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In an era characterised by environmental challenges and an urgent need for sustainable solutions, the role of financial institutions in shaping a positive future cannot be overstated.
To steer the country toward a brighter and more sustainable future, it is imperative for South Africa’s fund management companies demonstrate how they are actively investing in companies and funds that promote renewable and sustainable practices.
This not only benefits the environment but also has a profound impact on investors’ psyche, fostering hope for a positive future for all South Africans, but how are they doing this in practice? Here Linda Eedes, investment executive at Foord Asset Management highlights how this company is embracing sustainability to ensure a better future.
The power of investment
The investment landscape is a powerful force that can either perpetuate unsustainable practices or accelerate the transition to a more sustainable future. South Africa’s fund management companies, with their substantial financial resources and influence, have a unique opportunity to drive positive change.
Eedes highlights why asset management companies should not just talk about sustainability but invest in it. ‘Funds in South Africa should consider investments that participate in the green energy transition as part of their portfolios because there is value in being able to spot winners and losers in a rapidly changing risk landscape. Understanding megatrends, such as the global energy transition, is essential if portfolio managers are to understand emerging risks and capitalise on new demands to ultimately deliver above-market returns for their investors.’
Economic viability and long-term growth
Contrary to misconceptions, sustainable investments are not a mere act of philanthropy; they make strong economic sense. Renewable energy, for instance, has proven to be a viable and growing industry globally. By investing in South African companies that develop and implement renewable energy solutions, fund management companies can support the creation of local jobs, stimulate economic growth, and enhance the country’s competitiveness on the international stage.
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While investing in companies that ignore sustainability pledges and goals can still be profitable this may not be a good strategy in the long term. Eedes highlights that at a company level there are many ways non-compliance with sustainability goals can impact the bottom line. ‘Companies can be fined or taxed, and in extreme cases, assets can become stranded or obsolete due to regulatory or environmental constraints,’ she points out.
Investor confidence and the psychological impact
Investor sentiment is not solely influenced by financial returns; it’s also shaped by broader societal factors. When fund management companies actively invest in companies and funds that contribute to a renewable and sustainable future, investors gain confidence in the nation’s ability to overcome challenges and create positive change.
However, fund management companies must ensure that these companies are in fact backing up their claims by hard action. ‘Creating awareness around how these problems can and are being solved by companies in South Africa would undoubtedly positively impact investors’ psyche. However, it is important that this awareness is done for authentic reasons and not in the form of “greenwashing” on the part of investment firms to attract assets.’
She adds that increasing regulation and rising investor demand for sustainable investments has created a financial incentive for companies to jump on the sustainable investing bandwagon. However, recently financial regulators in the US, Europe and Australia have been cracking down on fund managers who are marketing ESG funds but not following through on their commitments. No doubt, there could be similar crackdown to follow in South Africa. ‘So, it’s important that any awareness and investments in this space are rooted in the authentic desire to manage these risks and capture opportunities for the benefit of investors,’ says Eedes.
Educating and creating awareness
Fund management companies are not only financial entities but also sources of information and influence. By promoting sustainable investments, these institutions can raise awareness about the importance of renewable practices and their positive impact on society and the environment.
Change is coming, but it’s not going to happen overnight. This is where asset management companies need to manage expectations. ‘It is important that investors understand that the transition to green energy will take a long time – there is no quick fix. The global economy, including South Africa, will remain heavily reliant on fossil fuels for some time to come. Renewable energy sources have been growing exponentially, but over the past decade 90% of energy demand growth has still come from coal, oil and gas,’ says Eedes.
She adds: ‘Understanding the complexity of the problem can help investors appreciate the precarious balance between protecting the environment while still providing the economy with the energy it needs to function and grow. Protecting the environment could also come with huge social costs created by an economic crisis. So, it’s important that investors understand this and allow companies the benefit of time to transition to more sustainable energy sources.’
