South Africa: Asset managers need to raise their game on climate change, survey finds

Just Share surveyed 31 South African asset managers to assess their approach to climate risk in their investment decisions.

While there are some encouraging signs among local asset managers, there is a long way to go, says Robyn Hugo, director of climate change engagement at Just Share. “Relatively few of them demonstrate excellence when assessed against international best practice standards,” she says. “Those that do align with international best practice do so in some areas, but not in all.”

Many asset managers run marketing campaigns to convince clients of their responsible investment credentials. But there is no standard format or requirement for this information, and no professional body in South Africa which analyses and verifies the credentials, the report argues. The result is that there is “no way to distinguish between those asset managers who are taking climate risk seriously and those who are not.”

Research by the late Robert Scholes and Francois Engelbrech at the University of the Witwatersrand published in September found that southern Africa is particularly vulnerable to climate change because of its geographical location and state of development. Warming in the interior of southern Africa is occurring at about twice the global average, the research found.

• Yet South African companies such as energy and chemical giant Sasol have drawn criticism for refusing to table shareholder-proposed resolutions on climate change from organisations including Just Share.
• Many managers in the Just Share survey do not appear to focus on climate risk, but rather consider that it is adequately covered by a broader (environmental, social, and governance) ESG approach, the survey finds.
• The report recommends that asset managers should raise their game on transparency and public disclosure.

Recommendations

The global Financial Stability Board (FSB), which coordinates national financial authorities worldwide, in 2015 created the Task Force on Climate-Related Financial Disclosures (TCFD).  In 2017, the TCFD released climate-related financial disclosure recommendations for companies.

Though most managers in the South African survey publicly support the initiative, there is still “very limited uptake” by the managers themselves of reporting aligned with the TCFD. Asset managers should fast-track their uptake of the framework, the report says.

• Managers need to publish their policies on climate change, their engagement priorities, escalation policies, and their stance on proxy voting.  Results and rationales for proxy voting should be in a searchable database and updated soon after voting.
• There are still extremely limited opportunities for South African investors to access climate change-related investment strategies. Managers should recognise that demand for these opportunities exists and is growing, the report says.
• Only three surveyed managers said that they have explicit climate change-related incentives. Remuneration policies should include specific climate change-related targets.
• Most managers in the survey said that none of their employees responsible for climate change integration has technical climate change-related qualifications. Employers should hire people who have the needed expertise, and provide mandatory internal training.

Bottom Line

Action on climate change is expensive, but the reputational risks of greenwashing are growing all the time.