rob, welcome to the programme. What does the Net zero initiative mean to you? And to Anna's point about targets? Where do they come in? And, uh, interim targets? Perhaps more important,

Speaker 1:
Well, thanks for the question, Rory. Um, yes, a very important one from our perspective. Um, certainly a proud moment when our own organisation, uh, signed up to net zero asset managers initiative. Uh, in February 2022. Um, like, uh, a has said we gave deep consideration to, uh, what the commitment entails. And I think it's important to just to add to what she has already mentioned

Speaker 1:
about two, uh, the two aspects of Of what? Our commitment and and unpacking our commitment. It's not only to commit to net zero, um, in line, uh, with, uh, the global, uh, transition to a AAA low carbon world and limiting global warming to 1.5 degrees. But it's also creating opportunities and looking at the the way that we can drive investment towards net zero outcomes.

Speaker 1:
Um, so using this framework essentially as as our foundation for our responsible investment strategy, seemed to be a rather prudent way to actually to actualize it and give it a name and give it, uh, and set targets around those because without setting goals and targets, you know, it's it's all very well, as I said, to make commitments. But actions speak louder than words. And here we we have said, Well, you know, we've we've drawn a line in the sand. We've,

Speaker 1:
uh, and now analysed our portfolio. We've looked at what? What? What? We what? The context of our, uh, of where our invest, uh, clients. Assets are We've looked at the context of our sales with mainly assets in in emerging markets. So without, uh, Paris aligned, if you like benchmarks that are applicable in emerging markets at the moment we've looked at the context,

Speaker 1:
um, in terms of where we found ourselves at the beginning of of 2022 also, you know, cognizant of many of many of the realities that are starting to present themselves. But we still are determined

Speaker 1:
to set a clear, uh, marker. And for us, that meant putting down an interim target for 2025 being 24% of our a u m uh, of our portfolio coverage by, uh, Nets, uh, assets under net zero conditions aligned that are aligned or aligned to net zero conditions, uh, by 2050 or sooner.

Speaker 1:
In addition, we took AAA clear stance that, you know, we want to achieve a real world outcome here. It's not just, um,

Speaker 1:
um, set in a a target, but rather being heavily involved with our stakeholders. And I'll say our stakeholders being both our clients, um, our biggest clients also have enjoyed the Net zero asset owners Initiative on the one hand, and also with our portfolio investing companies in terms of getting them. Having a strong and proactive stewardship strategy with our our our top emitters in terms of getting

Speaker 1:
them are well on the line, not only committed to net zero and and committed to science based targets as AA has already mentioned, but actualize in an A A plan because ultimately we won't be able to, um, meet our targets unless our invest companies themselves are on that on that path and effectively getting things done. So that, for us is has been the the priority focus. And it it's actually been,

Speaker 1:
you know, we've had to think quite carefully because, you know, we can. We have adopted a Paris, uh uh, aligned investment framework, uh, for some of our assets. But on the other hand, we've had to apply. And and given that we are an emerging, uh, in mostly based emerging market, uh, investment manager, we've had to use our and and consider our own methodologies, uh, as well, which are, uh, Net zero aligned.

Speaker 1:
But they need to they need to still be developed. So

Speaker 1:
at the outset, I think it's It's been a a very positive start, but it gives us AAA bit, a lot of work to do and and and look forward to some goals which are coming up pretty shortly. Thanks

Speaker 0:
AA. Do you think that's a good point? They using the initiative as a guideline and then developing your own methodology around it because we saw guard leave last year, perhaps because they didn't quite agree with some of the terminology. But it's about forging your own path, right?

Speaker 0:
That's right, Rory, I think. Oh, look, I think you have to have a commonality to ensure you know, not not everybody can go off in the opposite directions and kind of write their own hymn sheet. It's very important. We're all singing from the same hymn sheet, Um, but

Speaker 0:
it it doesn't need to necessarily follow step by step the same formula. And I think what we're seeing is, as asset managers put these, um, theories and guidelines into practise, uh, where you invest as in whether it's emerging markets or developed markets very much determines. Um,

Speaker 0:
I guess the style, the outcome, the approach of of your your net er, trajectory. And I think we've learned incredible lessons along the way that you can't really capture and you know, a framework. It's it's more like trial and error. And I say that not out of a sense of failure, more of a sense of when you do this properly. As as, um, Rob was saying, When you

Speaker 0:
you know, when you kind of have your boots on the ground, roll up your sleeves and get into the intricacies of what this means for your portfolio companies, you realise there's no one size fits all.

