Old Mutual Investment Group: Africa’s top ESG Responsible Investor

Leading African asset manager Old Mutual Investment Group has been named Best ESG Responsible Investor – Africa 2021 by Capital Finance International , a UK-based journal reporting on business, economics, and finance.

Commenting on the announcement, Managing Director of Old Mutual Investment Group (OMIG), Tebogo Naledi says, “The award reflects important and much-appreciated recognition of our commitment to responsible investment, which we have championed with much vigour over the past decades.”

OMIG integrates ESG factors throughout its investment decision-making processes, as well as offering proactive stewardship of investments by exercising proxy voting rights to push for better ESG performance from its investee companies. In addition, its ESG position as a business supports green economic growth aligned with socially inclusive, low-carbon and resource-efficient outcomes.

“We are very proud that the award recognises OMIG’s leadership in the research, analysis, and evaluation of ESG issues,” says Naledi.

Other assessment criteria included excellence, innovation, and overall contribution to long-term health, progress, and stability of the global markets and the experience of investment teams.

“Aside from progress on integration processes our core innovation has been bringing products to the market that capture the opportunity set of the transition to a low-carbon, resource-efficient and socially inclusive growth path.”

Jon Duncan, Head of Responsible Investing at OMIG

Highlights of CFI’s judging panel’s findings include:   

•         Acknowledgement of OMIG’s belief that responsible investing is a moral imperative as well as an opportunity to gain a competitive business edge.

•         Acknowledgement of OMIG’s development of investment solutions that use hard exclusions based on ESG leadership indices and Shari’ah investment principles.

“OMIG is committed to investing for a future that matters. We will continue to drive this agenda and focus our efforts on ensuring that retail and institutional investors are empowered to make sustainable, ethical and financially sound decisions”, concludes Duncan.

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AECOM launches Sustainable Legacies

Transformative ESG strategy to advance sustainability initiatives that deliver positive impact

  • Achieve operational net-zero carbon emissions by the end of 2021 and science-based net-zero by 2030
  • Introduce ScopeX™ to reduce carbon through design on all major projects

AECOM (NYSE: ACM), the world’s premier infrastructure consulting firm, has announced the launch of Sustainable Legacies, its strategy for reaching ambitious environmental, social and governance (ESG) objectives. This strategy integrates four key pillars that will embed sustainable development and resilience across the company’s work, improve social outcomes for communities, achieve net-zero carbon emissions and enhance governance.

“As leaders of our industry, we have a responsibility to embed ESG principles into everything we do and partner with our clients and communities to advise on their efforts to advance complex, multi-decade sustainability initiatives.”

AECOM CEO Troy Rudd

“With nearly 50 000 talented engineers, scientists, architects, consultants, programme and construction managers, along with our board of directors and executive leadership team, we are energised by the impact of our work and how we can contribute positively to society and the planet. We believe infrastructure creates opportunities for everyone, and directly integrating ESG principles with our technical excellence and capabilities puts us in the best position to deliver sustainable legacies for a better world,” highlights Rudd.

“Our clients have new, evolving priorities focused on sustainability and delivering social impact through their projects and services, and AECOM stands out as the company that can best advise and execute for them,” adds AECOM President Lara Poloni. “By developing our strategy with a focus on advancing our ESG objectives and supported by the strength of our technical excellence, global collaboration and local engagement, we will continue to drive innovation in our industry while leaving long-lasting impacts on the communities we serve and the planet as a whole.”

Key Pillars of AECOM’s Sustainable Legacies Strategy

  • Achieve net-zero carbon emissions: While developing and implementing best practices and achievable goals for its clients, AECOM has furthered its own carbon emissions goals by ensuring that the company will be operationally net-zero by the end of 2021. It has also committed to reach science-based net-zero carbon emissions by 2030 through the following actions:

Setting new 1.5°C-aligned emissions reduction targets.

Decarbonising fleet vehicles and switching to renewable energy tariffs.

Partnering with its suppliers to decarbonise and including carbon considerations into its procurement processes.

Implementing a 50% reduction in business travel.

Creating projects centred around using nature-based solutions to offset residual carbon.

