Market shocks and geo-politics impacting the ESG agenda in 2022

Market shocks and geo-politics impacting the ESG agenda in 2022

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At the midpoint in the lifetime of the United Nations Sustainable Development Goals, the release of the annual Nedgroup Investments Responsible Investment Report serves as a good proxy for the status of ESG in the South African Asset Management Industry. 

David Levinson, Head of Responsible Investment at Nedgroup Investments says that 2022 has been a complex year for Responsible Investing (RI) as the world tried to deal with the effects of the Covid pandemic as well as newer shocks like the conflict in the Ukraine and subsequent energy shock – all of which have had an impact on how companies approach RI and ESG. 

“ESG has come under the microscope in a big way this year and our report shows that while it is definitely top of mind for key players in the asset management industry, global forces have certainly impacted the progress made in certain aspects of the RI agenda,” he says.

Locally, the droughts in the Eastern Cape and flooding in Kwa-Zulu Natal brought home the immediate effects of climate change and the realisation that the environmental crisis is indeed a social one, too. Levinson explains that as global prices for gas, oil and coal soared, funds with the ESG label that exclude fossil fuel exposure have underperformed by some margin. “Although a rather over-simplification, as no two approaches to ESG are the same, this has bolstered the platform of ESG’s most vocal critics.” 

The survey, now in its third year, canvasses the asset management industry of South Africa alongside our global partners, and has shown a marked increase in the extent to which Environmental, Social and Governance factors play a role in decision making amongst asset managers. 

According to the data, 86% of fund managers disclose their AGM voting results to investors and the public, up from 78% in 2021. 

Impressively, 96% of fund managers interact with boards and executive leadership teams in an attempt to influence the company’s management of ESG factors, and a further 69% specifically look to address people diversity issues – however, only 52% of those surveyed have an engagement policy in place. 

“This is an encouraging indication that transparency in the industry is being driven from the top, but there is still a need for a more structured and consistent approach,” says Levinson. 

It’s also clear that the past year has brought the human and social risks to the forefront for many asset managers. 66% of fund managers surveyed identified human or labour rights risks to their portfolios – such as labour rights in mining, human rights risk in supply chain and unsettled labour and union strikes, among many others. 

Biodiversity risks and climate risks and opportunities also remained top of mind as summarised in the word clouds below. 

    

Levinson says they have also adopted a behavioural science approach to analysing RI in the South African investment landscape. In a research collaboration with the University of Pennsylvania, the teams identified 6 profiles that distinguish how investment professionals’ approach Responsible Investing. 

Levinson says RI can and should also be applied across Passive Investments. From the report: “While passive asset managers do not have a say in the weights assigned to certain investments – they can still contribute to the discourse on how invested capital can be used sustainably in the long run.” 

For more detail on the survey results, download the full report here .