Speaker 0:
Um, engagement looks very different, uh, for different companies and in different countries, and starting points are different. And so you have to manage that, and you have to measure that. So I think very good to have a set of guidelines and bar rails that determine um effectively whether you're in the book, you know, on the boat or not on the boat. And then, as you sort of start your journey,

Speaker 0:
it's important to be able to understand the nuance that that journey will look different for everybody.

Speaker 0:
Hm And rob guidelines or not, it doesn't really change, uh, an asset manager's approach to helping their investors get to that net zero and help with their climate risk as well.

Speaker 1:
Indeed, And I would add to that Rory is actually that the question is becoming more broad and has developed, uh, very much in in the last few years in in the sense that, you know, moving along the line decarbonisation for decarbonisation sake is clearly, uh, not not the intended outcome, Uh, that that that that or the sole outcome that these frameworks or what Net is actually actively trying to achieve

Speaker 1:
what we're trying to achieve by by, um, making these commitments to net zero to do so in a responsible manner and not only doing so in a having an, uh, you know, our invested companies doing so in a responsible manner but

Speaker 1:
also looking at the opportunity sets that exist and enhancing the allocation of capital towards the green economy or in terms of green finance taxonomies that exist because that's the way that that we have a real world impact for outcome,

Speaker 1:
Um, in in in on our journey to net. So that's why I say it's almost like the bedrock of a an overall responsible investment strategy that we that we employ. Um, it's A. It's a North Star. It's what we guides us. But there's plenty of detail in, In, in, In doing so and getting to, um and and reaching some of those key goals because we want to

Speaker 1:
get to a world when that that that which, where decarbonisation isn't used as an excuse to do harm to, uh to, uh, the global economy and to the society as a whole. Um and that's why I I think we believe that, uh, you know, looking at a just transition, looking at ways to effectively capture that and effectively get our invested companies to think beyond decarbonisation

Speaker 1:
to what is what are they actually doing on the ground? How they re steal and retrain and creating new employment opportunities for their workforces? Um, how they spread and how they engaging with their their own stakeholders, the communities, their their regulators, uh, etcetera, etcetera. All of which is going to hopefully enable us to have a net positive result using decarbonisation graft traps on the on the white,

Speaker 1:
one side to net zero, we need to see on the other side Is this improved in, uh, situational improved social situation. As we embark on this, uh uh, net zero by 2050 or sooner Outcome. That's that's really where I think our our focus lies.

Speaker 0:
I I think that's a good point of staying with you here, Rob. That decarbonisation is very important. But the green economy, that's where it's gonna be. But I think when we spoke prior to this, he said, It's not gonna be a linear approach, especially with a lot of new technologies as well.

Speaker 1:
Yeah, I I I I don't think, um, you know, the the the The maths is clear. The outcome is clear, the goal is clear and the science is clear, but the pathway as much as it's it's linked to science. What we see in the reality is that sometimes

Speaker 1:
that think that life deviates all that of that path, that doesn't mean that the pathway isn't correct. It just means that that, uh, that there are movements in that and shifts in the in the way that things happen. The the the bottom line is we have It is we know what? It's very clear what the science is telling us. It's very clear what? There's no argument there. Um, but what we need to do practically is to be able to

Speaker 1:
look at ways to get our, um, uh, trajectories aligned, um, and and using investments. Uh, I think in a in a responsible way is, is and and the various tools for investment in a responsible way is one of the ways that we can ensure that that trajectory is is as smooth as possible. But what we've seen recently is that things have haven't exactly gone according to plan. Um, and we've we,

Speaker 1:
um In a sense, uh, I believe that we we will have a clearer outcome and a clearer idea of what? Or or Or let's call it a more appropriate methodology to get to back onto those pathways as soon as possible. When they do deviate

Speaker 0:
and Anica with with that in mind, do you think this race to decarbonise and to to reach net zero is driving investors away?

