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Stewards of capital must take a responsible approach

By ensuring investment into responsible and impactful projects for the long-term development of the nation.

As custodians of a nation’s savings pool, the financial services industry has a pivotal role to play in the allocation of capital across commercial projects. As such, the efficiency of this allocation is central to the success of capitalist economies, where the guiding hand of the market is a powerful and an essential force.

We have now reached the point where such allocation decisions have to be made with more than just commercial factors in mind; or, to put it another way, the sustainable aspects of an allocation decision have become integral to its commercial viability. The interesting questions are why has this come about and why now? I believe there are a number of driving factors:

  1. The climate change debate has sharpened the focus on the sustainability of commercial practices;
  2. Consumer awareness and appreciation of ethical practice has become widespread, through education and general social awareness;
  3. The instant spread of consumer information (and subsequent action) via social media has made unethical practice almost impossible to hide;
  4. Better measurement of scarce resources (water, minerals) and the impact of climate (pollution) has raised awareness of the human impact;
  5. Local information is instantly global; the development of emerging nations is now fully in the global spotlight.

Putting ideals into practice

If we accept that, as responsible stewards of capital, we have a distinct role to play in ensuring we are allocating the funds we manage to commercially sustainable projects, then the key consideration we have to take into account is how we integrate this into our investment decision making. Our business is committed to prioritising these factors in everything we do and as a result we have actively integrated such processes into our investments in both listed and unlisted assets. While the same principles of responsible investing apply in each sphere, the approach and the impact we can make are often different.

Influencing listed assets

As an owner of a share listed on a stock exchange, our influence on a corporate’s behaviour is one step removed from the actions its management team undertake. Our role, as an asset manager, is thus to influence the corporate’s executive and management decision making. This is best done in private sessions during which we engage in open dialogue to secure constructive outcomes.

If this is not effective, we can vote on certain resolutions, thereby bringing pressure to bear on the corporate. In the extreme, we can sell the shares and, in so doing, allocate capital away from a corporate that is not making sustainable business decisions, in favour of one that is. Over time and as responsible investing becomes increasingly embedded in more asset owners’ philosophies, capital will be allocated to businesses acting in a responsible manner. The valuation placed on these companies will rise and their ability to raise capital at cheaper levels will improve, with more such capital being allocated to sustainable investment projects as a result.

The sustainability of unlisted investing

As a large insurance business in South Africa and, increasingly, across the African continent, Old Mutual has been able to invest its clients’ assets in long-term physical investments such as infrastructure (energy, roads, bridges, ports, airports), real estate, private equity and agriculture.

Such investment takes the nation’s savings and invests them directly in this very necessary infrastructure and the new businesses we need to develop our country. It is crucial, therefore, that such investment is carried out in a sustainable way – a way that both secures the assets necessary for future generations and generates sustainable long-term returns for our clients. In this area, as owners of the physical assets, we can have a very direct effect on ensuring that sustainability and responsible investing are embedded in all our projects.

A practical example is our agriculture investments where, having bought the farmland, we commit to invest at least 0.5% of the initial capital investment a year in the workforce itself, providing free healthcare, housing, schooling and worker education. This ensures that in a decade’s time, when we may wish to sell the farm on to another owner (perhaps to the workers themselves), we have a sustainable investment that will continue to benefit the workers, secure our investment and provide jobs and food for the locality and broader nation.

The role the financial services sector plays as responsible stewards of its clients’ capital is critical in ensuring that we allocate investment into businesses and projects that are responsible to the environment, the workforce, scarce resources and the long-term development of our nation and continent. This approach is no longer a separate investment option, or a ‘nice-to-have’; it is integral to what we do and indeed the route to delivering successful long-term investment returns.

*Hywel George is director of investments at the Old Mutual Investment Group.

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Great to hear how responsible Hyweland OM is. Trust that this responsible approach to engagement includes tackling guvmint when they are behaving irresponsibly and damaging your customer’s interests. This is no longer a nice to have; it is integral to what you should be doing.

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