2024: The year of sustainable investment

Investors and asset managers influence the responsible allocation of capital to maximise the protection of the environment and human rights, writes Carl Roothman, CEO of the Sanlam Investment Group

By 2050, we’ll need a total of three Earths to sustain our current standard of living. This is based on the Global Footprint Network’s research that shows humanity is currently consuming natural resources 1.75 times faster than our planet can replenish them. That’s why 2024 must be a year of shared decisive action.

In 2020, global sustainable investment grew to US$35.3 trillion (R662 trillion) across five major markets. We expect that this year sustainable investing will ‘grow up’, grow expansively, and convince more stakeholders that deploying capital to creative, circular solutions and the most financially viable companies is pivotal for our planet’s future. The Intergovernmental Panel on Climate Change estimates it will cost 2-4% of global GDP (by 2050) to limit global warming to 1.5%. With humanity’s future hanging in the balance, this seems a very small price to pay.

Sustainable investing matters more now than ever

Sustainable investment is one of the best, most innovative means to redeploy capital where it counts. By correcting our global ecological overspending, we can arrest further depletion of precious shared resources. With this comes a significant opportunity.

Investors play a pivotal part in choosing companies, while asset managers are responsible for calling out the laggards and championing the leaders. A business’ sustainability agenda should impact its bottom line.

Three focus areas for sustainable investing in 2024

Climate Change: Munich Re found thunderstorms and earthquakes cost the globe about US$250 billion (R5 trillion) last year. An NGO, Christian Aid, found that the 20 costliest climate disasters of 2023 consistently impacted the globe’s poorest populations – those least able to afford to rebuild – the most. Developing countries, which play a lesser role in causing climate change, will be the hardest hit by food and water insecurity, infectious diseases and loss of livelihood.

To move to a carbon-neutral world by 2050, we need to ensure a just transition to renewables. Right now, the financial sector is not pricing in climate-transition risk sufficiently. Lacking a clear policy signal, many asset managers have adopted a “wait-and-see” strategy, meaning there will be no massive reallocation of capital.

This simply cannot continue. The net-zero transition calls for massive investment. The global grid alone needs to grow fivefold to support more renewable energy. Now is the time for asset managers to ‘back’ the carbon winners of tomorrow.

Biodiversity Loss: This year, we’re likely to see significant increase in investments in companies contributing to combating biodiversity loss.

• The World Economic Forum (WEF) says over half the global economy (worth about US$44 trillion (R831 trillion)) is dependent on nature.
• Global pollinator population declines are impacting crop fertilisation, jeopardising world food security.
• The Food and Agriculture Organization (FAO) estimates about a third of all food is wasted annually.
• The World Wildlife Fund (WWF) documents a 69% average loss in mammal, bird, reptile, fish and amphibian species from 1970 to 2022.

Moving to a nature-positive economy could unlock US$10 trillion (R190 trillion) in business opportunities and social returns, according to the WEF.

Human Rights Abuses: Only 11% of companies actively monitor risks with their global suppliers, such as child labour or living wages, according to the Corporate Human Rights Benchmark. Regulatory shifts will probably prompt rapid change. The Corporate Sustainability Reporting Directive in the EU, for example, now requires large companies to disclose their impact on people and the planet.

How we’re making a difference today

ESG is a global megatrend. At Sanlam Investments, sustainability is part of our DNA. Our investments are rooted in making a meaningful impact on a better future: environmentally, socially and from a governance perspective. Africa urgently needs to tackle critical challenges such as energy, food and water security. We all need to share responsibility for safeguarding our resources and bolstering resilience in our most vulnerable communities. That’s how we empower all Africans to be financially confident, secure, and prosperous.

Recent examples of our commitment are:

• In 2017 we joined Dutch Development Bank, FMO, as shareholder in a strategic partnership with Climate Fund Managers (CFM). Through our partnership with CFM, we can respond to the urgent climate crisis the world faces, particularly in developing economies, in specific sectors: green energy, clean water, and sanitation, as well as the protection of coastal ecosystems. Sanlam has contributed about US$70 million (R1.3 billion) to CFM’s Climate Investor One and Climate Investor Two Funds.
• A recent collaboration between CFM, the Namibia Government’s Environmental Investment Fund and Invest International, focusing on energy transition and green hydrogen was formed, aligned with ‘SDG Namibia One’ being announced at COP27. It is targeting US$1 billion (R19 billion) in funding.
• Our dedicated Sanlam Investments Sustainable Infrastructure Fund aims to invest R11 billion in local projects that drive economic growth, market development and job growth, with an emphasis on environmental sustainability in South Africa.
• In the past decade, the Sanlam Group has successfully invested more than R12 billion in the construction and operation of long-term sustainable infrastructure projects throughout South Africa and the rest of Africa. Sanlam’s infrastructure investments span crucial sectors such as renewable energy, conventional power generation, telecommunication, transportation, digital infrastructure, water infrastructure and Public Private Partnership (PPP) assets. These include at least 32 investments across different geographies in South Africa, Mozambique, Egypt, and Nigeria.
• In combating biodiversity loss, Sanlam Group is the first and currently, the only adopter from South Africa, and one of a select few in Africa, of the Taskforce on Nature-related Financial Disclosures (TNFD). This reporting framework identifies how nature impacts an organisation’s immediate financial performance, or the longer-term financial risks that may arise from how the organisation, positively or negatively, impacts nature. This commitment is not merely symbolic – it is reflected in our proactive engagement and strategic investments through our portfolio companies, underscoring our role as a leader not just in finance, but in fostering a sustainable future for all.

It’s not too late

We can still course correct, but only if we act today. Asset managers and investors play an essential role in directing capital to where it will have maximum impact on our future.

Disclaimer

Sanlam Investments consists of the following authorised Financial Services Providers: Sanlam Investment Management (Pty) Ltd (“SIM”), Sanlam Multi Manager International (Pty) Ltd (“SMMI”), Satrix Managers (RF) (Pty) Ltd, Graviton Wealth Management (Pty) Ltd (“GWM”), Graviton Financial Partners (Pty) Ltd (“GFP”), Satrix Investments (Pty) Ltd, Amplify Investment Partners (Pty) Ltd (“Amplify”), Sanlam Africa Real Estate Advisor Pty Ltd (“SAREA”), Simeka Wealth (Pty) Ltd and Absa Alternative Asset Management (Pty) Ltd (“AAM”); and has the following approved Management Companies under the Collective Investment Schemes Control Act: Sanlam Collective Investments (RF) (Pty) Ltd (“SCI”), Satrix Managers (RF) (Pty) Ltd (“Satrix”) and Absa Fund Managers (RF) (Pty) Ltd. Sanlam is a full member of ASISA. Please note that past performances are not necessarily an accurate determination of future performances, and that the value of investments/collective investment units/unit trusts may go down as well as up.

The information in this article does not constitute financial advice.  While every effort has been made to ensure the reasonableness and accuracy of the information contained in this document (“the information”), the FSP, their shareholders, subsidiaries, clients, agents, officers and employees do not make any representations or warranties regarding the accuracy or suitability of the information and shall not be held responsible and disclaims all liability for any loss, liability and damage whatsoever suffered as a result of or which may be attributable, directly or indirectly, to any use of or reliance upon the information.