Speaker 0:
I think that

Speaker 0:
it's what what is happening at the moment is those who are doing are quickly grappling with the complexity of what this all means. And in that you know, if we are going to achieve our targets, you know, we we've all set targets we're going to achieve those targets. The easiest way of achieving them is to divest

Speaker 0:
is to just basically green up your portfolio, sell your high emitters, have a fairly green, low carbon portfolio. And, you know, you're kind of in the safe zone. But that does not affect real world decarbonisation. It doesn't. That doesn't change anything. Um, you know, turning your back on the problem and the problem being your top emitting companies

Speaker 0:
and regions is is not helpful to the global goal. It's helpful to your own portfolio. So

Speaker 0:
I think what you're seeing is that you know, you you you spoke about Vanguard. But I think what you're seeing is that investors are realising very quickly that these complex methodologies of decarbonisation targets and portfolios, um doesn't isn't isn't helping them to actually achieve anything positive. And so

Speaker 0:
what? We are starting to realise we as 91. I think what Rob spoke about just now was was so spot on about, you know, the pathway is not linear. We recently, um, wrote a white paper called the disorderly transition, and effectively, what that paper lays out is that you have to keep financing all parts of the system for us to achieve these targets. 90% of global emissions growth is coming from emerging markets by 2013.

Speaker 0:
Five sectors make up 85% of greenhouse gas emissions. That's power buildings, transport, agriculture, industry All your kind of dirty, um, industries are responsible are the cause of the problem. Now, if we exclude those industries and those regions from finance because their starting points are high, so because their emissions are high today and therefore adding them to our portfolios would mean our portfolio emissions in Greece.

Speaker 0:
It doesn't help them decarbonise. So, you know, in the disorderly transition paper, we use cement as a good example of this where

Speaker 0:
if we were to exclude cement, which is responsible for 7% of global emissions, it's a really kind of, you know, hefty sector in terms of, um, carbon emissions. If we were to exclude that sector, um, we would exclude the possibility of investing in innovation within that sector so greener,

Speaker 0:
which has just been invented, um, in the in the cement industry by sex and is the solution to that sector's emissions. If we don't keep in if we don't keep investing in semis and incentivizing them to, um, further invest in the innovative solutions. Then in 20 years time

Speaker 0:
we're knowing, right? We're still gonna need cement. We're still gonna need to keep building. But what we need is cement that comes from a green source. So we have to keep financing those transitioning sectors and transitioning regions so that they can develop and decarbonise in a, um you know, as orderly as possible way.

Speaker 0:
Do you think that it's about changing the narrative? It's not about having, say, a low carbon portfolio, but it's more about in in investing now. And the innovative innovators now that are gonna change the way in which they work and dec carb, their own processes and supply.

Speaker 0:
I think so. I think it's I think it's the acknowledgement that you have to finance both. You have to finance the solutions and the solutions are your renewable energy, your semiconductors, your batteries. Um, you know, those are solutions, then you have innovation within that, so you have, you know, efficiency within your existing sectors.

Speaker 0:
But to not acknowledge that you need to keep financing, the transition of high emitters is effectively turning your back on the problem. I think we I think we have Bifricated the Net zero discussion and the Net zero, um, landscape effectively. You know, there's those in the green bucket, and there are those that are not in the green bucket. And actually, you have to have both.

Speaker 0:
And Rob, it's not as black and white as that is. It's not decarbonisation doesn't necessarily make a company any better. There's a lot more themes at play.

Speaker 1:
Uh, indeed, Rory, um, I'd also like to just, uh, come back to the point about, uh, signatories and maybe some big names that have, uh, perhaps or, I say, name, uh, that has left the initiative. Um,

Speaker 1:
I would like to say that maybe some and I don't want to perhaps speak on behalf of the net of the Sam themselves, but I recently attended the bi annual, um, signatory, um, report back if you like. And they were it was important for me that they clarified exactly what the position is around. Withdrawals of membership.