  • Embed sustainable development and resilience across its work: AECOM has introduced ScopeX™, a first-of-its-kind initiative to reduce carbon through design that considers embodied and operational carbon across the entire project life cycle. The company will further incorporate ESG action plans on all major projects to reduce carbon impact by at least 50%. It will also embed net zero, resilience and social value targets into its client account management programme.
  • Improve social outcomes: AECOM believes equity, diversity and inclusion enable better outcomes for clients, a deeper understanding of community challenges and more innovative solutions that propel the industry forward. As part of this pledge, AECOM has set an industry-leading, near-term target of women comprising at least 20% of senior leadership roles and at least 35% of the overall workforce. Its efforts extend to include developing project teams that reflect the clients and communities it serves and partnering with small and medium enterprises to generate social value through positive community investments. Additionally, the company is focused on delivering inclusive, accessible projects that proactively improve social value outcomes for individuals, communities and society.
  • Enhance governance: To better assess ESG risk factors in potential projects, AECOM is developing and deploying an enterprise framework supported by leadership accountability and advocacy through the audit of specific ESG targets and metrics on an annual basis. In addition to regular reporting to the board of directors on ESG matters, as part of the recently expanded charter of the board’s safety, risk and sustainability committee that includes direct oversight of ESG activities, the company will track and report on its ESG performance targets externally in line with leading industry benchmarks.

Reflecting AECOM’s commitment to advancing its ESG initiatives, in the fiscal second quarter the company executed an amendment to its existing senior secured credit facilities that includes incentives linked to achieving certain sustainability, and diversity and inclusion goals.

For more information on how AECOM is delivering Sustainable Legacies, please visit www.aecom.com/sustainable-legacies.

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Are businesses ready to attract tomorrow’s investors?

Thought leadership article by Joe Keenan, Managing director, BME, a member of the Omnia Group

The world has become rapidly alive to the threats posed by climate change, and mining companies are seeing their shareholders demanding more than just a financial return. Investors – both institutional and private – want their mineral portfolios to speak to their value systems, and these values now centre increasingly on sustainability and shared value for all stakeholders.

Like the mining companies they service, mine suppliers and technology providers should be looking beyond the customer demands of today to remain relevant to the investors of tomorrow.By the same token, others in the mining ecosystem should have similar concerns about their respective futures. The question for our sector might be posed along these lines: How does a blasting and explosives company, for instance, position its brand to be relevant not only to its current customers but to future investors?

To be sure, supply companies receive business from mines because they provide valuable solutions that make mines productive and help keep them viable. That is no longer enough, however. Just as the South African mining sector is subject to the country’s Mining Charter and BEE compliance requirements, so there is a growing expectation globally that mines prioritise environmental, social and governance (ESG) concerns. The once ‘optional’ approach that businesses serve the broader good is now becoming mainstream as more businesses aspire to make a positive impact and leave behind a better world.

In mining, there are already thresholds for suppliers to clear in the field of safety. Many mining companies will not entertain tenders from suppliers whose recordable case rate (RCR) exceeds a certain maximum level. The same often applies to inclusive procurement, where mines expect suppliers to support their efforts to place business with local firms in the vicinity of the mining operation.

While some companies are already driving compelling, integrated sustainability strategies, others are exploring how best to diversify themselves. The emphasis is on going beyond their current offerings and moving further into the sustainability spectrum, with a focus on ESG and ‘green mining’ imperatives. Looking ahead 30 years, for instance, it is clear that fossil fuels will be playing a much-diminished role in energy production – and will be in considerably less demand. European countries are applying their Green Deal, through which the region aims to achieve carbon neutrality by 2050. We are already seeing major mining players extracting themselves entirely from the coal sector – for reasons related partly if not largely to the strategic recalibration of many investors and lenders in the light of climate change. Equally, responsible businesses are increasingly choosing like-minded partners, who share their vision for sustainability.

It is worth remembering that coal is still the planet’s most mined mineral – at almost 8-billion tons in 2019. The anticipated decline in this segment of the market is therefore likely to have a considerable impact on most supply companies to the mining sector; it will certainly have an effect on explosives and blasting providers – although this will depend on regional location and other factors.

The uncertainty in mining’s future might not stop there. Alternatives to coal-fired generation will have to be found, and this is already leading to greater interest in other commodities such as battery raw materials. Some of these will continue to require blasting in a hard rock environment, while others will not – being mineable by free digging. As technology develops, there is even the prospect of energy being generated or stored using materials or substances that are not mined at all; for example, research is being carried out into the electrical storage capacity of certain plant-based material.

