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Old Mutual launches ESG rating system for unit trust funds

Picture: Karen Sandison/African News Agency(ANA)

Picture: Karen Sandison/African News Agency(ANA)

Published Apr 28, 2021



ESG Investing – focusing on environmental, social and governance criteria – is gaining momentum worldwide, with huge implications for how companies, and even governments, operate.

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As I have mentioned before in writing on ESG, the movement is especially strong among younger investors, who tend to blame their parents’ generation for global warming, environmental destruction and the alarming rise of inequality in developed nations.

Over and above the moral incentive, there is convincing evidence that investing in sustainable, environmentally friendly, socially responsible companies gives you better long-term returns than investing in companies that have low ESG scores.

The financial services industry is at the centre of the ESG movement, and when some of the world’s biggest players, such as global investment giant Blackrock, start taking ESG seriously, it’s time for everyone to do so.

There are several ways in which asset managers can get involved: through stewardship, whereby they influence how the companies they invest in operate day to day; through their investment selection processes; and through offering investors specifically Esg-targeted investments.

While a handful of South African asset managers have been active in stewardship for a number of years and have incorporated ESG criteria into their investment selection processes, only one so far, Old Mutual, has taken the step of offering a range of ESG funds to retail investors. They are the Old Mutual ESG Equity Fund, which invests in the local equity market, and two global funds: the Old Mutual MSCI World ESG Index Feeder Fund and the Old Mutual MSCI Emerging Markets ESG Index Feeder Fund.

Now, entrenching its position at the forefront of the ESG movement in South Africa, Old Mutual has introduced an ESG rating system for unit trust funds, the Old Mutual Wealth ESG Ratings. Developed in collaboration with MSCI, a global leader in investment research, the rating system has rated all the Old Mutual funds on the Old Mutual Wealth open platform and invites other asset managers on the platform to submit their funds to be rated.

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Farhad Sader, managing director of Old Mutual Wealth, says: “Responsible investing is a core value that has long underpinned the investment philosophy and process of the investment managers at Old Mutual, namely Old Mutual Investment Group, Old Mutual Multi-managers, Futuregrowth and Jupiter. We see this as the start of the journey to creating more transparency and visibility to help investors make more informed choices.”

Sader’s views are echoed by those of Elize Botha, managing director of Old Mutual Unit Trusts, who says: “Increasingly, we are seeing that, for investors, it’s no longer about profit at any cost but investing in funds that consider the environment, improve social conditions and promote good governance.

“ESG index funds grew by 221% to reach $189 billion (about R2.7 trillion) in assets in 2020, with $97bn net inflows and over 200 new ESG funds in 2020 alone, according to Trackinsight.”

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The MSCI system rates funds by assigning ESG scores to the underlying assets they invest in. These assets are not limited to shares in listed companies – government and corporate bonds are also rated, with the implication that governments are also under the spotlight.

Botha says Old Mutual started the project in December 2018 for its Wealth platform. “Initially, we thought we’d do our own rating scale, but then we thought no, it’s a little bit like marking your own homework and would not go down so well, so we looked at providers doing ESG ratings, and we chose MSCI because we were comfortable with their methodology.”

She says that while it was easy to provide MSCI with the necessary information about its own funds, it couldn’t do so for the non-old Mutual funds on the platform – hence its invitation to other fund managers on the Wealth platform to participate.

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The scale ranges from AAA to CCC, much like scales used by credit rating agencies.

“We have three Aa-rated funds – the Albaraka Income Fund, MSCI Emerging Markets ESG Index Feeder Fund and SA Quoted Property Fund – and 23 A-rated funds,” Botha says.

She says the company will soon launch a fund that invests in only the top 20% of the companies on the MSCI World ESG Index, which is likely to have an AAA rating.

On the general progress the South African investment industry is making, Botha says: “A lot of fund managers are talking about embedding ESG into their investment philosophy, which I think is essential, but I think there is going to be far more focus on funds that have ESG mandates.

“We have started a social media campaign creating awareness, because as people are looking at lower carbon emissions and at how they can use less electricity and less plastic, it’s a natural progression for them to reconsider their investments. And we are also speaking to financial planners… we want to create that awareness among our planners who are guiding clients.”


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