SEIFSA urges M&E businesses to showcase their environmental stewardship
APRIL 2021 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) once again calls on companies in the Metals and Engineering (M&E) sector to submit their entries for the 2021 SEIFSA Awards for Excellence in the Environment Stewardship Award category.
Now in their seventh year, the SEIFSA Awards for Excellence seek to promote and reward innovation and excellence in the M&E sector, with this year’s entrants to be assessed on their performance during the period 1 July 2019 to 31 December 2020. The Environment Stewardship Award celebrates a company that has taken the environmental challenges that confront the world seriously and has successfully implemented the necessary steps to ensure that the natural environment is preserved.
The company will have demonstrated in its entry that it has gone out of its way to invest in the environment and has successfully implemented initiatives in its day-to-day business operations.
In 2019, the Award was won by Babcock for its water conservation initiatives. The company had taken it upon itself to protect, control and conserve water usage in the business through several initiatives, including using water meters at its different sites and reusing water.
“South Africa faces significant environmental challenges such as water scarcity and air pollution. Together as the business community, we need to find lasting solutions to these challenges. By showcasing companies mitigating their negative effect on the environment through sustainable initiatives, we not only create a platform to engage on how to further protect our environment, but we also offer examples that other companies can emulate,” said SEIFSA Chief Executive Kaizer Nyatsumba.
The Award ceremony will take place on 20 May 2021 at a venue yet to be confirmed. In addition to the Environmental Award, the other categories include: • Most Innovative Company of Year; • Health and Safety Award of the Year; • Best Corporate Social Responsibility Programme of the Year; • Customer Service Award of the Year; • Most Transformed Company of the Year; and • The Artisan Award of the Year.
Socially responsible investing (SRI) has undergone a profound evolution since its origins in colonial America, where religious groups abstained from investing their endowment funds into anything associated with the slave trade. Centuries later, it transformed into mutual funds screening out investments that were directly or indirectly associated with gambling, alcohol and tobacco.
SRI was further used as a tool to express the moral values of institutional investors and their support for historical movements. As a case in point, during the apartheid regime in South Africa, many global mutual funds screened out companies that were engaging in business in the country.
At the dawn of the 21st century came a heightened global awareness of the myriad of acute challenges we face as a planet, ranging from climate change, socio-economic inequalities, and the rise of unjust and exploitative institutions. This heightened the awareness of the need to introduce responsible investing methodologies that were significantly more extensive and far-reaching than the traditional screening approach.
The term Environmental, Social and Governance (ESG) investing was first coined by the United Nations Global Compact in 2004 and involved the systematic integration of these factors into the investment processes of financial institutions. ESG investing has since gathered significant momentum and continues to gain traction in line with the fundamental shift in investor perceptions as they recognise the material impact ESG factors can have on investment returns.
The United Nations-supported Principles for Responsible Investment (UNPRI) were launched in 2006, with just over 60 signatories representing $6.5-trillion in assets under management. Support for the UNPRI has since exploded, and now it has more than 3 000 signatories, representing $103.4-trillion in managed assets, all of whom are committed to integrating ESG factors into their respective investment processes.
This remarkable growth in ESG investing can be ascribed to the growing evidence that ESG-related performance may be a proxy for company productivity and stability, thereby providing an additional source of excess returns. Risk premia strategies have been used for decades in systematic investing as a method for harvesting excess returns.
This is achieved by investing in factors that have been proven academically and in practice to provide the investor with a positive payoff for undertaking the risk associated with each factor. Commonly used risk premia include the value risk premium, which is the excess return derived from companies that are trading at a low-price relative to their fundamental value; the momentum risk premium, which favours stocks that have displayed a sustained positive return trajectory over a given period; and the market risk premium, which is the differential between the market yield and the risk-free rate of return.
These factors have all been proven to yield higher long-term risk-adjusted returns. The overwhelming evidence confirms that using ESG factors in the portfolio construction and security selection process based on factor analysis and risk premia strategies allows investors to yield additional risk-adjusted returns.