The pace of this technological change is being spurred on by tomorrow’s generation, who see in it an epochal opportunity for a more sustainable future. Those who make up this generation are not just the pioneers of a new age but are the investors of the future. It is they who will set the preconditions for investment in coming decades, and it is clear they will prioritise sustainability.

Many – perhaps most – financial institutions have set demanding goals for their investment portfolios, and it is increasingly vital for capital-seeking firms to know what those comprise. They are certainly not ‘tick box’ requirements that can be applied when capital is needed; they are strategic elements that require considerable planning and years of dedicated implementation.

As suppliers to mines, our current commitment to creating value for customers – and to building the technology that will help us to achieve this vital goal – should not blind us to the broader, tectonic shifts underway in society. These promise to drive our economies toward greater sustainability, but they will demand fundamental changes in value systems that many businesses do not yet seem ready to embrace.

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Water stress can put business models in jeopardy

South Africa’s recent droughts are teaching businesses a life-changing lesson: we can no longer simply assume that clean water will always be available to keep operations running smoothly.

According to Gert Nel, partner and principal hydrogeologist at SRK Consulting, responsible water management is becoming a cornerstone of any sustainable business model – with investors starting to look more critically at how water risks are mitigated. “When putting together a business model for a multi-million rand business development, a key factor will now be the reliability of water supply,” said Nel. “Can you trust the local and regional water services provider to always offer a sustainable water source, and what are the broader environmental, social and governance (ESG) issues you will face with securing your own supply?”

He highlighted that the signing of a contract with a public service provider does not necessarily guarantee water supply if all available the traditional sources simply run out. “Indeed, the experiences of severe drought in cities like Cape Town and Port Elizabeth show that the communities’ basic right to water will take precedence, and businesses will be left to develop their own solutions in a crisis,” he said.

In this context, groundwater remains the most readily accessible resource to businesses – as long as it is used and managed in strict accordance with ESG best practice. This means early-stage scientific investigations into the viability of boreholes, as well as careful adherence to the regulatory framework.

“While desalination has been considered in coastal locations, it is a relatively costly option and takes years to implement,” he said. “Drilling boreholes is generally the only practical option, but businesses might be located on a very poor aquifer which could be low-yielding or have an unacceptable water quality.”

To ensure the integrity of the business model, developers generally require the involvement of a professional groundwater specialist to investigate and highlight the groundwater development potential of the town, city or area in which the operation will be established. These studies will also include a consideration of the number of existing groundwater users in the immediate area, and their respective water uses.

“The question that needs to be answered is whether there is enough groundwater for your business, in addition to the other private and public users in the area.”

Gert Nel, partner and principal hydrogeologist at SRK Consulting

“A hydrogeologist can compile a numerical groundwater model that delivers scientific predictions on the future availability of groundwater in the area you’re investing in – taking into account both existing use and the likely increased demand in the future. This is standard practice in the mining sector, for example, and all sectors can learn from this.”

Legal compliance is of course a key aspect of ESG, and this requires early planning to accommodate the potentially lengthy permitting period. Boreholes require a water use license (WUL), which can take up to two years to approve. Having the necessary license in place gives a business the ability to start drilling and preparing the necessary infrastructure for self-supply of water in case of a drought.

“This creates the vital back-up water supply to mitigate the operation’s risk in situations when the usual water supplier is unable to deliver,” he said. “It does need the investment in studies and permitting well in advance, though, as it will be too late to respond once ‘Day Zero’ is in sight.”

He reiterated the importance of considering ESG impacts related to the drilling of boreholes, and the crucial need to follow due process.

“If you drill boreholes to provide a supplementary or sole supply to your business, and you don’t follow scientific, environmental and social due processes, you could face public resistance,” he warned. “Surrounding borehole users could well accuse you of depleting their groundwater, or even causing the failure of their businesses due to their only water supply source drying up.”

While it might be possible to address these claims through detailed hydrogeological investigations, it cannot always be assumed that the scientific answer will be accepted by all stakeholders. Careful processes of communication and consultation – and perhaps even collaboration over the use of available groundwater – will help to manage the risk of reputational damage or worse.