Speaker 1:
In fact, uh, what we've seen is the probably the opposite. Even with all the the noise. Uh, all the an anti e s G sentiment in certain sectors. Uh, in certain demographics, um, they they've actually seen a substantial and large increase in signatory base, Uh,

Speaker 1:
in the in the last year or so. Um, and what we've seen in terms of those signs that have withdrawn many of for have been for structural reasons, but perhaps a handful if that we have withdrawn for this because they no longer want to support the initiative in terms of its work. So

Speaker 1:
the the reality is that there isn't that there's a vast majority of capital and assets under management. Uh, in the world today, that is, that is signed up to this initiative. And, uh, I I don't see that going, uh, the other way when there is a big name. Of course, it gets a lot of press, but, you know, it's actually it seems to be that the trend is trend in the opposite way. From what you've what? What? They explained to us, um, at the recent report back

Speaker 1:
the other point around, uh, you know, looking at where to, uh, not to divest. I mean, you know, it's it's a a age old adage. If you're not in it, you can't do anything about it. So, um, you know, we've

Speaker 1:
we've been We've taken the view to be involved, to be active owners and and hold if we hold in, uh, those companies in, uh, who are high emitters? It's doing so with a strong and proactive stewardship strategy. So not only that that we are focused, they are stewardship only on their decarbonisation efforts, or they need zero commitments,

Speaker 1:
but at all, for that matter how they're approaching the just transition. But it's also looking at the opportunity set. So how are they tapping into green finance opportunities? Are they developing research and development and use of of various feedstocks in their in their operations? Um, eco efficiency measures, other other types, all types, actually of levers that they can use to kind of, um,

Speaker 1:
look at this green transition as a huge investment opportunity. I was I said it earlier today. I think this, quite frankly, is this transition in the world's, uh, uh, global economy is is the greatest investment opportunity in 100 years. I I truly believe that we've only scratched the surface of the potential. I mean, of course, talking about green, it's

Speaker 1:
component of I mean the other things that we're starting to see is renew, uh, reusable lithium batteries, and I don't want to repeat too much, but I'm just all of the point I'm trying to make is that the science that we haven't even reached close to the boundaries of of science in terms of and of the the shifts and efficiencies that are gonna come about as a result of this transition

Speaker 1:
with every single, uh, hyped up, uh, scenario or technology or whatever it is, they are gonna be winners, and they are gonna be losers. My sense is that it's not everyone who's a green company is gonna be a massive investment, uh, as a win for for for our clients, it's more around. Well, how do we pick winners? Um, someone you know, not they might be as non non descriptive

Speaker 1:
or not. Uh, on the at first blush, um, you know, directly tapped into green economic potential. But when you uncover a little bit more and you look at how some of the the boards of companies are thinking and what they are looking to explore in terms of research and development, new opportunities, um, you know the potential is endless. It's just really finding Those companies that are well governed are thinking around these particular points in in in a broader way,

Speaker 1:
and and and and have those discussions in in terms of our stewardship strategy, uh, I

Speaker 0:
think you're right because it's spread over renewables, biodiversity, securing water supply as well. Um, you know, what kind of companies are you really looking for? What are the ones that really stand out when you look across the broad space?

Speaker 1:
You know what I what? I what I really liked. I saw an example today, um, of a a company that's that's gonna be produced and building electrolyzers. But not just building electrolyzers for electrolyzers sake. But, uh, entering into a joint venture with a automotive manufacturer.

Speaker 1:
Now that, for me is exciting because it's telling me two things. It's telling me, Yes, there's demand for immediate demand by but by this off take for the product. So that's that's interesting.

Speaker 1:
And number two, that the auto manufacturer is going OK, Well, they're not Where exactly are they using this, uh, technology are they going to be using for hydrogen fuel cells for their tracking division? Are they going to think about, you know? So then as soon as the tentacle starts spreading across, are they

Speaker 1:
Have they signed up a long term agreement with a logistics operator for this production of these and so? So if you start seeing the ecosystem developing, then finding those touch points and finding those investment opportunities within the investment, uh, for investment, um,

Speaker 1:
I I say this because my most of my focus is in the list of markets. But quite frankly, there's a lot of those those very unheard of and perhaps unloved, uh, small and medium sized,

Speaker 1:
uh, or small and mid cap listed entities and some who have not yet listed where the biggest potential, uh, for investment opportunities and returns and, uh, for our clients exist. And that's where I'm very interested to spend time in in that space. Yes, there will be listed companies that we obviously expect to produce, uh, green or, you know, produce, uh, renewables, uh, components for renewable energy, et cetera.

