As worldwide concern around climate change and global warming grows, many South Africans are seeking new and innovative ways of reducing, recycling and conserving to mitigate against the various risks associated with these threats. In response to this trend, local millennial investors are questioning the role of their investments in addressing these environmental challenges.
In light of World Environment day, celebrated annually on June 5, Elize Botha, managing director of Old Mutual Unit Trusts, says that millennials are far more likely to consider environmental, social, and governance (ESG) factors when making investment decisions than older generations. She points to recent research by the Morgan Stanley Institute for Sustainable Investing that revealed in 2017 that millennial investors are twice as likely as the overall investor population to invest in companies targeting social or environmental goals.
Botha says, "The purpose of integrating ESG factors into investing is to focus on companies that support environmental protection, social factors and good governance principles while pursuing returns from firms that have better ESG scores. "
ESG investments have repeatedly demonstrated that capital employed sustainably can not only meet, but often outperforms investors’ return expectations. Research by Old Mutual Investment Group showed that companies with robust sustainability practices demonstrate better operational performance, which translated into higher cash flows. “A meta-study of 190 different sources in a 2014 study by Oxford University and Arabesque Partners showed that 80% of reviewed studies demonstrated that prudent sustainability practices have a positive influence on investment performance,” says Botha.
To identify the most sustainable companies in South Africa, Botha explains that Old Mutual Investment Group employs a team of analysts who are dedicated to monitoring the ESG scores of companies listed on the Johannesburg Stock Exchange. "Using the proprietary weighting of a leading international index provider, the Morgan Stanley Capital International (MSCI) benchmark, Old Mutual Investment Group has built a unique local index that identifies companies with the highest ESG scores,” says Botha.
“Responsible investing calls for all asset owners to build ESG requirements into their investment mandates. While the index itself does not have absolute ESG screens, the index construction process is based on peer-relative ESG performance. This process, in turn, encourages asset managers to be mindful of these issues when constructing portfolios – something that every asset manager, regardless of their investment strategy, should be doing.
With increasing consumers holding companies accountable for how their behaviour impacts society and the environment, the demand for investment in sound, quality, ethical companies will grow,” says Botha.