“Irrespective of the specific environmental and social context of the business, it is wise to engage experienced scientists and engineers in preparing a water solution for a sustainable business plan,” he said. “The regulatory, social and physical landscape is complex, and there are a number of pitfalls that a responsible business would do well to avoid.”

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AECOM ready to help get R100bn Infrastructure Fund off the ground

AECOM, the global leader in integrated infrastructure, is poised to play a role in potential projects that have significant support from the R100-billion Infrastructure Fund announced by President Cyril Ramaphosa in his State of the Nation Address on 11 February. This is according to Africa MD Darrin Green, who comments that there are opportunities in student housing, digitalisation and water infrastructure – all areas where AECOM has extensive experience and expertise.

President Ramaphosa stated that the Infrastructure Fund will blend resources from the fiscus with financing from the private sector and development institutions. Such partnering between government and the private sector is essential to get these projects off the ground and achieve results. Green notes that the government has also committed R791-billion worth of funding towards infrastructure in the 2021 Medium-Term Expenditure Framework (MTEF). Here efficient procurement is key in terms of the government’s capacity to bring projects to market in a timely fashion.

“We are all aware of the need for sound procurement principles, but real innovative thinking needs to happen so that procurement can be dramatically accelerated to have the necessary impact on the economy – and quickly.”

AECOM Africa MD Darrin Green

He adds that the consulting engineering and construction sector has been in serious difficulty and shrinking for some time, certainly prior to the Covid-19 pandemic, and is steadily losing skills and capacity to support the infrastructure drive. “The emphasis needs to be on fast-track procurement and delivery,” urges Green.

The biggest opportunities in terms of infrastructure in Africa at the moment are: energy (particularly renewables such as hydro, wind and solar power), Environment, Social and Governance (ESG), digital-related infrastructure such as data centres, and basic infrastructure, especially in terms of water management, reuse and sustainability. Capacity and skills remain a challenge, while funding is always a constraint, especially where budgets are being redirected.

Looking ahead, Green predicts that 2021 is likely to be a year of consolidation and adaptation for AECOM. “The vaccine rollout will play a major role in both South Africa and the rest of Africa in terms of bringing back economic activity and confidence. The consulting engineering industry is key to economic recovery, being second in the supply chain after government and client procurement.”

On the international front, AECOM recently announced its ‘Think and Act Globally’ strategy to extend its industry-leading, global expertise to each of its projects around the world, transforming the way it delivers work through technology and digital platforms, and enhance its position as a leading ESG company.

Green highlights that this strategy is having a major impact in providing access to in-house subject matter experts around the world. “We now have prioritised time to talk with our global counterparts and share our expertise, opening up our knowledge networks exponentially. Also, as our digital communication tools utilisation becomes mainstream, accessing this network remotely has never been simpler, allowing innovative new client solutions to be shared quickly and efficiently.”

Here the focus is increasingly on digitalisation and innovation. “We certainly see these trends accelerating, and perhaps more so in Africa, where innovation and digital technology can leapfrog and bridge the relative absence of hard infrastructure,” notes Green. AECOM is spearheading all aspects of digital design tools, including virtual environmental stakeholder digital rooms and virtual whiteboarding tools for client planning sessions in the client interaction and project stakeholder realm. The use of remote sensing, drones and digital tools on-site for streamlining inspection requests, test results and approvals is also becoming more prominent, as with the pilot site at the Polihali Western Access Roads project in Lesotho.

Responding to the ongoing challenge posed by Covid-19 and the altered working landscape, Green stresses the importance of collaboration in meeting clients’ requirements in this difficult time. Face-to-face meetings, for example, have evolved into more complex remote experiences. However, technology tools and platforms are catching up. “The key is flexibility and using digital and physical tools to enhance the client experience in a tangible way through to the delivery of the project. Clients are now more digitally aware; we can provide digital twins for projects once the modelling is complete and work together to have efficient data at our fingertips,” elaborates Green.

“It is important to note that we can leverage AECOM’s world-leading skills for our clients. We can assist in more areas than one might realise – from digital engagement tools to ESG advisory to hard infrastructure and project management and controls. We strive for the flawless delivery of our projects. Considering all environmental impacts is crucial; at the core of what we do is our belief in building sustainable legacies. Sharing our significant internal data and solutions certainly allows us to build on our innovative experiences so that we keep improving and staying ahead of the pack,” concludes Green.

