Published Date: 2021-09-09 | Source: INCE|Community | Author: Lauren Bauer, ESG reporting consultant
ESG investing is increasingly entering mainstream investment discourse and those who once perceived reviewing ESG as simply an exercise of goodwill, will have to adjust. Now fully acclimated to the world of Zoom, we dialed in with industry expert, Juana Purchase Hatfield, to hear her take. Juana has spent the past 16 years working in management consulting, development finance, and advisory services. Juana believes that the evolution of ESG in investment will continue as businesses respond to the emerging market conditions and opportunities that exist.
Ince: As someone with a long history of immersion in the space of ESG, could you give our readers a snapshot of what you're specifically seeing in the South African landscape and second to that, what you would like to see more of?
Juana: I think it's important to note that ESG considerations are not new in South Africa. CRISA (Code for Responsible Investing in South Africa) has been around for years and that has always provided guidance to institutional investors on ESG related issues. The King IV codes on corporate governance have also been adopted by companies for a number of years already. There are various other financial services industry bodies that provide guidance to their members on how to incorporate ESG issues in their operations. We had the introduction of the Carbon Tax Act in 2019 that will continue to impact businesses and their investment decisions going forward. However, there are also many new developments that are mirroring the exciting developments that are going on in other parts of the world.
In 2020, The National Treasury launched a technical paper, Financing a Sustainable Economy, with the purpose of starting to unlock access to sustainable finance and to stimulate capital allocations towards climate resilience. As recently as last month, the National Treasury and its partners published a draft Green Finance Taxonomy - this is an official catalogue that enables investors, issuers, and other financial sector participants to monitor and report on their green activities. These activities align with what we see in other parts of the world, with the likes of the EU Taxonomy as well as other country specific taxonomies, which are being developed.
What I would like to see more of is enhanced reporting by listed companies on ESG issues. We need to continually improve the quality and quantity of data being generated and put into the public domain. It would also be promising to see non-listed companies considering and reporting on ESG issues, not only to inform current investors and stakeholders about their operations, but also to be able to potentially attract additional green and ESG-linked financing in the future.
"I'd like to see a better understanding of the strategic importance of these issues that are increasingly becoming part of core business operations. When you realise that ESG issues fundamentally impact a company's bottom line - both positively and negatively - then the penny drops that these issues need to be understood and considered at a strategic level. ESG does not belong on the periphery of business, but needs to be on the agenda in Boardrooms and where key decisions are being made."
Ince: Are you seeing (or hoping for) collaboration across players in the financial services industry to motivate broader adoption of ESG fund ratings and transparent disclosure?
Juana: Absolutely. I think it must be said that all of these developments and the progress that has been made, is extremely promising, but it really is a journey we are all on. Enhanced reporting is fundamental to the success of that journey. The transparency and availability of information, as well as a continual commitment to improve, is key.
The S component in ESG is critical. This is a sphere that I think hasn't necessarily received as much attention as it could have up until now. However, there is a growing realisation that social issues are becoming increasingly important for businesses and their licenses to operate. How are companies helping to combat inequality, and how are they helping to reduce social instability in their areas of operation? This leads to further conversations around how financial services players can cleverly integrate big data, Blockchain, and Artificial Intelligence to help monitor and measure their performance in this space. All of these different technologies have the potential to help drive improved outcomes for society as well as the environment.
Furthermore, it would be great to see more collaboration among investors around developing innovative financial products and services. Here, I'm thinking about the development of certain instruments such as sustainability-, social impact-, and development- and transition- bonds, as well as the real potential that lies in blended finance.
We asked Juana for any advice she might have for those who would be interested in getting started with assessing the ESG ratings and performance of their stocks or funds and learning more about the responsible investing options available to them.
Juana points out that the JSE is a good place to start.
Juana: The JSE and FTSE Russell have two indices for Responsible Investment, the FTSE/JSE Responsible Investment Index, and the FTSE/JSE Responsible Investment Top 30 Index. They annually review all the listed companies on the FTSE/JSE All Share Index against ESG concerns. There is a lot of interesting information available on the JSE's website for people who want to learn and stay informed on these issues.
I think it's really important to speak to your financial advisor or planner about the different options that are currently available to you. Whether it's your provident fund, or your pension fund, ask what ESG solutions they have available and what would work for you in your circumstances. The more we as customers ask for these types of instruments, funds, or indices, the more products of this nature will become available.
"I do believe it's important for individuals to recognise how powerful their spending decisions are. Companies pay careful attention to customer wants and needs and by specifically requesting ESG-linked products, there is a greater chance they will be developed and offered."
Juana shares some final sentiments with us.
Juana: We live in extraordinarily complex times and the types of challenges and speed of change that organisations are facing are far different from what they were in previous decades. Organisations need to ensure that they are responding to these emerging realities in a way that not only protects value, but also creates value going forward, and not just for themselves but for their shareholders, clients, stakeholders, and the communities in which they operate. ESG considerations will continue to evolve, and those companies that are able to remain in alignment with that evolution, are the ones that will be setting themselves up for continued success.
This interview has been edited and condensed.
"Lauren Bauer is an ESG reporting consultant who assists listed companies in preparing their non-financial disclosure communication outputs."