The logic that value-creating ESG-related practices contribute to company outperformance upholds the thesis. For instance, a well-managed company that adheres to environmental and social regulations is less likely to face litigation, the higher costs associated with the management and disposal of hazardous waste and elevated employee injury rates.
Therefore, ESG factors may provide better insight into the probability distribution of company returns in the same way as the traditional risk premia incorporated in classical asset pricing frameworks. Also, ESG factors are strong candidates for inclusion in long-term factor investing. They display strong explanatory power over a wide range of securities, offer a positive payoff over reasonably long horizons, have a significantly low correlation with other factors and, above all, they make intuitive and economic sense.
In identifying ESG factors as risk premia, the systematic investor needs to move beyond traditional screening methodologies and policy implementation towards a rules-based, scalable and measurable ESG integration strategy. To do so requires practical, quantifiable metrics that can be readily integrated into an existing investment process, together with other strategies to construct a well-diversified portfolio.
To this end, we have developed the Prescient ESG Scorecard which is an in-house risk analysis tool designed to evaluate and measure the ESG risks and opportunities associated with the credit and equity counterparties in which we invest. It is a data-driven and systematic scorecard that rates companies relative to their sector-specific peers while accounting for industry materiality and market cap biases. We employ over 60 metrics to gain granular insights into the proficiency of the ESG practices of the underlying counterparties.
Each of the metrics is conscientiously identified and selected to address a broad range of globally recognised material ESG themes. These themes include board and workforce diversity, board structure, water usage, greenhouse gas emissions and the safety of employees, to name a few. A combination of extensive ESG research, active engagement with our investees and this cross-sectional scoring tool has significantly enhanced our ability to integrate ESG into our investment process alongside the traditional risk premia we consider. It also enables us to interrogate practices that historically eluded systematic investors.
The last decade has seen ESG find a permanent place in everyday investing. Its rise in popularity has shown no signs of slowing down, with Bank of America forecasting a “tsunami of assets”, as much as $20-trillion, flowing into ESG funds in the US alone over the next two decades.
At Prescient, we believe it is our responsibility to preserve our clients’ capital by deploying it in a manner that promotes sustainability and delivers on our goal to achieve superior risk- adjusted returns. We accomplish these two goals by managing absolute and relative downside financial risk, as well as non- financial operating risk. We consider ourselves well-equipped to deliver on these twin objectives given our comprehensive responsible investing philosophy and approach, as well as our expertise as a seasoned systematic investor.
Netcare and Standard Bank launch Africa’s first sustainability-linked bond
JSE-listed Netcare, which operates a network of hospitals and other healthcare services in South Africa and Lesotho, has launched Africa’s first sustainability-linked bond, in partnership with Standard Bank.
The coupon rate of these bonds is linked to the issuer’s achievement of certain pre-agreed sustainability performance targets. In Netcare’s case, the group aims to reduce its energy consumption, procure more renewable energy, reduce total carbon emissions, and further improve its water efficiency, partly by increasing its capacity to recycle grey water. In addition, Netcare is developing systems to ultimately convert all infectious healthcare risk waste (HCRW) produced on-site to inert products and achieve zero waste to landfill for waste, outside the HCRW stream, by 2030.
Dr Richard Friedland, Chief Executive Officer of Netcare says, “Our comprehensive environmental sustainability strategy developed in 2013 is firmly on track to meet our 10-year goals and targets. Netcare is delighted to be part of a global community of healthcare institutions leading the transformation to climate-smart healthcare, and this innovative sustainability-linked bond will further assist us in achieving our longer term goals”.
On 16 March 2021 Netcare, with Standard Bank acting as Sole Arranger and Sustainability Agent, executed on the continent’s debut sustainability-linked bond (NTCG01). The bond will be listed on the interest rate market of the JSE on the 19 March. Netcare raised a ZAR1 billion, 3-year, unsecured note priced at 5.4% (3 MonthJIBAR +175bps). If Netcare achieves its climate change mitigation and water efficiency targets linked to the bond, it will benefit from a step down in the coupon rate.
