Speaker 0:
joining me Now in this exclusive interview on the E s G virtual conference. Nicole Martins, head of stewardship at the old Mutual investment group Welcome, Nicole.

Speaker 1:
Thank you very much for having me.

Speaker 0:
So, Nicole, we're looking at how to optimise portfolios and addressing the 17 s. D. G. S. What are the United Nations S. D. G s? And are they perhaps biassed toward addressing the challenges that emerging markets face?

Speaker 1:
Well, thanks, Chloe. I think it's always a good place to start, right? It's what even are these goals. So the sustainable development goals are essentially, I would say, a business plan for global sustainability. It's a set of objectives that are intended to cover social, economic and environmental goals to get the world into a more sustainable, more inclusive, more coherent place. Um, they are global goals. The idea

Speaker 1:
is to have an impact globally. But some of these are, uh, challenges and constraints are more pronounced in emerging markets. But there is no one market, no one region that's got everything figured out, and that's and that doesn't have challenges to address.

Speaker 0:
Um, so then, with regards to the priorities that emerging markets do face are they different than developed? Um, markets when it comes to addressing the S D. G s that that they need to to look at

Speaker 1:
Yeah, I would think that each and every market has unique, uh, challenges or or experiences challenges in unique or more nuanced, differently nuanced ways, I think in emerging markets in general. But in Africa particularly, there are some social challenges or social s d. G s objectives that are far more palpable. So each of the S D. G s is important. Each of them needs to be addressed in every single market around the world. But some of the

Speaker 1:
are a lot more, uh, tangible for people. So in, uh, emerging markets in Africa, particularly somewhere like South Africa, for example, things like inequality, poverty or unemployment are things we see the impact of every single day. Um, things like climate change or even sort of marine, uh, health. Things like that. They start to feel a little bit more

Speaker 1:
abstract or ethereal. They're not quite as real for people, but all of them are equally important. And you'll find that some issues are, um, interconnected. Right? So there's no one s d G that operates in a silo where you can focus on just that, uh, and solve that problem one at a time. There's a definitely an interconnectedness and relationship between these different issues.

Speaker 0:
So, Nicole, then you at the old Mutual Investment group, How do you link the S T. G s to both your investment process as well as to, uh, to e s G.

Speaker 1:
Yeah. So that's a really good question. And I think it's something that a lot of companies in a range of different industries are grappling with is how do we play our part? How do you integrate

Speaker 1:
this sort of global challenge and this global mission to corroborate, uh into the way that you do business, Uh, for us at Old Mutual Investment Group, we took a very deliberate and strategic decision not to rainbow wash. So not to take an approach where we try and be all things to all people solve all problems. When you look at the S TT s, they are 17 of them. Within that there's 100 and 68 to 100 and 69 specific targets.

Speaker 1:
We know that we're not in a position to solve all of these things. But we acknowledge that there are some issues that are most material for our market for the context in which we operate. And there are some things where we have a direct ability to influence progress. So for us, we're really focused on things that we feel are most important or most relevant for, uh, South Africa, for example. So we focus on, um, the just transition

Speaker 1:
to net zero. So we're looking in that sort of encompassing this idea of addressing climate change, getting to more sustainable economies in a way that is not, uh, too socially disruptive when it comes to things like employment and poverty. Um, we're also looking at water. We know that water stress is a global challenge, but specifically, uh, very relevant in South Africa. So we expect companies in which we

Speaker 1:
invest to have a plan when it comes to responsible water use. Uh, and then we also obviously as the most unequal country in the world, feel like it's only right for us to focus on inequality and working with the companies in which we invest, and with ourselves as a company to make sure that we are contributing to the solution and not making things worse. When it comes to inequality across the market and the way that we've chosen to focus on these issues, the way that we've chosen to approach it is to say,

Speaker 1:
uh, what are the issues that, like I said, are most material? But also, what are some of the issues that are,