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Harnessing the power of ESG risk premia in systematic investing

Jessica Phalafala, Quantitative Analyst, Prescient Investment Management

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.

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AECOM ranked No. 1 by Fortune magazine as World’s Most Admired Company in its industry

Premier infrastructure consulting firm AECOM has ranked No. 1 on Fortune magazine’s list of the World’s Most Admired Companies in their industry. This is the seventh consecutive year that the company has been recognised on the list.

“Leading Fortune magazine’s World’s Most Admired Companies list in our industry highlights our employees’ ongoing dedication, resiliency and innovation in delivering transformative solutions, especially amid the uncertainties of the past year,” comments AECOM CEO Troy Rudd.

“Behind our Think and Act Globally strategy, our professionals deliver exceptional quality services and technical expertise for our clients, building on our strong financial performance and creating value for all our stakeholders.”

AECOM CEO Troy Rudd

Despite the challenges presented by the coronavirus pandemic, last year AECOM continued to deliver to their clients, employees, communities and stockholders, resulting in a strong financial performance that exceeded guidance on nearly every key financial metric. AECOM’s teams mobilised quickly and safely to lead the industry in disaster response and developed innovative digital consulting solutions that continues to increase engagement and streamline processes critical to economic and social recovery.

AECOM’s multidisciplinary approach makes them unique on the continent, ranging from cost management to quantity surveying, engineering and environmental services.

“Adding value to clients by providing them with the necessary solutions to navigate the current crisis has never been more critical.”

Darrin Green, AECOM Africa MD

Significant investment in digital innovation and remote working is enhancing AECOM’s flexibility and adaptability. This includes bespoke tools such as AECOM’s Environmental Engagement platform to streamline environmental documentation and stakeholder engagement. Their Virtual Public Consultation Tool enables virtual community engagement in an interactive online platform.

Together, these solutions provide powerful support to clients managing existing and future projects through the key planning and approval gates. “The end result is a much better understanding of what projects will go forward and where we need to relook at projects in terms of either budgetary constraints or different drivers due to the pandemic,” comments Green.

Additionally, as a leading Environmental, Social and Governance (ESG) firm, AECOM last year continued to partner with clients in advancing sustainable solutions, set their own Science-Based Targets initiative (SBTi), approved emissions reductions targets and launched the Thrive with AECOM initiative to further their commitment to equity, diversity and inclusion.

Fortune collaborated with management consulting company Korn Ferry on the survey of corporate reputations. The survey determined the best-regarded companies by asking executives, directors and analysts to rate enterprises in their own industry on nine criteria; from investment value and quality of management and products, to social responsibility and the ability to attract talent.

The complete World’s Most Admired Companies list and details on the methodology can be found on the Fortune website at: https://fortune.com/worlds-most-admired-companies/.

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ESG: vital for robust investment strategies

Growing investor awareness and the willingness to engage in issues related to sustainability, combined with the increasingly vivid positive relationship between sustainable practices and financial performance, have cemented ESG considerations as an integral part of any robust investment strategy.

According to data from Morningstar Direct, more than $10 billion of assets in the US have been directed towards investing in sustainable funds during the first quarter of 2020 alone. These record-setting levels of flows underscore the growing significance of Environmental, Social and Governance (ESG) considerations when making investment decisions. Growing investor awareness and the willingness to engage in issues related to sustainability, combined with the increasingly vivid positive relationship between sustainable practices and financial performance, have cemented ESG considerations as an integral part of any robust investment strategy.

At Prescient Investment Management, our investment philosophy is capital preservation and the pragmatic management of funds. We systematically take on only those risks that have proven to deliver commensurate returns over time. We adopt a holistic and integrated approach to our investment considerations, ensuring that we deploy our clients’ capital in a manner that promotes sustainability.

We have embedded ESG integration into our investment process; our product development, the suite of ESG-centric products we offer, and our corporate culture. Prescient follow rules-based security selection and portfolio construction methods that are designed to capture excess returns by investing in those factors (sometimes referred to as smart-beta) that are proven to provide positive payoffs in the long term. Common examples of such factors are Value, Low Volatility, Quality and Momentum.