Carl Wiesner, Debt Capital Market Transactor at Standard Bank says, “Through the offering of the sustainability-linked bond, Netcare was able to access a deeper pool of liquidity at a compressed upfront pricing level, with the added incentive of a quantifiable future pricing benefit while investors are able to encourage positive forward-looking sustainable corporate behaviour..”
Netcare has already made significant progress with its sustainability programme. As of 2020, the company has solar installations capable of generating more than 20GWhof renewable energy, and had achieved a 24% reduction in energy intensity per bed since 2013 against a goal of 22% by 2023. In 2020, scope 1 and 2 carbon dioxide emissions reduced by 37% from 2013.
The progress that Netcare has made towards being a leader in environmental sustainability within the healthcare sector in South Africa, and the world, was recognised when the company achieved the distinction of being the only healthcare institution globally to have received gold awards – the highest accolade – in each of the four categories in the international 2020 Health Care Climate Challenge Awards organised by Global Green and Healthy Hospitals (GGHH). The awards were for Greenhouse Gas Reduction [Energy], Renewable Energy, Climate Resilience and Climate Leadership.
Nigel Beck, Global Head Sustainable Finance at Standard Bank says, “Over the course of the last 12 months Standard Bank has been working closely with Netcare and institutional investors on a sustainability-linked product offering, advising on meaningful sustainability performance targets aligned to Netcare’s corporate strategy. “We are encouraged by the overwhelming level of interest and demand the market has expressed for sustainable product offerings which was evidenced by the extent to which the bond was oversubscribed.”
Sustainability-linked corporate financing facilities offer clients an opportunity to directly fund ESG improvements, or to refinance existing general corporate funding with a solution that also delivers an indirect socio-economic benefit for the communities and environments in which they operate. Investor demand is partly being driven by the recognition that companies that operate in a sustainable manner tend to have lower risk profiles and outperform over the long term.
Report shows that SA leads the way in public sector gender diversity
Kearney’s recent ‘Gender Equality Report’ provides insight into the progress of diversity in private and public sectors across nine key regions globally – South Africa, the United States, United Kingdom, Australia, India, France, Spain, Germany, and Singapore.
While South Africa has the most gender diverse parliament with a gender representation of 44% female MPs, the private sector sees South Africa fall to seventh position with only 28.5% of women represented at board level in the JSE 40.
The gap between private and public sectors is attributable to national campaigns for women’s representation in the public life at the national and provincial levels as well as voluntary party quotas, increasingly since 2006. The gender quota system, in place in its early form since 1994, undoubtedly helped by a forward-thinking attitude towards gender diversity explains why South Africa takes the lead in the public sector.
“Seeing South Africa take the lead against other nations in the public sector with an increasing number of women elected as MPs, is a positive sign of what can be done with the right policies. However, whilst encouraging, there is still a deep parity that remains within the private sector,” says Theo Sibiya, Partner and Managing Director for Kearney Africa.
% Female government representation by country
Sibiya added that despite ranking seventh out of the nine regions analysed for overall board diversity, South Africa has the highest percentage of the very top-level female board representation with 14% of its total female board members occupying senior positions e.g., Chairperson and member of the C-Suite. The report also analysed the sectors which showed the most promising levels of gender parity in South Africa. Of the 140 female board members across the JSE 40, 35% are in the Non-Energy Materials sector. Finance is the second most representative sector in South Africa and holds 25% of the total female board members, whereas in Australia, the UK, Spain, the US, and Singapore it is the most gender diverse sector.
% Female board level representation by country
This year’s annual report demonstrates modest progress compared with 2020. Female representation in the private sector has increased marginally in the United States (1.2%), United Kingdom (3%) and Australia (0.6%), as well as in the public sector in Australia (1%) and the United States (3.5%), which had a record year for female representatives elected. India remains the least gender diverse country studied with female representation under 20% across both public (14%) and private sectors (17%).
