Navigating Short-Term Challenges: Upholding ESG Goals for a Sustainable Future

By Teboho Makhabane, Head of ESG and Impact at Sanlam Investments

The prolonged global market downturn has led some investors to question their commitment to Environmental, Social, and Governance (ESG) goals. While short-term market volatility may tempt investors to abandon their ESG principles in favour of finding alpha, it is crucial to stay focused on the long-term imperatives of addressing climate change and societal equality. By staying steadfast in our ESG commitments, we can weather the present challenges while contributing to a sustainable and equitable future.

In light of recent trends in the US, where ESG funds have experienced consecutive quarters of outflows, some investors may be questioning the sustainability of sustainable investing. Concerns have been raised about the performance challenges faced by some ESG funds, particularly those impacted by rising oil prices and energy stocks. However, it is essential to recognise that short-term fluctuations in the performance of ESG funds should not undermine the broader and more resilient trends driving the sustainable investing movement.

Environmental consciousness, social responsibility and strong corporate governance practices are important factors for investors to consider; companies demonstrating robust ESG performance are more likely to attract capital and foster long-term value creation. It is crucial to view investment decisions through a long-term lens, especially considering the urgency of addressing climate change and societal inequalities, which pose significant risks to our future. Sustainable investing aligns with the growing demand for ethical and responsible business practices and despite the challenges faced, the transformative potential of sustainable investing should not be overlooked.

Contrary to this narrative, sustainable investing is not losing steam; it is, in fact, gaining significant momentum globally as well as here in South Africa. The growing list of financial firms signing up or aligning to internationally and locally recognised Principles for Responsible Investment (PRI) and Code for Responsible Investing in South Africa (CRISA) aimed at supporting sustainability practices is proof of this. As scientists repeatedly warn us about the urgent need to address climate change, these firms recognise the value of aligning their investments with sustainable practices. While there are valid concerns surrounding ESG investing, it is important to recognise the broader and more resilient trends that underpin the sustainable investing movement.

Moreover, sustainable investing aligns with the growing demand for ethical and responsible business practices, positioning companies for success in a rapidly evolving global landscape.

Activist shareholders have achieved some victories, advocating for wage gap and climate-related disclosures. These successes demonstrate the growing influence and demand for responsible corporate behaviour. Shareholders are demanding transparency, accountability and action on environmental and social issues, recognising that these factors can impact the long-term financial performance of companies.

In South Africa, sustainable investing is particularly important given our country’s unique environmental and social challenges. From renewable energy projects to addressing socioeconomic inequalities, sustainable investing has the potential to create positive change while generating attractive returns for investors. The demand for responsible investment options is growing among South African investors, reflecting a broader shift in societal values and expectations.

However, in the local context, it may not always be feasible to exclude specific stocks from portfolios, especially in the current climate. The significance of active ownership and stewardship during asset manager engagements with listed companies is paramount. By providing consultation and guidance to businesses, including those in the oil industry, regarding best practices in environmental, social and governance (ESG) standards, investors can make a meaningful impact without complete divestment. This approach holds the potential to generate both economic and social effects, enabling investors to navigate the complexities of the South African market while driving positive change and promoting responsible investing.

Our view at Sanlam Investments – a business driven to make a fundamental impact on our country and continent by investing for purpose – is that sustainable investing will continue to thrive. Leading investors, including BlackRock and others, will maintain their commitment to ESG principles. Shareholder activism will persist, pushing companies to embrace sustainable practices. Regulatory bodies will refine and strengthen disclosure rules to foster transparency and combat greenwashing. While challenges may arise, the core tenets of sustainable investing are here to stay.

Sustainable investing is not a passing trend; it is a transformative force that will shape our economy and society for the better. The transformative potential of sustainable investing should not be overlooked, as it offers both financial returns and the opportunity to make a positive impact on our planet and society.

CIS disclosure

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, Absa Asset Management (Pty) Ltd (“ABAM”) 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.

Although all reasonable steps have been taken to ensure the information in this document is accurate, Sanlam Investment Management (Pty) Ltd does not accept any responsibility for any claim, damages, loss or expense, however it arises, out of or in connection with the information in this document. No member of Sanlam gives any representation, warranty or undertaking, nor accepts any responsibility or liability as to the accuracy of any of this information. This document is intended for information purposes only and the information in it does not constitute financial advice as contemplated in terms of the FAIS Act. Use or rely on this information at your own risk. Independent professional financial advice should always be sought before making an investment decision. Past performance is not a guide to future performance. Changes in currency rates of exchange may cause the value of your investment to fluctuate. The value of investments and income may vary and are not guaranteed.