Speaker 1:
um, enablers of progress in others? Right. So instead of taking uh one specific goal and trying to fix that in that goal in its entirety, we really start to say, What could we do that could unlock potential to solve for many problems. So something like climate change, for example, it's not the only, uh, issue that we need to focus on, but it is, uh, the most urgent, and it's something that exacerbates all the other issues. So for us, it makes sense to focus on that component

Speaker 1:
and to do so in a way that makes sense for our market. So that's when we talk about this just transition to net zero. We're looking at a transition towards lower carbon, more sustainable economies, but not at all costs right, taking into account social dynamics. So the way that we're looking at it, I think, makes sense for us. We're focusing on materiality on interconnection and relationships between the issues and really on trying to do what we can within our sphere of influence. And I think the last thing I'll say on

Speaker 1:
that it is just that our approach is also Prioritises s t G 17, which is around collaboration. So we fully acknowledge we can't solve for all things. We can't do this by ourselves. We're just one player in in one market and one continent. Um, so we're very open to partnering with the, you know, the companies in which we invest with our clients with our peers in the industry with policy makers and regulators. We work with the broad stakeholder group. To try and do this together is the only way that it's gonna work.

Speaker 0:
Thank you, Nicole. So, Nicole, we've spoken before and mentioned that South Africa is ranked as the 12th largest carbon emitter globally, China ranks as number one at 36% of global carbon emissions. How through your global allocations, then would you influence change, um, to address the S d. G of climate change?

Speaker 1:
Yeah. So also a great, uh, question. So obviously, when we look at our sort of listed equity portfolio, when we look domestically there we are very hands on in terms of our stewardship approach. Right. So we are engaging directly with those companies on their climate targets. We've signed up to the Net zero asset Managers initiative. So we are working hard on getting our, uh, carbon

Speaker 1:
footprint, uh, as low as possible. And we're doing so actively with those companies when it comes to our offshore allocations, we apply the same policies, the same principles, the same approach. So we still want those companies to be actively managed and actively stewarded. Um, but we don't have the same capacity to do that as directly. So we

Speaker 1:
do that through third parties. So the platforms that manage our offshore investments, uh, we meet with them regularly to review our policies and their policies, We inform them of our objectives. And we make sure that any engagement stewardship that's done on our behalf any of the proxy voting or company direct engagement is done according to what it is that we are trying to achieve globally. So it's slightly different methods, but the objectives remain the same.

Speaker 0:
So, Nicole, you said that at times it might be challenging to address all the S d. G s within one investment approach. What is the challenge of constructing a local portfolio to optimise and addressing as many s D. G s as possible?

Speaker 1:
Yeah, I think there's a couple of challenges. So first of all, it's just the scale and scope of the S. T. G s right. Is that,

Speaker 1:
uh, if you really wanted to you could with any investment address, say you're addressing or contributing to addressing multiple S T. G s. Right. Um but I think when it comes to developing a product or a portfolio, um, with the intention to solve a particular problems, there are a number of challenges. I think principally there would be around the data. So we struggle, uh, to get the data at the moment around,

Speaker 1:
uh, specifically in emerging markets. But just in general, on these issues, so different markets Industries have different regulatory requirements. Different policies around what companies are expected to measure or disclose, Um, and then also what they're expected to do with that information. Um, and and how they're supposed to respond to sort of investor intervention on that. So I think that's probably a big one. Um, there's also, I think, a question around, you know

Speaker 1:
how to what extent do you want to address these s d t s? Right. So do you want to be able to say that you've contributed by investing in, uh, companies in in industry, for example that broadly addresses an issue, or do you want to address it by investing in companies that specifically are trying to solve that problem so almost like a social enterprise or an impact investing approach? So it really depends on

Speaker 1:
what is your intention? Um, is your intention to contribute broadly or is it to solve specifically for a problem? And then, you know, at, uh, what is your expectation there in terms of the return that you require versus the impact that you're looking for? What's the balance that you're willing to put together? So I think all of that can get very complicated. Um, I also think there's a lot of work that needs to go into designing that product or that portfolio, uh, in an appropriately nuanced way.