Speaker 1:
And so too they should. But I think for me it's the broader, uh, the broader scope of, uh, of this. It's still very embryonic, and I think picking opportunities at winners now are. That's where the That's where the 10 baggers are gonna lie. And that's where I really would be, uh, very keen to, uh, draw direction and our focus on in terms of trying to find those those particular opportunities.

Speaker 0:
Uh, Anica going back to net zero and decarbonisation slightly. Do you think it's very easy to say with the European lens that it's You have to get there quickly and it's all about excluding these companies. But in a country like South Africa, where the coal value chain employs a lot of people, it's not as simple as that.

Speaker 0:
It's certainly not as simple as that. Um so South Africa is such an interesting and, I guess, timely example. Um, a coal dependent country where you know much of the economy has relied on on mining, but but coal specifically, we have a coal fired power energy utility. Um, there is a you know,

Speaker 0:
the the the party in in govern in government is largely, you know, supported by many coal miners and coal communities. Um, you know, financed by many coal owners, and I think that is an important story and important nuance to understand because as the country transitions and commits to transition. Um,

Speaker 0:
you are affecting a you know, both governance and and and people, you know, 100 and 25,000 people in the coal value chain. As you said, you know, between three and six dependents on each of those, um, salaries. So it's, you know, up to a million people that you're talking about where micro economies will be affected, salaries will be affected, livelihoods will be affected. Um,

Speaker 0:
and so you know your your previous question on you know, it's not just about decarbonisation. There are other factors to to include or consider. I think when we look at our South African companies specifically in light of the just transition in South Africa,

Speaker 0:
we very much want to see, um, the before the e so the social and the just element before, um decarbonisation effectively because we know that if any co country or company is putting

Speaker 0:
the kind of broader climate goals before people goals, the likelihood of that, uh, plan being realised is is low. Um, you will get community backlash, you will get worker backlash. Um, and you know, we've seen it in we've seen it in Chile.

Speaker 0:
In Chile that haven't considered, um the the the the right and the livelihoods of workers and and and local communities have been closed down or haven't been allowed to be built. And so as we think about how companies transition, whether it's coal, whether it's mining specifically in emerging markets, we need to start thinking about people first.

Speaker 0:
And we need to also think about strong governance. And I think you know, people always

Speaker 0:
tend to separate the E, the S and the G. But I think in the in the context of net zero and the context of climate and specifically in emerging markets, they are very much interlinked, a company that does not have strong governance that does not have a leader who is leading the transition and very much, um, you know, tied into local communities tied into government.

Speaker 0:
The likelihood of that transition plan being realised is is very low and and similar. You know that the that the S point holds you, you have to, um, consider livelihoods as a key part of any kind of strategy

Speaker 0:
and and staying with South Africa, there are any any sort of sectors in particular that are really doing well and and any areas of the country that's perhaps outpacing some of the other nations.

Speaker 0:
So I think I mean, I I love the story of of Anglo American as, you know, one of the biggest, um, biggest multinational mining companies in the world.

Speaker 0:
And,

Speaker 0:
you know, Anglo found itself, I think, a couple of years ago, like every other CO, uh, company in South Africa, very much beholden to the grid. So we have the, you know, the coal fire power energy utility Eskom, Um, as many people will know has been, um, failing effectively for the last, uh, couple of years and really impacting, um, businesses small and big, not just impacting from a power perspective, but also

Speaker 0:
from an emissions perspective. That's you know, if any, any company in any country, their scope to emissions are tied to the grid of that of that country. And South Africa's grid is 85% coal, despite the sun that shines and wind that blows. So what Anglo American has done is they have committed between three and five gigawatts of renewable energy to be built out by 2013 now 3 to 5 gigawatts of renewable energy

Speaker 0:
is about 10, you know, between eight and 10% of South Africa's entire grid capacity. So not only is Anglo, you know, one of the biggest leading, uh, multinational,

Speaker 0:
you know, uh, resource companies in the world. It's now gonna be a major supplier of energy to South Africa's grid. And so not only is it, you know, it's it's effectively diversifying what it offers and what it provides. It is gonna be

Speaker 0:
totally independent of South Africa's grid, but it's also going to be supplying that energy back into the grid. Um, renewable energy, of course, for for South Africa's, um, people to use. And I think it's an incredible story of how private sector,

