Treasurers’ Conference – ESG in Fixed Income Investing

Ray Wallace from Taquanta Asset Managers, in a Q&A with David Levinson, discusses ESG in the fixed income space.

Taquanta’s corporate culture
When I started in the industry, responsible investing was common sense and there was respect for people. Some of our youngsters haven’t been exposed to the ethical way of doing business. You don’t get to invest money and not lose it without understand the concepts of responsible investing. We have R250bn AUM and what I say to younger members of the team is that there is a responsibility attached to managing large amounts of money in ensuring it is allocated to the right areas of capital and types of businesses. It took a 16-year old Swedish girl (Greta Thunberg) to remind the world of the importance of responsible investing. What type of world is it that we want to live in? How can we improve the lot of everyone in the world? We need to think about not just us as a company, but for everyone, including investors. We need a balanced approach to getting returns and being responsible at the same time. We are one of the biggest funders of the big four banks so, while don’t have direct influence on the borrowers, as one of the biggest bank funders we can influence the banks and the way in which they think.

Do you look for the same culture in the companies you invest in?
You can get a feel for the culture of a business and it comes down to the type of people that you want to do business with. It’s easy to greenwash. It’s more around the real culture of the leadership and the people – are they decent people who want to see their staff improve their lot in life? Do they care about the community around them? You want to find companies who think like you do, who care about all aspects of responsible investing.

How do you assess the full ESG risk associated with credit?
This forms part of the credit process within a company like ours. We can’t fire the directors or change policies as we don’t have a vote. But, we do have the ability to not fund somebody and create a situation where their cost of funding increases, which forces shareholders to put pressure on them.

The reporting of sustainability risks and opportunities
The companies listed on the JSE have generally done well in terms of how they report on ESG. An entity like Eskom though, is something that we can’t do without, but it has to be funded. My issue with the government is around governance that should have been changed years ago. Eskom is effectively a polluter, hasn’t been able to meet its pollution requirements and fund managers have been withholding funding from them. The only way to change this is to be able to pick where you fund and how you fund. I foresee a situation where Eskom is not funded directly, but where  investors pool their money with Government funds and direct it under responsible management, to particular infrastructural or power generation projects.

What is Taquanta doing to progress their own ESG journey?
Our own Board is now constituted of majority black female directors and reflective, overall, of the demographics of South Africa. This diversity is then passed down the business structure, in terms of our staff. It’s difficult to assess companies regarding ESG without information though. We’re busy therefore, trying to establish a joint venture with a specialist ESG research company to assit us with obtaining more ESG data. In the South African environment, we need people who can work on the ground and understand the management culture and ethics and the connection within our local environment. We can then work with good information, enabling us to make good decisions and spend money responsibly on behalf of our clients.