Speaker 1:
So as we say, the s TT s are global, but as already covered, you know, some are more material or more urgent. We're pressing or more tangible in different markets. And you need to be cognizant of that so that you aren't asking for something that's completely, um, unreasonable in a particular or irrelevant in a particular market.

Speaker 0:
So, Nicole, then locally, what have been the developments with regards to new policy formulation and regulation to support addressing the the S D. G s.

Speaker 1:
Right? Well, I mean, South South Africa, specifically, we've done

Speaker 1:
quite a bit of work in terms of the early work in developing these policies, especially around the financial sector, and supporting, uh, investment that is intended to further sustainable development over time, um, specifically around financial services. There's been a lot of progress around disclosure for institutional investors around, uh, the requirement to integrate environmental, social and governance factors into the way that we make investment.

Speaker 1:
In the last few years, we've seen the industry regulator propose, um, increased disclosures around the sustainability of investments of portfolios. Um, they're not quite mandatory just yet. Um, it is still guidance, but we've also seen the J S E come to the fore with some disclosure guidance that we hope would eventually become mandatory. The sustainable finance Initiative, through the national treasury and partnership with the I f. C, has also put together sustainable finance

Speaker 1:
finance handbooks, the national green finance tax taxonomy. Um, and, uh, also advocated for the use of frameworks like the t c f D. So I think that there has been a lot of movement in that space, and the F S C, as I mentioned, has just brought out, Um, it's note on consultations it plans to have in the next year or two with the industry about how we can up the game in terms of disclosure for supporting, like I say the,

Speaker 1:
you know, supporting not just the disclosure of data but the use of this data to develop plans of action to actually solve the problems. So we do see, uh uh, emerging regulation there. And then, of course, it's a different industry, um, or sort of sector levels. We've seen a lot of regulation increasing around disclosure of specific data but also, uh, health and safety standards and operational standards, which try to address the problems at a more granular level.

Speaker 1:
So there's progress. Uh, it's it's been slightly disjointed, but, um, it's definitely moving in the right direction.

Speaker 0:
So then, Nicole, what would dictate the E S G metrics that local companies would be required, um, to disclose on is it are there certain regulations that require disclosure or is it simply guidance?

Speaker 1:
Yeah. So I think, um, when it comes to the local market to the South African market, there are specific regulatory requirements. So if we look at listed companies, for example, as part of the listing requirements, there will be specific data points that you are required to disclose as part of your sort of integrated annual report. Um, the J S C has put out some further guidelines. So, uh, around sustainability and climate disclosure

Speaker 1:
specifically, But those are just suggestions. So, um, they're not mandatory. And then there'll be other frameworks, um, that companies can sign up to voluntary and sort of international associations or industry bodies that again might have suggested, uh, data points that they would recommend that you disclose, Um, things like the g. R I or IRS frameworks exist for that purpose. But the requirement is dictated almost solely by regulation.

Speaker 1:
uh, unless as investors, you sort of put pressure on the companies and you require them to disclose specific information to you, which does, in some cases, affect what is disclosed. So we've seen that in in terms of shareholder resolutions in the local market, around things like climate strategies, where there's no legal requirement to have that. But because investors have put pressure on specific companies, they now produce those,

Speaker 1:
um, but in terms of the exact data points or something like, uh, reporting on your impact on the S. D. G s, um, the regulatory requirement would be where the push comes, and that at this stage is nascent. So, um, there's very basic sort of data points that are required In some cases. There's even data that's required to be reported to a national body. So it

Speaker 1:
to the Department of Labour. But you're not required to disclose that information in any public forum. So some cases that that exists, but it's not disclosed. And in other cases, uh, because there's no disclosure requirement, it's not even collected in the first place or measured. So regulation plays a huge role in, um, getting the information out into the sunlight.

