Minority of SA asset managers are serious about climate change, and some just pretend to be

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Only a fraction of South Africa's asset management firms have incentives to reward their portfolio managers, executives and board members for climate change related performance.
Only a fraction of South Africa's asset management firms have incentives to reward their portfolio managers, executives and board members for climate change related performance.
Picture: iStock
  • Just Share has published its first South African Asset Manager Climate Risk Survey.
  • The organisation found that many say ESG issues are an integral part of making investment decisions.
  • But their incentives, investment strategies, and their teams' makeup don't always show this.

Only a fraction of South Africa's asset management firms have incentives to reward their portfolio managers, executives and board members for responsible investing.  

According to shareholder activist organisation Just Share, only eight asset management firms who responded to its inaugural climate risk survey said they have any climate change-related financial incentives.

Just Share decided to conduct the survey in question because while local asset managers publish a lot of information to convince clients and the public that they are responsible investors, no professional body or other entity certifies or verifies the truthfulness of such information.

Just Share's concern is that some asset managers could be claiming that they assess, disclose and manage climate risks while they actually continue with business as usual. This could be creating a false perception that the financial sector is doing its part to transition SA's economy to a low-carbon one when it isn't. 

"There is no way to distinguish between those asset managers who are taking climate risk seriously and those who are not," wrote Just Share in the report.

So, the shareholder activist organisation surveyed 33 asset managers and also used publicly available data to delve deeper into the extent to which they genuinely integrate climate risk into their investment decisions. Not all the firms it invited to participate responded. But Just Share managed to compile a report covering 31 of SA's largest asset managers.

When it asked asset management firms about their climate change-related incentives, only eight out of 23 who responded said they have those in place to encourage responsible investing. That's only 35% of firms who responded.  

But even for those who have incentives, the rewards are based on portfolio performance in most cases. They then look at the extent to which the portfolio managers considered environmental, social and governance (ESG) issues when making the investment decisions.

However, Just Share argues that this indirect incorporation of ESG into performance indicators is not the same as incentivising decision-makers to deliberately drive climate change. 

Only three Futuregrowth Asset Management, Nedgroup Investments and Perpetua Investment Managers have that in place.

Why does it matter?

Controlling over R5 trillion of SA's savings pool, asset managers have substantial power to influence whether the world's fight against global warming succeeds. Just Share believes that its investments and the way it engages investee companies can make or break the climate change goals set by the Paris Agreement.

But to play that role effectively, asset managers need to be deliberate about addressing climate change through their investment decisions and know how to do that.

However, instead of an explicit climate change strategy, Just Share said many respondents said ESG issues and responsible investing are "embedded" across the organisation.

"This is very difficult to verify but appears to be at odds with the concurrently reported low levels of engagement with climate risk issues at the level of senior leadership, specifically at board level," said Just Share.

Furthermore, of the 23 firms who responded to Just Share's survey, only four (17%) reported that employees responsible for climate change integration in their investment decisions have climate change-related qualifications.

Just Share could not find any publicly available information on whether investment decision-makers in firms that didn't respond have climate change-related qualifications. Ninety One was the only firm that reported it has more than one person in its investment team who possesses change-related qualifications.

All is not lost, however. Fifteen of 23 asset management firms that responded have publicly available climate change policies or position statements on the issue. But Just Share finds it concerning that a large number of asset managers still have not adopted a climate change policy or position statement.

Another good news is that 21 of responding firms reported taking steps to identify material climate change-related risks to their portfolios. Twenty have taken steps to identify the negative impact of their investments on climate change. But most only share this information with clients only when requested.

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