Speaker 0:
um effectively steps up and starts ramping up the transition. Um, because because they have to, because without that, you know, Anglo American South Africa won't exist. Um, so that's a really great story. I think when you look when you when you sort of dig deeper into some of the companies, Um, and these are both listed and unlisted companies in in Africa. More broadly,

Speaker 0:
what you will often find is that companies are ahead of the countries

Speaker 0:
Um, and by that I mean that their net zero plans the way they're embracing, embracing the green transition that that we've been speaking of, Um, the way they are innovating and investing in that innovation. They are ahead of country level, nationally determined contributions and efforts towards climate change

Speaker 0:
and rob a lot of exciting companies, no doubt in this space and doing important technological work. But what about returns? I know investors have been often sceptical of investing in these kind of companies, but is it an area where you can now make some really serious returns?

Speaker 1:
So, Rory, um, I I'm gonna put it like this, uh, and and take it a step further and in terms of the South African context, But I think clearly highlighted, uh, Anglo American I I would say that what we want to start doing now is bucket. These companies, like Anglo American and others who are taking their just transition, uh, journey seriously and are doing, uh and are

Speaker 1:
actually to make an impact for investment and capital allocation decisions. And

Speaker 1:
we we know that there's we don't have a, for example, a Paris aligned or Net zero benchmark for the South African list of market. So what we've, uh, undertaken to do it, And we we've certainly, uh, undertaken to do the work, um, is to

Speaker 1:
bucket and create an index of companies that are along the lines and are taking their just transition commitments. Seriously, Now, that doesn't mean that we are going to exclude those companies that are, uh, have no interest in them. What we are saying, though, is that we want to upgrade

Speaker 1:
up those companies that are in terms of our index and make. And then this is this is very much the important point. Whereas if you exclude, uh, our companies from,

Speaker 1:
uh, the South African Share Weighted Index because they are high carbon emitters or have no interest and you you cut them out of of of the index, it makes that index. Uh, firstly, we are a smaller, uh, open economy that our our our market would look very, very dissimilar to what the current share weighted index looks like. Not only that, but it would introduce a whole lot of investment because of the the nature of the market.

Speaker 1:
So what we're saying is, instead of adopting an exclusionary approach, Let's rather adopt an an inclusionary one, have stewardship as the core fundamental basis of and and and reward companies, if you like that, are actually making that transition, taking the steps of implementing their climate action plans and are doing so in a just manner.

Speaker 1:
So you touched on two earlier points around diversity and water. Um, and I would add a third in equality. These are the things that are bothering South Africans very much. Uh, currently at the moment. Um and like I mentioned, you can't divorce anything that we do here from the social context. Um, So what we're saying is that

Speaker 1:
when When If we adopt an inclusion approach, bring all co companies that we are steward in along the journey, um, given and and rewarding those companies

Speaker 1:
while maintaining a about that those that are, those companies that are on the the journey are taking their order commitment seriously. And in addition, making sure that that underlying benchmark, if you like, is very much investable.

Speaker 1:
That's gonna be the the way that we can actually get our clients to adopt a different way of doing things and and allow. And in addition, uh, have that that benchmark to reach net zero goals in terms of our our our country's national defined contribution. I think this is like sounds like a a a AAA an excellent opportunity, which I think it is,

Speaker 1:
um, but that this benchmark has been missing. So we've taken it upon ourselves to to do the hard work to do, to create it. And then, at some at the the the ultimate proof of the pudding will be when when our clients mandates are changed to, uh, uh, have this as our local listed equity benchmark, uh, this just transition benchmark versus the current share weighted index, as as they see it. So

Speaker 1:
it's it's looking at it from a at a much higher level and saying which companies are are the ones that are investable into the future? Our future fit, Um, and let's reward them. Let's let's be invested in those companies. And let's benchmark our portfolios in South African listed equity against, uh, this particular bench,

Speaker 1:
Thanks

Speaker 0:
and Anica from a 91 perspective. How important is it to engage with both companies on either side, the newer technologies and also with the ones really trying to decarbonise their whole process.

