Only a fraction of South African asset management companies have incentives to reward their portfolio managers, executives and board members for their climate change performance.
- Just Share published its first South African asset managers’ climate risk survey.
- The organization has found that many say that ESG issues are an integral part of making investment decisions.
- But their motivations, their investment strategies and the composition of their teams do not always show it.
Only a fraction of South African asset management companies have incentives to reward their portfolio managers, executives and board members for responsible investing.
According to activist shareholder organization Just Share, only eight asset management companies that responded to its inaugural climate risk survey said they have financial incentives related to climate change.
Just Share decided to conduct the survey in question because while local asset managers publish a lot of information to convince clients and the public that they are responsible investors, no professional body or other entity certifies or verifies the veracity of this information.
Just Share’s concern is that some asset managers might claim that they assess, disclose and manage climate risks while they go about their business as usual. This could create a false perception that the financial sector is doing its part to transition the South African economy to a low carbon economy when it is not.
“There is no way to distinguish between asset managers who take climate risk seriously and those who don’t,” Just Share wrote in the report.
So, the activist shareholder organization surveyed 33 asset managers and also used publicly available data to dig deeper into the extent to which they actually integrate climate risk into their investment decisions. Not all of the companies invited to participate responded. But Just Share managed to compile a report covering 31 of SA’s top asset managers.
When asked asset management companies about their climate change incentives, only eight out of 23 respondents said they had measures in place to encourage responsible investing. Only 35% of companies responded.
But even for those with incentives, the rewards are based on portfolio performance in most cases. They then examine the extent to which portfolio managers have taken environmental, social and governance (ESG) issues into account when making investment decisions.
However, Just Share argues that this indirect integration of ESG into performance indicators is not the same as pushing policy makers to deliberately drive climate change.
Only three Futuregrowth Asset Management, Nedgroup Investments and Perpetua Investment Managers have implemented it.
Why is this important?
Controlling more than R5 trillion of South Africa’s savings reserve, asset managers have substantial power to influence the success of the global fight against global warming. Just Share believes that its investments and the way it engages beneficiary companies can make or break the climate change targets set by the Paris Agreement.
But to play this role effectively, asset managers must be determined to tackle climate change in their investment decisions and know how to do it.
However, instead of an explicit climate change strategy, Just Share said many respondents said ESG issues and responsible investing are “mainstreamed” across the organization.
“This is very difficult to verify, but seems at odds with the low levels of engagement reported simultaneously on climate risk issues at the senior management level, particularly at the board level,” Just Share said.
Additionally, of the 23 companies that responded to Just Share’s survey, only four (17%) said employees responsible for integrating climate change into their investment decisions had climate change-related qualifications. .
Just Share could not find any publicly available information on whether the business investment decision-makers who did not respond had any qualifications related to climate change. Ninety One was the only company to report having more than one person on their investment team with qualifications related to change.
However, all is not lost. Fifteen of the 23 asset management companies that responded have publicly available climate change policies or position statements. But Just Share is concerned that a large number of asset managers still have not adopted a policy or position on climate change.
Another good news is that 21 of the companies surveyed said they had taken action to identify significant climate change risks for their portfolios. Twenty of them have taken action to identify the negative impact of their investments on climate change. But most only share this information with customers upon request.
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