A BRICS code of responsible investment ’is necessary’
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By Fatima Vawda
CLIMATE change is here, the prolonged drought and increasing temperatures in 2019 saw the worst bushfires in Australia’s recorded history that started in September and lasted for nine months.
In southern Africa we experienced drought and extreme events such as tropical cyclone Idai that caused severe destruction. These events seem like such a long time ago since the World Health Organization declared Covid-19 a global pandemic in March 2020 resulting in lockdowns on a global scale.
Since then, the world has experienced multiple waves of Covid-19 outbreaks associated with different variants of the virus and various levels of lockdowns. These have resulted in extreme physical, emotional, and economic hardships on individuals, families, communities and countries.
Recently, the Mediterranean countries experienced unprecedented heatwaves causing wildfires that have destroyed forests, tourist spots and farmland. Parts of China, India and Western Europe in the last two months suffered the worst natural floods in over half a century.
The combined impact of climate change and Covid-19 is dire, especially on eradicating poverty and in achieving many of the other UN Sustainable Development Goals.
In South Africa, the National Treasury released a technical paper in 2020 titled “Financing a Sustainable Economy”, which helps pave the way forward. In this document there is a recommendation as follows: “Develop or adopt a taxonomy for green, social and sustainable finance initiatives, consistent with international developments, to build credibility, foster investment and enable effective monitoring and disclosure of performance.”
A green taxonomy can be used by investors, issuers, and other financial sector participants to track, monitor, and demonstrate the credentials of green activities in a more confident and efficient way.
The approach to this work, although founded on international best practice, was also to ground it in the reality of emerging economies. The definition of climate finance thus included “the cost of transitioning to a low carbon and climate resilient economy”.
This recognises that although the ultimate aim is for finance to be directed at green initiatives, which cannot happen overnight without significant socio-economic impacts. Thus, financing not only the end goal, but also a true transition that leaves no one behind, or a “just” transition, is essential in South Africa’s case.
This work together with various standards such as the UN Principles for Responsible Investment is available to BRICS nations to formulate a code that is aligned to the goals of BRICS member nations contexts. In doing so, we can better measure, monitor and target investment with the socio, economic, and environmental contexts of the member states and the exigencies of the global South.
I believe that such a code will mitigate Jawaharlal Nehru’s concern that “the forces in a capitalist society if left unchecked tend to make the rich richer and the poor poorer”.
The 2009 inaugural BRIC summit centred not only on enhancing future co-operation but also on improving the global economic situation and financial institutions in the aftermath of the global financial crisis. Since then, with South Africa’s inclusion, the BRICS financial architecture includes the New Development Bank (NDB) which aims to support infrastructure and sustainable development efforts in BRICS and other underserved economies. It is founded on the principles of equality and democracy and includes sustainability and transparency in its values.
Current evidence shows that the Global South will be most adversely affected by climate change which will exacerbate low economic growth, food insecurity and migrations.
The NDB can make a tremendous contribution towards responsible investment given that it is considering establishing a dedicated environmental, social, governance (ESG) department. It is for this reason that I believe a BRICS code of responsible investment is necessary for transparency and promoting shared values not only amongst member states but the Global South.
Like the UN Principles for Responsible Investment, it should be outcomes-based so that member nations and partners can monitor its contributions to sustainable growth and development. The drafting of a BRICS code for responsible investments may be the first task of the planned ESG department.
Fatima Vawda is the founder and chief executive of 27four Investment Managers
*The views expressed here are not necessarily those of IOL or of title sites