Speaker 0:
I mean, it's it's super important. It's you know what? What we're doing every single day. To be honest, Rory, um, I think

Speaker 0:
rubs, you know, the the the point on on return is so important because,

Speaker 0:
you know, if you take a step back as an asset manager, our clients majority of our clients are are pension funds,

Speaker 0:
and and their clients are are pensioners. So, you know, the the risk return profile of your investment has to be one. You know, we can't take massive risks. We can't make massive exclusions, because within that, you know, you're taking a very you know, you're taking a position. And so what? What we have to do is, you know, without the judiciary duty effectively to price in, you know, any risk? Um,

Speaker 0:
uh, you know, integrate e s g into into every investment that we make. So whether that is a green solution or that is a high emitter,

Speaker 0:
we have to integrate e s g into that that sort of, uh, risk assessment process. From an engagement perspective, we have to be engaging on the e, the X and the G

Speaker 0:
whe where needed and necessary of course, and important for our clients is we have to be making a sort of between 7 to 9% return. And so when we you know, when we say, you know, we're investing in transition and we're investing in decarbonisation, it's not an impact investment.

Speaker 0:
It's a commercial investment. Um, and similarly, when we, you know, start talking about excluding investments, we have to start, You know, we have to think about what does that do to our the return in our portfolio. So

Speaker 0:
and I and and we've seen across the board in the last 18 months the investments that we've made in Africa in infrastructure, these are, you know, often unlisted companies, but in renewable energy and hydro in clean, um, cement in. You know, within our infrastructure fund, we have a strong return rate with almost no default on on the the, um, on the the debt.

Speaker 0:
So

Speaker 0:
you're not taking a risk here? You're You're actually investing in companies, in sectors and in regions that are both profitable that are positive for people positive for planets. And the alternative is is you. You see a company in your portfolio that has no transition plan

Speaker 0:
that has or or has a transition plan and has made absolutely no progress on it. That doesn't include people in their plan that doesn't have strong governance. And all of that is perceived as it should be perceived in the short to medium term as a risk. Because, you know, by 2030 by 2035 those are the companies that are gonna start getting left behind.

Speaker 0:
Well, I guess that's the point. Is engaging with the company is very difficult, but also, at some point you have to disengage. I guess sometimes if you're saying they make no effort and they haven't made any actionable steps to really meet their goals,

Speaker 0:
absolutely. And you know, we we've been on this journey as I mentioned since since sort of mid 2021 we really kicked off with our top emitter engagement strategy. Um, and you know, we we kind of prioritise our top 50% of our finance emissions. And we've been working with those companies specifically on their transition plans, making progress against critical indicators. And we haven't yet had to make that decision because

Speaker 0:
we have received really positive engagement feedback from our top emitting companies which we deem to obviously be the highest risk to our portfolio. So however, you know, we're now almost a year and a half in, and we want to start seeing progress. We keep, you know, the the the water keeps getting hotter and hotter for them, and we keep having to ratchet up what we believe. Good. Looks like,

Speaker 0:
um, the last 18 months have been about setting good transition plans, and we really believe that is a key indicator for us, you know, to understand what these companies are gonna look like in 2030. But now it's about the proof is in the pudding. What caps are we? Are you allocating to your transition portfolio? Um, you know what's happening to your missions in light of Russia? Ukraine? How has that affected? Um, you know, the transition strategy of oil and gas companies.

Speaker 0:
All of these things matter, and they obviously, you know, those were unforeseen circumstances. But we need to be seeing progress against the real world economics of the energy transition at large. And, um, you know, political systems that are that are, you know, political act under way. I just want to finish on this point and Rob, I'll come to you shortly. But

Speaker 0:
Anica, is it an efficient model? Is capital flowing into the right technologies in the right countries? What's what's the state of play at the moment?

Speaker 0:
I would love to say yes, but I I would say no, Um, you know, a couple of weeks back with the World Bank and IMF spring meetings. And that's kind of where, you know, big business big governments and your NGO s and your multilateral development banks all come together to talk about, you know, what are the key issues of our day? And how do different types of finance

Speaker 0:
help alleviate those problems? And what was so clear is that capital is not flowing into emerging markets. Capital is not flowing at the scale that is needed, or the for the urgency of the issue. Um, and a lot of the reason for that I mean, I would say there are two key reasons for that. The one is that your multilateral development banks and your public capital effectively. So your government capital is not financing

Speaker 0:
the right types of investments with private sector in mind. So they're not thinking about How does our dollar mobilise $10 of private capital? Because that's how you would kind of get finance to flow. And and second to that, is that a lot of the private sector to the private capital that is available to finance this innovation and finance Decarbonisation is locked very much in the global norms,

Speaker 0:
and there is a perceived fear and a perceived risk of investing in emerging markets.

