SIMON BROWN: I’m chatting now to Elize Botha. She is managing director of Old Mutual Unit Trusts. Elize, good morning. I appreciate your time. …we’ve chatted before around the ESG (environmental, social and corporate governance) unit trusts that Old Mutual has launched. You’ve come out with a new strategy in a sense, where you’re actually going to look across your range of unit trusts available and rate all of them in terms of their environmental, social and governance scores.
ELIZE BOTHA: Good morning. Absolutely, Simon. We are very excited about this initiative. Old Mutual Wealth is the first platform in South Africa to publish an ESG rating for our local unit trusts. We are working with MSCI on schools, on the environment, on social justice and also on governance in order to give clients and advisors a better view of what they are buying. We are very excited about that. We started with our internal funds, but we’re definitely going to reach out to our external fund managers to participate in this process.
SIMON BROWN: What’s great about this is that we’ve certainly got some ESG funds in South Africa – truthfully not many – but there are some out there. So an investor who wants to have an ESG bias can go off and buy that particular fund. What you are going to say is: ‘We score every fund.’ So now as an investor, I can look across that range of funds and say: ‘Well, I like that, but it’s not a great ESG score. I like that one, and there’s a better score.’ It fundamentally changes our ability to invest with that ESG conscience.
ELIZE BOTHA: Absolutely, Simon. What we are seeing more and more from investors is a complete consciousness about the environment. People are looking at recycling, they’re looking at using less plastic, and they are becoming more conscious about this now. And that was heightened in 2020 when we saw in the pandemic that people are now really looking further.
People are saying investment for profit is not enough anymore. We want to have an underlying view of the company you are investing in, and this new scoring system, that would enable them to do that.
We’ve seen great growth in ESG. In 2020 we saw ESG index funds grow by 221% to $189 billion [in assets], but in US. So there is continued growth in these funds. There were 200 new ESG funds launched in 2020 alone. So we can see there is definitely an appetite for this philosophy growing in the world.
SIMON BROWN: Yes, and certainly investor appetite. The stark reality is that these funds with a higher ESG rating do tend to do better than their conventional peers. This isn’t just a great story. It’s that having a social conscience and caring about the environment and about good corporate governance actually does matter. In time it relates into profit and therefore returns for the investor.
ELIZE BOTHA: Absolutely. Usually, companies that have got that ESG consciousness have low cost to capital, better resource efficiency, they are strong in the innovation elements, and they’ve got a better social licence to operate, access to the market. And we’ve seen that [US mutual and index sustainable equity funds] outperform their peers by a median total return of 4.3% at the most … deviation as well. So it’s not just doing good for the environment. There’s definitely an upside in return as well.
SIMON BROWN: You make the point. You said you’ve worked with MSCI: they are obviously a large index developer globally, in a sense. And I suppose part of that trick is it’s around getting some standardisation so that if we all rush off and do our own sort of ESGs as an investor, I look at it and I don’t know necessarily what your ESG means versus [that of] somebody else. My sense from what you’re doing with MSCI and Old Mutual is kind of moving towards a standard where an investor gets what that sticker means when they see ESG.
ELIZE BOTHA: Absolutely, Simon. What we are seeing more in the UN, is Europeans are actually starting to have a standard on how to rate funds, so that you don’t just get greenwashing. We [started] also developing our own standard at Old Mutual [but] it’s like marking your own homework. So there are two providers that we looked at, but we were very comfortable with the MSCI methodology. We are comfortable with how they rate all the various elements of funds, and hence we decided to go this route.
And I think in South Africa, with some of the work MSCI are doing, with some of the work that National Treasury is doing, there is definitely a greater consciousness about ESG and about really, really looking to it and not just green-washing funds.
SIMON BROWN: I love that phrase “greenwashing”. I think that’s going to become a much more used phrase as we move and get more into the ESG space.
Elize Botha, managing director of Old Mutual Unit Trusts, I appreciate your time.
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