The recent proliferation of ESG as an undeniable driver of return. the consistent debunking of the historically held perception of an inverse relationship between financial returns and sustainability has made it clear that ESG can also be added to the list. We have developed a systematic and data-driven in-house ESG risk-analysis tool that evaluates and scores listed securities based on their ESG risks and opportunities.

The Prescient ESG scorecard consists of three pillars, namely: Environmental, Social and Governance. It considers material themes such as (but not limited to) diversity, board structure, emissions and energy consumption by appropriately selecting and categorising over sixty underlying metrics. This fully automated and rules-based scorecard accounts for industry materiality and company size biases and provides a granular and in-depth measure of the proficiency of the governance practices as well as the environmental and social impact of our holdings.

At a product development level, the Prescient Clean Energy and Infrastructure Debt Fund has been specifically designed to encompass our sustainable investing philosophy and impactfully deliver on our ESG targets. It participates directly at the project level of the Renewable Energy Independent Power Producer Procurement (REIPPP) Programme. The Fund seeks to invest in clean energy and other infrastructure projects that will have a positive social and environmental impact. The target is to build a well-diversified portfolio of infrastructure investments that will improve the sustainability of our energy supply and provide the infrastructure that is vital for the development of South Africa.

We strive to uphold and incorporate the same ESG values and principles that frame our product development and investment process at our corporate level. As South Africa’s largest black-empowered asset manager, we deem transformation and Broad-Based Black Economic Empowerment to be paramount in achieving economic inclusion and a sustainable business topography in the country. We take sustainability considerations into account when allocating brokerage services, for example, as well as in any of our enterprise development undertakings.

We remain sensitive to the fact that our country is encumbered by an array of socio-economic challenges, as is reflected by our high levels of inequality and unemployment. As a corporate response, the Prescient Foundation embarks on various projects and social upliftment initiatives to address the social issues that face many South Africans.

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Has ESG become the new normal for miners and investment?

The expectations and priorities of a modern-day investor in the mining sector have significantly changed in line with global demand for more responsible and sustainable extraction of mineral resources. Environmental, Social and Governance (ESG) standards have firmly established itself across the investment community.  

ESG standards are a must-have for investment

Financial evidence suggests that the ability of a mining business to successfully manage environmental, social and governance risks is directly linked to greater return on investment in the long term. Investor perception has moved away from regarding ESG as a desirable but non-essential component to a “must-have” for de-risking any investment decisions.

The industry has evolved in line with this demand and adopted a set of initiatives identifying the main ESG performance standards along with a variety of self-assessment tools to direct the implementation process.

Mining principles evolved to meet these standards

A prime example is the mining principles initiative recently launched by the International Council on Mining and Metals (ICMM). The members of ICMM, which include some of the world’s biggest mining companies, don’t get to choose to which assets these principles apply. Covering 38 areas, including biodiversity, gender, human rights due diligence, labour rights, local content, mine closure, pollution, resettlement and waste, they apply to more than 650 of ICMM members’ assets in over 50 countries. Their implementation by member companies — which account for about 30% of global production of major commodities such as iron ore, copper and gold — will drive performance improvements at scale. The initiative also features the standards related to the disclosure of the site-level validation of progress associated with the ESG issues listed above.

Even though the requirements and implementations guidelines greatly vary between different initiatives, there is clearly a global focus on enhancing ESG performance across the sector. It is important to note that the majority of ESG initiatives out there all point towards a universal need to meet the Sustainable Development Goals set by the United Nations. This link is translated through the ability of a mining company to channel their impact investment and contribute to government revenues that support socio-economic transformation.

ESG investment leads to long-term value

As the access to capital presents an increasing challenging for the extractives sectors, competition for investment will force mining companies to move beyond compliance and to demonstrate the ability to meet ESG standards at an operational level. For example, less than 30% of precious metals projects are currently delivered on time, with the primary reason for delay being social opposition. Furthermore, companies adhering to the high levels of ESG performance are significantly more likely to generate long-term value and are less susceptible to stock price volatility.

The development of ESG standards and widespread engagement of the investment community represents a huge opportunity for an increase in impact investment, and an improvement in the responsible mining practices across the globe. However, if this is to become the “new normal”, we need to see an acceleration of the uptake and implementation of ESG standards, initiatives and best practices.

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