Johnstone shared this opinion during a Sanlam Investments Critical Conversations webinar, held to coincide with the 2022 United Nations (UN) Climate Change Conference (COP27), or Conference of Parties, being held in Sharm El Sheikh, Egypt, from 6 to 18 November. He noted that blended finance, being the strategic combination of public and private sector capital, offered the ‘risk absorbency’ needed for impact investing. Blended finance solutions can accommodate the new business models, multiple jurisdictions and technologies required in infrastructure projects that align with the UN’s 17 Sustainable Development Goals (SDGs).
Sanlam Investments has become a “practitioner of blended finance” with three blended finance vehicles currently in operation, including one focused on renewable energy, another on water and oceans, and a third, soon-to-be-launched, to reap the return dividend on offer from green hydrogen. COP27 provided the backdrop for the official launch of a similar green hydrogen-focused fund, the SDG Namibia One Fund, created through a partnership between the Environmental Investment Fund of Namibia; Climate Fund Managers and Invest International. The overlap between Namibia and South Africa is clear, with storage and transmission being the last hurdle that these countries must overcome to reap the full benefit of their undisputed natural, renewable energy resources.
The latest Critical Conversations event, which was focused on impact investing for change, was held against a backdrop of tangible climate change-related challenges such as drought and flood; and a host of social issues like education, gender-based violence (GBV), inequality and unemployment. Sanlam Investments’ focus is on investing to make meaningful progress towards alleviating such issues by better aligning capital with the aforementioned SDGs. “Impact investing refers to the financial mechanisms that we are able to use to deliver on impact, it refers to how we identify businesses and then mobilise capital to make a meaningful impact,” said Nersan Naidoo, CEO at Sanlam Investments.
Naidoo and Johnstone were joined on the Critical Conversations platform by Mervyn Shanmugam, CEO of Alternatives at Sanlam Investments, and Marthinus van der Nest, Head of Amplify Investment Partners, to unpack impact and sustainability under the people, planet and shared prosperity themes. “The point of impact investing is to use money to bring about change, and for allocators of capital, addressing climate change is paramount,” said Johnstone, before acknowledging that climate change could not be addressed in isolation. The panellists agreed that the UN SDGs could only be addressed if all stakeholders collaborate to put sustainability first.
Naidoo was requested by a member of the audience to differentiate between environment, social and governance (ESG) and impact. “Impact is best described as the real, tangible things – where you can see the direct benefit from the application of capital, whereas ESG references the frameworks that you use to engage with listed companies,” he said. “Both try to achieve the same thing but one is more direct than the other.” He added that Sanlam Investments was serious about sustainable investing, “both from an impact perspective and from what we do in the listed space, where we engage with the companies that we invest our clients’ money in”.
Johnstone went further, explaining that one could not separate climate and social issues. “We need to stop activities that prejudice the sustainability of the atmosphere; unless we do that, the social issues around crime, education, energy and water become more and more difficult to address,” he said. This reality is evidenced by only one of the 17 UN SDGs being climate-specific; the rest being sustainability-focused. The complex interaction of climate and social outcomes explains why South Africa and other African economies are insistent on achieving a just energy transition.
“We have to figure out how we transition away from coal to greener energy sources over time; there is no on-off switch for this process in South Africa, or for the rest of Africa,” said Naidoo, before adding that the question is not whether or not to reduce carbon emissions, but rather how to reach the target over time, without causing social harm. Achieving carbon reductions is becoming non-negotiable due to pressures from international trading partners. “We need sustainable, renewable sources of energy if we want international firms to trade with us; we must bring our goods and services up to high standards of production so that we can attract more foreign capital into the country,” said Shanmugam.
The consensus from this round of Critical Conversations was that impact and/or sustainable investing made sense for both allocators of capital and investors. “Impact investing pays for itself,” said Johnstone. “As we transition into a green economy, we will find new ways to create and recognise value, and to return the capital that is invested into economic activity. We are creating a whole new asset class for the future.”
From a Sanlam Investments perspective, achieving the UN SDGs and investing with impact towards a sustainable future are part and parcel of improving investors’ long-term financial returns. “We are committed to being an asset manager that makes a contribution to sustainability; this is now a purpose of our business,” concluded Naidoo. “Reaching the UN SDGs, making an impact or contributing to a more sustainable world is not a competition, it is something that we all need to work together to achieve.”