Sibiya ended by saying “Over the coming years, it’ll be important that companies are held to the same standard and encouraged to bring more women to decision making roles.”
About the research: Kearney’s Gender Equality Report 2021 was based on research using publicly available data across nine markets – UK, US, France, Germany, Spain, Australia, India and Singapore – regarding female representation at board level and in their respective governments. Board information was gathered using the support of Factset.
AIIM leads investment in R1,9bn government office project
African Infrastructure Investment Managers (AIIM), through its IDEAS Managed Fund, has acquired a 32.5% stake in a public-private partnership (PPP) to develop new office accommodation for the Department of Agriculture, Rural Development and Land Reform.
“We are extremely proud to participate in this project, says Vuyo Ntoi, Joint Managing Director of AIIM.
“PPPs introduce the possibility of private funding for public infrastructure, which is highly relevant in the South African context, where public budgets are constrained, and the need for investment is significant.”
Vuyo Ntoi, Joint Managing Director of AIIM
The IDEAS Managed Fund is one of South Africa’s largest domestic infrastructure equity portfolios that invests in economic, social and renewable energy infrastructure in the Southern African Development Community (SADC) region.
With consortium partners, WBHO, Bidvest, Vulindlela Holdings and the Tshala Bese Uyavuna Broad-Based Ownership Scheme, this R1,88 billion project will be operated on a 25-year concession.
The terms of the concession will see the Tshala Bese Uyavuna Proprietary Limited Consortium design, build, finance, operate and maintain the new serviced working environment. This facility will accommodate all of the department’s Tshwane-based employees in a single work environment.
Ntoi explains that the PPP agreement removes the financial burden from the fiscus because the capital expenditure will be funded upfront by the consortium during the construction period. “This partnership involves locking in a long-term collaboration between both parties to share the costs, rewards and risks of the project,” he says.
“In addition, the risk transfer aspect embedded in the contract will enforce specific performance from the consortium to ensure the project is delivered on time and within budget. This further limits the risk for the government.”
Other crucial aspects of the concession include a commitment to meeting employment equity and skills development targets. This will see black people, women, and youth involved in management positions within the project company’s executive and governing bodies.
Both the BBBEE and PPP codes of good practice were applied by the department to ensure equitable participation in the project.
New fund focusing on renewable energy answers a need in South Africa
FUND FOCUSING ON RENEWABLE ENERGY, A SOUTH AFRICAN FIRST
With the saving and retirement industry recognising the important role it can play in bringing about social change by supporting South Africa’s infrastructure needs, there is a dearth of viable options available. As listed companies with a pure or major focus on the South African economy struggle to deliver returns to investors, the managers of retirement funds and other savings are now looking for alternative asset classes to obtain sufficient returns.
Says Dr Hendrik Snyman, chief investment officer at Gaia Fund Managers: “With the local stock exchange having underperformed over the past number of years and with limited options available, it is necessary for asset managers to be innovative in obtaining returns for their investors. Globally, there has been a trend whereby asset managers are looking to alternative assets to provide resilience to negative market movements, price irrationality or a lack of returns.”
Through the Kruger Ci Prudential, Balanced and Equity funds, clients can now invest in the operational wind farm in a safe, regulated and tax-effective way where the impressive returns inherently adjust by inflation each year.
“Kruger’s co-investors in the wind farm near Humansdorp in the Eastern Cape include the Tsitsikamma Development Trust (9%) and Cennergi (75%), a wholly-owned subsidiary of listed company Exxaro Resources. This is a true ESG (environmental, social and governance) investment. The community trust receives investor returns for their shares. The construction has already benefitted the local community through infrastructure upgrades, a new community centre, cattle fencing and bush clearing. Since then, the wind farm contributes 2.1% of its revenue quarterly to enterprise and socio-economic development in the surrounding communities.”
