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[TOP STORY] Needing to find a balance between the elements of ESG

‘I think there’s a lot of opportunity in this space and I certainly don’t think you have to give up on returns – you just have to have a longer-term mindset’: Barry Shamley – Investec Wealth & Investment international.

SIMON BROWN: I’m chatting now with Barry Shamley, equity fund manager at Investec Wealth & Investment International. Barry, I appreciate the early morning time. A note you sent out last week talked around finding a balance between the different components of ESG (Environmental, Social and Governance) in an unequal world. We talk around the global issues of climate change and the like, but we’re … ignoring the conflicts between the E, the S, the G, particularly when we have structural inequality – and we need to find a better balance, perhaps.

BARRY SHAMLEY: Thanks. Yes. Good morning, Simon. Thanks for having me on your show. It is a tricky question. I think it’s a lot easier understandable living in an emerging market like South Africa, where you can see these inequalities on a daily basis and understand the impact that maybe changing somebody’s life by sort of ending the one particular industry and replacing it with another can have.

But I think the world has changed in the past few years. I think the war in Russia [and Ukraine] has been part of the reason for that change, and ESG has in itself has become a little bit more nuanced and deliberate in its thinking, where it was more of a blanket approach in the past.

I think people really do now understand that different things matter in different jurisdictions and you’ve got to take a holistic view and understand the impact of each decision you make and, after weighing all of those decisions up, make the best decision for that specific community or country as a whole.

SIMON BROWN: We’ve been chatting ESG on this show since [MoneywebNOW’s] inception. Obviously as a concept it’s been around for a long time. It’s maybe ESG growing up and actually doing what it’s meant to do on the sticker, rather than just being a label you can attach but actually doing good in an environmental and particularly social aspect.

BARRY SHAMLEY: Absolutely. I think it’s just a continual process of refinement. Nothing is sort of born perfectly or developed perfectly, and I think will go through a number of iterations. It sometimes upsets me when there’s that very negative press, but I think that’s actually needed in some cases to keep it on track and to keep it moving in the right direction where it doesn’t create distortions or you have sort of funny outcomes as a result of a more blanket approach.

I think each year it gets better and ESG integration as a whole is almost becoming a default for many investment managers now and that extra step of sustainability is something that you may want to consider in your investment process.

So I think a lot of people have realised it’s really a good framework for understanding material issues that may not have a financial impact in the short term but certainly longer term may do, and [for] making sure you account for those in your valuations.

SIMON BROWN: That’s a good point. Often, as you say, in the short term we’re not going to see them on an income statement or anything like that, but longer term they certainly will. Do we have conditions? Do we have sort of the right space in South Africa for ESG response to sort of assert itself in the market? You make the point that sometimes it gets bad press – not always a bad thing – and that it is kind of growing up in a sense.

BARRY SHAMLEY: Yes, I think we are seeing it move along a different rates in the world. Europe was certainly the leader in it. I think the UK is not far behind, [There is] a bit more reluctance in the US. I think it is moving ahead there. There have been a number of positive developments in South Africa, and there have been papers – I can’t remember the technical term for it – in terms of Regulation 28, where trustees are required to consider whether ESG has been integrated and, if not, explain why. So I think the market is moving in that direction.

I think also you’re starting to see a new consumer investor coming through. I think millennials are far more sensitive to the impact their money may have.

So a lot of them do ask that question and we’ve almost been surprised to an extent where, in our the sustainable fund that we run, we’ve always said we don’t think you’d be giving up performance. But a lot of investors that are quite focused on it say they don’t mind giving up a little bit.

One of my colleagues used the example of Tesla, which may or may not be a great example, but really if you do this right and you are making the best products for the future you should be doing better than everybody else, in fact. I think [Blackrock CEO] Larry Fink said at the start of the year something to the extent that he believed the next thousand unicorns were going to be out of the climate-tech space. So I think there’s a lot of opportunity in this space and I certainly don’t think you have to give up on returns – you just have to have a longer-term mindset.

SIMON BROWN: Yes. A longer-term mindset, which frankly does fit in with the whole investment philosophy.

Barry Shamley, equity fund manager at Investec Wealth & Investment International, I appreciate the early morning time.

Listen to the full MoneywebNOW podcast every weekday morning here.

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