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Sustainable money

Doing good while making money is possible.

Many of us have stopped using plastic straws for our drinks, and plastic bags are becoming less popular. People are also changing their habits so that they recycle more and try to have less impact on the environment.

Significantly, businesses are starting to take more responsibility for their staff and suppliers to reduce the harmful impact of social inequality.

All these changes are important and vital to a more sustainable future.

Have you stopped to think about how your investments are impacting the environment and society in general?

The way you allocate your savings can have a huge impact on changing the world as well as growing your wealth. Doing good while making money is possible.

Make money and a positive change

There is a major global drive to stop using single-use plastic in favour of recycled plastic and biodegradable materials. Growing numbers of people are realising that they need to be more conscious of their impact on the world. In addition, as South Africans, we are very aware of the terrible effects of social inequality, unemployment and poor governance in government and business.

People are changing the way they live their lives, but many have not considered how their investments are helping or damaging the world.

Investors can use their savings in a positive way while still generating wealth. This might sound like a fairy tale but there are many investments that are doing this for investors. Some are generating brilliant returns for investors – for example, the top 10 sustainable global funds have all generated more than 11% in dollars over the last year while the top sustainable global fund over three years generated 10% per year.

Investment performance will not always be this good and some funds will lose money, but it is possible to generate wealth and make a positive impact on the world.

What are these investments?

The category of investments that are focused on sustainable investing are called ESG funds. ESG stands for environmental, social and governance, and these factors measure the ethical and sustainability impact of investing in a company. There are many exchange-traded funds (ETFs) and unit trusts that are focused on ESG investing.

Read: Sustainable investing is becoming the new normal

What is ESG?

  • Environmental focuses on climate change, waste and pollution. For example, how do companies manage hazardous waste and toxic emissions? Do companies comply with government environmental regulations?
  • Social focuses on human rights and working conditions of staff and suppliers to the company. This could include the diversity of top leadership positions and the treatment and remuneration of employees in the supply chain.
  • Governance criteria include the transparency of accounting methods and the role of the stakeholders. Is the company being properly managed in a transparent method?

Investing in ESG-aligned companies has gained traction in the last 10 years. In major markets such as the US and Europe, ESG integration is increasingly seen as part of the fiduciary duty of professional asset managers and pension funds. Younger investors are a lot more interested in where their money is going. They want the companies they invest in to be aligned with their personal values.

Many people wouldn’t think that big names such as Microsoft, Alphabet and Johnson & Johnson are ESG-aligned, but they are.

Many tech companies are embracing the idea of a ‘circular economy’, which is where products last longer and are almost 100% recyclable.

Apple is currently tackling the growing problem of e-waste. In 2016 the world generated 44 million metric tons of this waste, according to the Global E-Waste Monitor, which is the equivalent of 4 500 Eiffel Towers. Apple has created a breakthrough system in electronic recycling which is vital for the environment.

L’Oréal, the world’s largest cosmetic brand, has trained over 37 000 women in Burkina Faso to harvest and process shea nuts (used in moisturisers) while limiting deforestation. This is empowering women with training and knowledge as well as protecting the environment.

South Africa is a bit behind

Sustainable investing in South Africa is not that easy yet. One can appreciate that many South African businesses have a harmful environmental impact. For instance, any form of mining, heavy industry or fossil fuel-related businesses are in a quandary. It is difficult and expensive for them to change their business models in a short period of time.

Read: Standard Bank AGM a ‘watershed’ 

However, all these companies should be working hard to reduce their environmental impact and they can certainly make immediate changes to their governance and social business practices.

For now, we would urge investors to pressure their fund managers and retirement funds to be more proactive at annual general meetings (AGMs) to hold these companies accountable. They should request detailed ESG plans and ensure that the companies follow through with them.

Asset managers should be judged on the way they vote at AGMs and how they monitor ESG factors as part of their investment process.

If more South African investors start holding fund managers accountable and requesting sustainable investment options, an ESG approach will become the future for investing in South Africa.

Warren Ingram is a personal finance advisor and Jenna Dixon a certified financial planner at Galileo Capital.
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