Sanlam Investments’ Responsible Investing Report hints at top trends in responsible investing for 2024, outlining how deeper data, standardised measurement and reporting, active ownership, and investments targeting specific impact outcomes could help change the course of the world’s current trajectory.
Sanlam Investments CEO, Carl Roothman, says, “ESG is a global megatrend that’ll continue to escalate in importance in 2024. For Sanlam Investments, sustainability is part of our DNA. Our investments are rooted in making a meaningful impact towards a better future. Africa urgently needs to tackle critical challenges such as energy and water security. We all need to share responsibility for safeguarding our resources and bolstering resilience in our most vulnerable communities. That’s how we empower all Africans to be financially confident, secure, and prosperous.”
Here, Teboho Makhabane, Head of ESG and Impact at Sanlam Investments, shares key findings from Sanlam Investments’ Responsible Investing Report, to indicate top sustainability trends for 2024.
This year has seen the Libyan floods, Moroccan earthquake, China floods, Atlantic hurricanes, North American fires, US tornadoes, the Turkey-Syria earthquake and Cyclone Mocha, not to mention flooding in South Africa following the La Niña weather phenomenon. Additionally, it’s been the hottest year on record. The climate crisis is impossible to ignore, and the reduction of carbon emissions will continue to be core in company agendas next year. This is especially pertinent, given regulatory demands and the rise of the carbon credit ‘currency’ internationally.
Moving fund flows to climate-positive outcomes can make a massive difference. For example, the investments made by Climate Fund Managers (Sanlam Investments’ joint venture with FMO, the Dutch Development Bank), through their combined Climate Investor One and Climate Investor Two funds, are expected to generate 718,000 megawatt hours of electricity per year, avoid 812,800 tonnes of carbon dioxide equivalent avoided per year, and reach close to two million people.
While the emphasis on the use-of-proceeds social, green, and sustainability-linked bonds is expected to continue, green bonds, in particular, are well-suited for South Africa, given the pressing energy crisis and the promising growth of its alternative energy sector. However, green bonds might extend their reach to the water sector, where there has been a historical lack of investment in crucial water infrastructure projects. Additionally, exploring innovative, publicly-available structures, like the debt-for-nature swap executed by Climate Investor Two's business Oceans Finance Company with the Ecuadorian government, focusing on the marine protection of the Galapagos Islands could offer valuable insights into advancing sustainable finance practices.
Although there is a demand for social bonds in the country, their success hinges on the thoughtful structuring of projects and the availability of interested investors. Further to this, the industry could benefit from a more creative approach to categorising social bonds, such as investments in education, which may not yield immediate results but hold the potential to shape the nation's future over the next 10 to 15 years. Sanlam Investments is set to launch a social infrastructure fund in the first quarter of 2024, targeting education, healthcare, rural retail, and affordable housing, as the business expands its mission to create a more sustainable and equitable future.
A drive beyond ESG integration to more sustainability-based investments with clear outcomes will be pivotal to driving improved decision-making. Sanlam Investments uses internal and external scoring systems as a cornerstone of its approach to align investments with sustainability objectives. Globally, deeper, more consistent data is required to enable more targeted, scalable, and measurable interventions.
Leveraging private debt to aid SMEs, that traditionally have had difficulty obtaining traditional forms of financing, could prompt positive outcomes for the SME sector and job creation more broadly. Sanlam Investments’ Private Debt team, which has garnered strong investor support over the past decade, is finding that demand remains exceedingly strong. The team’s most recent investment was in We Rent Cars, a company that offers long-term vehicle rentals or subscriptions to individuals, many of whom are “underbanked” and struggling to obtain vehicle finance, to help it expand its fleet, which is expected to create 179 direct jobs and 1,560 indirect jobs.
Another key trend could be identifying opportunities that address multiple systemic challenges simultaneously and sustainably. For example, Sanlam Investments’ Private Equity business invested in SkipWaste, which is a leading provider of integrated waste management in Gauteng, the region responsible for 42% of the nation’s estimated 122 million tonnes of waste. Additionally, 75% of SkipWaste’s employees are youths, most from challenging backgrounds, so the company also helps provide critical employment and socio-economic inclusion. Two birds. One investment.
Demand for ESG in investing hasn’t yet been matched by companies’ levels of disclosure. To shift this, 2024 will likely see greater emphasis on sustainability frameworks and transparent reporting. Given that, in June 2023, the International Sustainability Standards Board (ISSB) issued inaugural global sustainability disclosure standards, Sanlam Investments has been leading the charge through efforts such as the Sanlam ESG Barometer which maps how corporate South Africa is faring in shifting businesses to deliver improved ESG outcomes. Additionally, Sanlam has its own value-enhanced ESG framework focused on engagement priorities and measurable goals, with regular reporting, aligned with internationally recognised frameworks.
All our investment processes are now assessing the impact of material ESG risk, from a top line and cost perspective. This informs investment decision-making and gives portfolio managers a fiduciary role to engage with investee companies to operate in ways that benefit society and the environment.
These metrics measure companies’ ESG and sustainability practices. There’s much debate around best practice. 2024 may see more calls for consensus and shared benchmarking to increase transparency.
With alternative investing gaining momentum, this should provide investors with an opportunity to move towards impact investing. The aim of our alternative investing offering is to make meaningful, positive impacts while garnering robust market returns. In the past five years, Sanlam Investments’ impact portfolio has more than doubled to comprise 58% of alternative investments.
Sanlam is calling for more shared emphasis on the ‘S’, in ESG, to address systemic inequality and capitalise on South Africa’s demographic dividend through a focus on job creation. The Sanlam Investments’ Investors Legacy Range is expected to exceed its targeted impact of over 27,000 jobs.
Going forward, it’s likely more businesses will measure their management teams against clear ESG key performance indicators. These governance metrics will ensure greater and sustained integration of ESG practices.
Roothman concludes that Sanlam Investments will continue to deploy available capital to address Africa’s shared challenges head on, to make a tangible impact in communities across the continent. “We are dedicated to using our influence to foster positive change in our society through investments that pulse with purpose. We urge others to help us redirect global financial flows toward building the world we want emerging generations to inherit. May 2024 be the year we collectively commit to changing the course of our planet’s future.”
Access the Sanlam Investments 2023 Responsible Investing Report .
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