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Asset managers 'can do more' to help battle climate change

Published Dec 21, 2021

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While the efforts of some are admirable, asset managers in South Africa have a way to go to match international best practice when it comes to integrating climate risk into their investment decisions and their engagements with investee companies.

This was the overall finding of the 2021 South African Asset Manager Climate Risk Survey by non-profit shareholder activism organisation Just Share. Last week, Just Share published a report on the survey, which covered 31 of the country’s largest or most prominent asset managers, using both their direct responses to survey questions and publicly available data to assess their approach to climate risk.

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Just Share notes that, for the first time in South Africa, stakeholders such as retail investors, pension fund trustees, philanthropic foundations, university endowments, and civil society organisations can assess the extent to which the local asset management community is meeting international best-practice standards in integrating climate risk into investment decision-making.

Asset managers have substantial power to influence whether global warming is limited to the 1.5 degrees Celsius mark that must be achieved to limit the most severe impacts of the climate crisis. Asset managers’ portfolios, and their engagement with asset owners and investee companies, can make or break the achievement of low greenhouse gas emissions and climate-resilient development required by the Paris Agreement.

The volume of information published by many asset managers, combined with their extensive marketing campaigns, and the fact that there is no professional body or other entity in South Africa that analyses and verifies claimed responsible investment credentials, means that it is very difficult to assess whether investment decision-making is supporting a just transition to a low-carbon economy.

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The survey therefore sought to investigate the extent to which local asset managers are genuinely integrating climate risk into their investment decisions, using an assessment of three core components of climate risk management:

1. Governance (including: voluntary initiatives, accountability, incentives, technical knowledge, and the Task Force on Climate-related Financial Disclosure);

2. Stewardship (including: engagement priorities and disclosure, escalation, and voting); and

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3. Integration (including: strategy, policies, scenario analysis, and metrics and targets).

Just Share says the findings show that, while there are encouraging signs of local asset managers adopting the necessary approaches to successful, effective climate risk integration, relatively few of them demonstrate excellence when assessed against international best-practice standards. Those that do align with international best practice do so in some areas, but not in all.

“Survey responses also suggest that good practice in climate change integration is not related to the size or asset class focus of the asset manager, nor of its participation in local or international environmental, social and governance (ESG) and responsible investment initiatives. Rather, meaningful climate change integration is directly related to a manager’s commitment to the issue, specifically as measured through the existence of high standards of oversight and accountability at a senior leadership level,” Just Share says.

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“It is in the best interests of South African asset managers, their clients, and other stakeholders, that they keep abreast of rapidly evolving climate change-related issues, and are proactive with respect to adopting current best practices in integrating these into investment decision-making.

“Specifically, consistent and comprehensive disclosure, adoption of reporting aligned to the recommendations of the Task Force on Climate-related Financial Disclosure, the use of appropriate metrics and setting of ambitious carbon reduction targets (accompanied by pragmatic strategies for achieving them) should no longer be a “nice-to-have” for investors, but a minimum requirement.

“Looking ahead, managers should be actively considering how they plan to integrate issues related to human rights, the sustainable development goals and biodiversity into their investment strategies – something which very few of the surveyed managers are currently doing, but which will increasingly be seen as best practice,” Just Share says.

The organisation says its aim with the survey is to contribute to a better understanding of the status of climate risk management in the asset management industry, and to assist in identifying areas to enhance climate change-related decision-making.

“We have attempted to shine a light on those managers that are leading the way, in the hope that this will spur faster and more coordinated action to align investment decisions with the goals of the Paris Agreement,” Just Share says.

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