Most of the 31 largest asset managers in South Africa perform poorly in their climate integration initiatives when assessed against international best practice standards, a survey by the shareholder activism group, Just Share, shows.
Asset managers’ portfolios and their engagement with asset owners and investee companies, have a crucial role to play in greenhouse gas emission reduction and climate-resilient development required by the Paris Agreement, and the Just Share survey is the first time stakeholders such as retail investors, pension fund trustees, foundations, university endowments, and civil society organisations can assess the extent that the local asset management community is meeting international best practice in integrating climate risk into investment decision-making.
Just Share’s director of Climate Change Engagement Robyn Hugo said the findings showed that there are encouraging signs of local asset managers adopting the necessary approaches, and those that do align with international best practice in some areas, but not in all.
The South African Asset Manager Climate Risk Survey covered 31 of the country’s largest and most prominent asset managers, using their responses to survey questions and publicly available data to assess their approach to climate risk.
Hugo said information published by asset managers, combined with their marketing campaigns, and the fact that there was no professional entity in South Africa that verifies claimed responsible investment (RI) credentials, meant that it was difficult to assess whether investment decision-making was supporting a just transition to a low-carbon economy.
Disclosure, adoption of reporting aligned to Task Force on Climate-related Financial Disclosures (TCFD) recommendations, use of appropriate metrics and setting of ambitious carbon reduction targets and implementation strategies should no longer be a “nice-to-have” for investors, but a minimum requirement, said Hugo.
Only three managers reported having climate change-related incentives - incentives for investment professionals that integrate factors beyond pure financial performance were key to achieving climate change-related outcomes, she said.
The survey showed South African asset managers were not aligned with global best practice when it came to transparency that assisted stakeholders in assessing their approach to climate risk, and whether it resulted in real-world outcomes.
Many managers did not appear to focus on climate risk, but rather considered that it was adequately covered by their broader ESG-integration.
A number of respondents elaborated on their selection by stating that ESG integration or RI was “embedded” across the organisation – usually stating that this was an integral part of how they make investment decisions.
Just Share said this is difficult to verify, but appeared at odds with the concurrently reported low levels of engagement with climate risk issues at the level of senior leadership, specifically at board level, and did not appear to be reflected in responses relating to stewardship and climate risk integration.
The survey also found there were still “extremely limited opportunities” for local investors to access climate change-related investment strategies that encouraged better alignment of asset flows with the goals of the Paris Agreement on climate change.
There was also still “very limited uptake of TCFD-aligned reporting by managers themselves”, although most managers reported they support the TCFD and plan to align their disclosures with the framework in two years.
Globally, the TCFD is becoming the most widely used and credible reporting framework for companies and other organisations to guide improved disclosure of material climate related financial risks and opportunities
Most surveyed managers said none of their employees responsible for climate change integration possessed technical climate change-related qualifications. Of 23 active respondents, only four reported that employees who were responsible for climate change integration possessed technical climate change related qualifications.
BUSINESS REPORT ONLINE