Presented by Momentum Investments
Industry News

Why ESG is not a fad, and how it should factor into your investing

By Piet van der Merwe, ESG Analyst at Momentum Investments

Some misconceptions about environmental, social and governance (ESG) principles include viewing it as a recent investment strategy or dismissing it as a passing trend.

Research on the quality of management (referring to governance, the ‘G’ in ‘ESG’) of bond issuers dates back to more than a century ago.

This is evidence that ESG principles have been in existence for a very long time and has always been important to a company’s bottom line.

What has recently changed is public awareness and publicity around ESG. Previously, only a small segment of the investor community was interested in the concept.

However, societal issues such as income inequality and climate change are becoming major national and global political issues that are making media headlines.

This makes it something that most people can’t ignore as it affects our daily lives and the planet we live on.

Because ESG affects politics and society, it has sometimes unfairly become part of wider cultural and political battles which has a negative reputational effect on ESG as an investment concept.

We have seen this in the United States but it is also surfacing in the farmers’ protests taking place across Europe, for example.

However, our focus must be on the integration of ESG to enhance long-term resilience and performance of portfolios. That is what is required for the long-term financial well-being of our clients.

The mass conversion of shopping malls from Eskom electricity feeds to solar power is a good example of a practical measure to reduce climate risk, taken for practical business reasons.

The consequent independence from loadshedding does not only please tenants who spent fortunes on generators but also shoppers who want uninterrupted shopping. This trend is evident across the entire listed property sector.

We have seen resource and industrial companies also achieving independent electricity generating capacity by going off-grid to alternative energy sources.

A good example is the diversified resources company Exxaro. On 12 June 2022, Exxaro secured a Nersa registration for an 80 MW solar project at its Grootgeluk coal mine, which showed its first initiative on its decarbonisation plan.

The project has been fast-tracked to enable a reduction of up to a third of the mine’s scope 2 emissions and significant electricity cost savings.

Another example demonstrating the positive impact of these principles comes from Vukile Investments in the listed property sector.

They have built shopping malls in rural areas where the local population can buy from national brands.

But to stimulate and develop the local economy many smaller stalls are made available at these malls so that local small, medium and micro enterprises (SMMEs) can also sell their products, which sets up a circular local economy.

Large emitters of carbon dioxide, like Sasol, are also implementing plans to downscale carbon-intensive activities and which will have enormous societal health benefits.

Simultaneously, they will assist communities to transition to the new green economy to keep those communities who are currently dependent on fossil fuel extraction economically viable in the future.

As seen from these examples, ESG is now part of the normal investment decisions and operations of many companies and not ‘something out there’ or esoteric.

We support responsible investing practices to create investments that are good for our clients and the environment we live in.

For example, as we invest in student accommodation through our Momentum Social Infrastructure Fund, we believe we are setting a course for South Africa to grow.

The Momentum Social Infrastructure Fund was recently recognised as the “Impact Project/Investment of the Year – Education” at the prestigious Environmental Finance 2023 Impact Awards*.

The fund is a perfect example of impact investing where the investment was made to make a difference to society alongside generating a financial return.

We believe in creating a better future for our clients and our planet. Because with us, investing is personal.

For more information on Momentum Investments, click here.

*Source: Environmental Finance’s 2023 Impact Awards, 13 December 2023

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