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.
Public knowledge and exposure around ESG have undergone recent changes. The idea had previously only piqued the interest of a tiny portion of the investing community.
However, societal problems like income disparity and climate change are starting to take center stage in national and international politics and are garnering media attention. Given that it has an impact on both our daily lives and the earth we live on, most people find it impossible to ignore.
Due to its influence on politics and culture, ESG has occasionally unjustly entered larger cultural and political conflicts, harming the concept’s reputation as an investment.
This has been observed not only in the United States but also, for example, in the farmer demonstrations occurring throughout Europe. But in order to improve portfolio performance and long-term resilience, we need to concentrate on integrating ESG. That is necessary for our clients’ long-term financial security.
The widespread switch by retail centers from Eskom electrical sources to solar power is an excellent illustration of a pragmatic step, implemented for pragmatic commercial reasons, to mitigate climate risk.
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, https://www.momentum.co.za/momentum/personal/investments/invest?rcid=invest&utm_source=Daily+Investor&utm_medium=Article&utm_campaign=March+2024