Speaker 0:
So then, in an ideal world, Nicole, what would be mandatory? And are we seeing alignment between South Africa's disclosure requirements and perhaps developed markets?

Speaker 1:
So I love this question. So, uh, I suppose everyone's ideal world is subjective, right? So from my perspective, from Old Mutual Investment Group, when we think about trying to be an effective, responsible investor, um, what would be ideal for me? I think would be

Speaker 1:
companies would have to report in alignment with a decision, useful framework. So let's think of something like the task force for, uh, climate related financial disclosures, the T C F D. And there's now also a t N f D. So the task force for nature related financial disclosures frameworks like that I feel are very useful because they aren't retrospective reporting framework.

Speaker 1:
They are forward looking business strategy, sort of development tools where they say, you know, you're not just looking at, Oh, how much carbon did we emit in the last year? You're saying What is our baseline? What is our target? Where do we need to get to and how do we plan to get there? What is the governance mechanism that we need to get there. What are some of the, um, scenario analysis that we've done that have got

Speaker 1:
guiding our approach? What are the resources we will need and what's the plan look like? So for me, in an ideal world, that kind of reporting would be mandatory. Um, I find South Africa's, uh we we were so a couple of years ago, considered to be very progressive in our regulatory frameworks. Um, but we have slowed down somewhat. We have a lot of guidance.

Speaker 1:
Um, I think our regulator has recently actually put out notices around what they would like to be able to regulate in the next few years. And that is all around the sustainability of investments. Um, and the disclosures are around, you know? Are you taking these things into account? How so? What are you doing with this information? So all of that is on the right track, and it's great to see, but we're still a few years away from that being enforced.

Speaker 1:
Um, I think also what would be ideal is for companies of their own volition or through something like a listing requirement to be required to

Speaker 1:
report on information that is material for the context in which they operate. So I don't think it serves anyone to have a blanket approach to, you know, these are data points that we consider, um, important that everyone needs to report on unless those issues are material in that context. So things like, um, your plan to get to lower carbon operations that's relevant

Speaker 1:
regardless of what sector you're in. Um, your plan for addressing this growing inequality gap that is very, very important. It doesn't matter what business you're in. You hire people. People are affected by this, so it makes absolute sense. Um, and then obviously, in different industries and different businesses, there will be things that matter more or that are more controllable than others, and and so they can be flexible. But I think on those fundamental principles

Speaker 1:
that apply throughout, um, in an ideal world, you would have no choice but to report on that because reporting remember disclosing that data, you don't, uh, do that in and of itself. You know, it's a data for data's sake. You're putting that out there because it's a starting point for a plan to actually change something. So I think in a perfect world. Um, where there are things that we can all agree are important to change, you should be required to disclose on your your, uh, baseline and your plan.

Speaker 0:
So then what is the outlook to aligning portfolios to address S D. G s as well as, um, striving to achieve a financial return for for clients?

Speaker 1:
Well, I think that, um, there's a growing sort of acknowledgement that the two are interlinked. Right. So, um, we've heard that expression about how there's no return on a dead planet, uh, simultaneously that you know, there's no return on a planet that's descended into chaos because of mismanaged social issues or poor governance. And so I think people are understanding that,

Speaker 1:
you know, understanding E S g uh, in an effort to sort of get to that ambition of the the S D. G goals makes business sense. It's not, uh, separate to return. And so the market is grappling with right now. How do we work with, uh, our current portfolios, uh, to get them through

Speaker 1:
this transition to the new normal? And how do we keep an eye out for new different ways of investing different ways of putting together products so that we are supporting businesses that solve for these problems. At the end of the day, the purpose of a business should be to solve for a problem. It should be to answer a question, to solve a problem, to meet a need. And I think there's a growing understanding now of what the need really is, where the focus should be and that there's a significant opportunity that exists in that, um, for investors.

Speaker 0:
Absolutely. Nicole, thank you very much for your time. It was nice chatting to you about how to optimise portfolios and addressing the S D. G s. Thank

Speaker 1:
you very much for having me.