The wind farm is a renewable energy project with an installed capacity of 95 MW, situated near Humansdorp in the Eastern Cape’s Koukamma Local Municipality. It became operational on 17 August 2016, offering a measurable track record in output performance. This project and its various service providers have met and exceeded expectations with the power produced since operations started, surpassing the P50 (base case) forecast. The performance of the project to date reflects the quality of the wind resource, equipment and service providers, according to Snyman.
The listing of the Company’s preference shares, with its focus on clean energy, takes place as the South African Government ramps up the supply of renewable energy to the national electricity grid. On 25 September 2020, the Minister of Mineral Resources and Energy, Gwede Mantashe, gazetted a key determination under national legislation to procure a total of 11 800 MW of electricity, of which 6 800 MW will be from renewable sources.
“This investment contributes to much-needed infrastructure in South Africa and investment diversification in an alternative asset class for us as the investors. We are proud to include Gaia Fund 1, with the wind farm as its first asset, in the Kruger funds,” says Kruger.
Collective Investment Schemes and retail investors have struggled to directly access infrastructure investments for several reasons. First, they are not readily available. Second, they are not usually listed on stock exchanges. Lastly, those options which are listed are subject to deflated prices owing to the lack of a readily traded market that understands the underlying principles of the asset class.
Snyman explains: “Infrastructure as an asset class can provide investors with stable inflation-linked cash returns while preserving their capital. However, the current means of gaining access to these projects includes a daunting and protracted process requiring, among other things, negotiating lengthy contracts. This process is far removed from investors’ ordinary means of acquiring shares on a trading platform and, therefore, acts as a significant investment barrier to entry and exit. In addition to the process, the unlisted equity available in the projects precludes certain Collective Investment Scheme portfolios from acquiring interests in the projects. A listed security removes many of the entry and exit barriers for investors and allows infrastructure to take up its rightful place as an asset class in many investor portfolios.”
As a listed entity, the Fund will enable collective investment scheme portfolios to increase their allocation to infrastructure from an unlisted instrument threshold of 5% to 10%, yet retain the benefits of being unlisted through price stability. The ability to do this will open a unique market opportunity for future collective investment scheme-compliant portfolios to invest in 4AX-listed infrastructure projects through new issuances of preference shares in the Gaia Fund 1.
“Kruger International as an innovative fund manager collaborated with Gaia Fund Managers as a pioneer in the infrastructure investment space in South Africa to come up with a solution to access infrastructure investments for their investors,” adds Snyman. “Kruger International’s funds will hold all of the preference shares, allowing them to accurately mark their value on a daily basis; meaning that as an asset manager, they are less exposed to market irrationality and/or information asymmetry.”
Gaia Fund 1’s A preference shares will be 4AX’s seventh equity listing. 4AX, as a new low-cost, fully licensed equity and debt exchange, took up the challenge with Kruger International and Gaia Fund Managers to list these industry-first preference shares. 4AX provides security for investors, giving the required financial transparency and regulatory oversight without the obstructive burden and costs associated with legacy exchanges. As such, the cost and admin associated with listing are no longer prohibitive.
According to Eugene Booysen, CEO of 4AX: “4AX brings to the market an efficient and alternative regulatory model which reduces regulatory costs and inefficiencies but promotes and adheres to the highly regarded financial regulatory standards in South Africa. 4AX focuses on being a safe and simple digital marketplace redesigning finance and access to capital and thereby enabling inclusive growth.”
Gaia Fund Managers and Kruger International Asset and Wealth Management are pleased to announce the listing of South Africa’s first preference shares with an infrastructure focus on 4 Africa Exchange (4AX).
Gaia Fund Managers, together with Kruger International, plan to list Gaia Fund 1 (the Fund), which complies with Collective Investment Scheme regulations next week Thursday (22 October). The Fund’s A preference shares will trade under the ticker 4AGF1A (ISIN: ISIN ZAE400000101) on 4AX.
The preference shares will be bought by Kruger International’s various funds. The proceeds of the listing will be used by the Company to buy a 16% indirect shareholding in the Tsitsikamma Community Wind Farm.