Asset managers have a key role to play in helping high-carbon companies complete their transition to green energy – and it’s not just about where and how they invest.
In February 2022 Old Mutual Investment Group (OMIG) joined a group of approximately 220 global asset managers, with a collective USD57 trillion of assets under management, in signing up for the Net Zero Asset Managers Initiative. The move aligns OMIG’s business with worldwide efforts to limit global warming to 1.5°C, while underlining Old Mutual’s commitment to a just energy transition, underpinned by sound environmental, social and corporate governance (ESG).
Asset managers have a pivotal role to play in that transition. After all, they get to determine how much money gets invested where – and in an age of passive investing (where many investors are quite happy tracking an index without examining the underlying assets), active managers can and do use their clout to hold high-carbon companies accountable for meeting ESG standards.
The challenge is that those businesses are managing their transition to greener energy while still operating in the carbon-heavy space. And investors such as OMIG are in a similar position, shifting their investment focus to renewables while still holding a degree of exposure in existing carbon-heavy projects.
This puts both parties in two worlds: a green future and a not-so-green, not-there-yet present.
Ambition versus action
There will always be a lag between ambition and action, and while the International Energy Agency reported renewable energy use increasing 3% in 2020 as demand for all other fuels declined, the reality is that fossil fuels are still burning. Asset managers are perfectly placed to change that, without suddenly disinvesting from high-carbon sectors such as mining and petrochemicals.
Shareholders are growing increasingly impatient about how long the transition is taking. In an interview with S&P Global, Eli Kasargod-Staub of US-based shareholder activist group Majority Action said plainly: “No investor can credibly claim that they don’t understand the risks of blowing past [1.5°C] of warming, and no investor can credibly claim that they can’t measure companies against that objective. What we see are investors that are failing to uphold their fiduciary responsibility.”
But that’s not true for all investors, or for all companies. OMIG holds ongoing active engagements with the listed firms in which it invests, says Head of Responsible Investment Robert Lewenson. “Stewardship will emerge as our biggest impact tool to deliver sustainable development outcomes,” he says, pointing to a series of “stewardship milestones” with Sasol dating back to 2014.
Shifting into the green economy
And while Sasol is South Africa’s second-biggest greenhouse gas (GHG) emitter after Eskom, the energy company has taken enormous strides towards a greener future. In 2021 Sasol committed to a net-zero emissions target by 2050 while tripling its aim for 2030 GHG emission reductions to 30% off a 2017 baseline.
“This will be done through a mix of energy and process efficiencies, investments in renewables and a shift to incremental natural gas as a transition feedstock for our Southern African value chain,” Sasol CEO Fleetwood Grobler said in a statement. “These solutions are well known and mostly under our control, and the investments required are cost-effective, preserving strong returns in our business, above the cost of capital.”
Lewenson says that OMIG “continues to interact with the executive teams at these companies, specifically discussing opportunities that exist in shifting into the green economy, which we define as low-carbon, resource-efficient and socially inclusive”.
The process of untangling business strategies and investment strategies from carbon-heavy projects is highly complex and will take time. It’s certainly not as simple as achieving real-world carbon reduction just by decarbonising an investment portfolio.
As OMIG Managing Director Tebogo Naledi points out: “Managing a portfolio that is 50% less carbon intensive than a benchmark does not necessarily mean that there has been a proportional reduction of CO₂ in the real world. However, we do believe it is possible to drive portfolio decarbonisation through proactive stewardship of the companies in which we invest.”
The opinions and views expressed by the industry experts are their own and do not necessarily reflect those of Old Mutual.