Speaker 0:
Um, and I say perceived because a lot of the time it's not real.

Speaker 0:
Um and, you know,

Speaker 0:
to overcome that perceived risk requires a lot of proof points. It requires a lot of, um, changing of minds, changing of hearts, changing of risk, Premier um And that takes time. And so, you know, while we can continue to beat the drum, you know, Rob ourselves in 91

Speaker 0:
will continue to beat the drum that investing in emerging markets investing in transition is not only the most high impact thing you can do, but it provides the best return. And hopefully we beat that drum loud enough that that some of those hearts and some of those minds start to change on on that perceived risk

Speaker 0:
and rob with with that in mind, what can be done? What? How can we invest in these new technologies? Is it subsidies? Is it incentives? What do you think?

Speaker 1:
It's a lot of various levers, pools and the levers of finance here. Uh, Rory, it's, you know, it's essentially, uh if you take the green hydrogen as a test case, uh, for for investment, Uh uh, flows into emerging markets. It's a beautiful one. Because, of course, the the lowest, uh, dollar cost of production of per tonne of green hydrogen will will

Speaker 1:
will typically be found in those areas with the best sun and wind as as mentioned. We have, uh, in certainly in sub-saharan Africa to be among the best in the world in that particular front. Now, how do we get then? We kick start. Uh, a green economy is is probably the one.

Speaker 1:
There's a number of ways of doing so. Policy has to shift. Incentives have to be put into place. Importantly, though, the role of development finance. You know, uh, there's as as much as there's

Speaker 1:
and perhaps reticence of, uh, the global North into traditional project finance, bank ability of projects we are seeing a huge appetite. Um, from the d f i s and other institutions to, uh, unlock capital and to be able to employ capital and and, of course, uh, coming to what I was discussing,

Speaker 1:
uh, which comes into discussion around certainly around green hydrogen. And the green economy in South Africa is, of course, uh, the Jet IP programme. And that for me, is you know, if if the rollout of that the importance of getting that right there's not only one jet IP for South Africa, it's actually jet IP across many emerging markets.

Speaker 1:
Um, and if we get the the right, uh, funding models, the blended finance that that as it will entail from what I understand, it's not just one traditional finance model, but using, uh, innovative tools to

Speaker 1:
make those, uh, those in flow those investment flows, uh, actually work in non-traditional kind of markets. I think that it that it would be those are some of the ways I think that we can unlock the potential that that

Speaker 1:
alluded to. I I would really encourage those that are viewing that are involved in the in on the investment side, uh, to to look at at ways, uh, to to to take advantage of the opportunities set.

Speaker 1:
Um, those are looking to start, uh, green businesses. There is finance available. There's a lot of dry powder out there, and I think that it's just a matter of making sure that the the the the provider of capital and the U and the use of the cap that capital are well aligned and well connected in terms and in in a in a framework. I mean, we've seen it before. We've certainly seen it in South Africa.

Speaker 1:
Uh, the reprogram, uh, there's no reason why, uh, we we we shouldn't be able to, uh, effectively allocate capital and get this this, uh, this financial system and financial flows flowing. What we do need, though, is that additional step We do need the support. We need alignment by all the actors, all the stakeholders to ensure that that those funds flow smoothly. And that investment is that investment,

Speaker 1:
whether it be development, finance or not, is de risk as a result. And we're looking forward to developments in that in that sphere and hopefully soon so that that we can see the fruits, uh, coming through and the flows of funds coming through.

Speaker 0:
Well, I think that's a really important point to leave on Rob AA. Thank you very much.

Speaker 0:
Thank you so much for having me.

Speaker 1:
Thank you, Rory. Well,

Speaker 0:
thanks for watching. I hope you enjoyed that panel. I'd like to hand back over now to Chloe, who'll be doing the next panel. And again, thank you very much for watching.