Cop26: the role of investors

The recent COP26 conference has raised awareness among investors about how their financial choices can help the planet

COP26: THE ROLE OF INVESTORS IN DRIVING ENVIRONMENTAL REFORM

WITH the UN bringing world leaders together at the COP26 conference in Glasgow, Scotland in November, the finance sector played an integral role in the discussions for the first time, with net zero emissions at the centre of climate talks. Central to the discussions at COP26 was the debate regarding a transition to net zero carbon emissions that is supportive of developing markets.

A survey by asset manager Ninety One found that 71% of investors felt that richer countries should be helping poorer countries to transition to net zero. However, there was a lack of confidence in the outcomes produced by COP26: 57% of respondents did not believe they would lead to global alignment on tackling climate change.

The lack of high-profile leadership from China and Russia has made it even more difficult to achieve, according to 69% of investors surveyed.

Hendrik du Toit, founder and chief executive of Ninety One, says: “There is a sobering and incontrovertible fact about the drive to net zero: any effort that does not work for the world’s 7.9 billion people, most of whom live in emerging markets, will fail everywhere. To really save the planet we must help emerging markets go green. After all, emerging economies are not responsible for the bulk of emissions to date.

Rather, OECD member countries are responsible for three-fifths of cumulative historic emissions. That’s seven times more than the rest of the world on a per capita basis.”

The survey found that investors prefer to follow an inclusive transition approach to achieve net zero emissions instead of simply divesting from high-emitting countries and industries. In fact, 45% of all investors prefer for their investments to help companies, sectors and countries transition away from a reliance on carbon, with only 36% supporting divestment. However, these preferences have hardened slightly since an earlier survey, where only 30% preferred divestment.

Du Toit said: “To divest is irresponsible and simply demonstrates a lack of either understanding, awareness or transparency regarding the climate crisis. We must focus on long-term transition plans consistent with net zero by 2050 for companies and countries, not near-term reductions.”

What is clear is that many investors feel that reducing carbon emissions will produce compelling investments, with 40% stating that they are happy for their money to influence decarbonisation while also expecting a competitive financial return.

“Although the private sector cannot solely provide the kind of incentives needed, we must drive the early momentum of the intended transition and provide

green finance at scale. For governments, policy makers and capital allocators, this is the longer path to take. It is also the right path, and the investment opportunity is in the tens of trillions of dollars. With a fair and inclusive transition, the whole world wins,” Du Toit said.

Role of asset managers

Old Mutual Investment Group (OMIG) says that, globally, asset managers can play a decisive role in redirecting institutional and retail investors’ capital towards achieving the decarbonisation goals set by the recent COP26 conference.

“As one of the largest asset managers on the African continent, our focus goes beyond identifying and funding impact opportunities, to understanding how climate impact and transition risk affect the companies we invest in,” says Robert Lewenson, head of stewardship at OMIG.

A positive outcome from COP26 was that the Green Climate Fund (GCF), which was created to support developing countries in responding to climate change, announced some large value transactions, which benefit South Africa.

In the first few days of the conference, a financing partnership totalling US$8.5 billion was announced between South Africa and a consortium consisting of France, Germany, the UK, the US and the European Union. The partnership aims to support South Africa’s just transition to a low carbon and climate-resilient economy and society.

“The GCF’s recent decisions reinforce the shared, but differentiated, responsibility between developed and emerging economies; namely that countries that were historical polluters should provide access to capital and intellectual property, while emerging market economies seeking growth should do so the on basis of green economic principles,” says Jon Duncan, head of responsible iInvestment at OMIG.

“This climate funding is a great opportunity for South Africa to reset our approach to climate governance across the markets, but it also presents us with an opportunity to imagine a new reindustrialisation pathway for the South African economy.

“Investors should start thinking about decarbonising their listed equity portfolios; but they should also consider the real-world decarbonisation impact that comes from investments in infrastructure such as renewable energy,” Duncan says. South Africa will have to clear some tough socio-economic hurdles to achieve a just transition away from fossil fuels.

However, these hurdles can be overcome with a combination of reallocating capital from areas with high fossil fuel exposure towards renewables and ongoing engagements with listed companies on their transition plans.

UNDERSTANDING YOUR FINANCIAL BEHAVIOUR HELPS YOU MANAGE YOUR MONEY WELL

About 65% of people don’t know what they spend their money on in a month* and more than half underestimate how much* they spend, which means most people are not thinking through their financial decisions.

Part of managing money well, is knowing exactly what you’re spending money on, where you are possibly overspending and following a set budget.

Using advanced analytics and data processing, Discovery Bank has announced the launch of Vitality Money Financial Analyser, which gives personalised details into monthly income, savings and spending.

It enables Discovery Bank clients to place their expenses into more than 166 pre-set categories or to personalise and re-order categories for anything from holidays to home improvements, with a predictive search functionality.

With weekly insights on spending trends in each category over time, clients can see what they are saving by following and keeping to their budgets, and they can set limits in categories to prevent overspending and so earn more rewards for managing their money well, including 5 000 Vitality Money points for engaging with Vitality Money Financial Analyser – that also links to Smart Vault to store important receipts or documents related to important transactions.

“The newly launched Vitality Money Financial Analyser gives clients a realtime view of their finances and trends in their spending habits. What’s more is, given the fact that 50% of people find manual budgeting complex, the Bank automatically creates budgets for clients Akash Dowra, head of client insights at Discovery Bank

based on these behavioural trends, and sets intelligent reminders and personalised alerts on clients’ financial goals and progress,” says Akash Dowra, head of client insights at Discovery Bank.

As a shared-value bank, Discovery Bank is designed to share the value clients create by managing their money well back with them through unprecedented interest rates and rewards. The Bank does this through the AI-driven Vitality Money programme. The better clients do, the higher their Vitality Money status and the better their rewards.

*Sources: Intuit Mint Life Survey, 2020; Exception Is the Rule: Underestimating and Overspending on Exceptional Expenses; Journal of Consumer Research, 2012.