Ninety One’s chief sustainability officer explain how the firm is focused on having a “real world impact” by engaging with high emitters and developing just transition frameworks for emerging markets
In brief
- Asset manager Ninety One has strong emerging market roots, having been founded in South Africa in 1991
- The firm’s has some 1200 corporate investments across equity and debt but only 24 companies are responsible for 50% of their financed portfolios emissions, with corporates playing a key role
- Instead of divesting, the firm believes in engaging with those ‘heavy emitters’ in order to have ‘real world’ impact
- More work needs to be done to ensure an inclusive, just transition in emerging markets
Ninety One was founded in 1991 in South Africa by Hendrik du Toit. It manages some €158bn and employs around 1200 people. They state they “seek to make a difference to the world’s greatest challenges by investing our clients’ capital in a responsible manner”.
Ninety One’s chief sustainable officer Nazmeera Moola tells Impact Investor this mission chimes well with her own experience. She explains that starting her career as a South African economist taught her to look at social and political factors.
“If you want to invest in emerging markets you need to understand all the externalities, not just governance but also the environmental and social impact,” she stresses.
Ninety One’s flagship Global Environmental portfolio, an article 9 fund, has some €4bn assets under management, but Moola’s role is to work across the business. “Ninety percent of what I do is looking at the entire portfolio of what we are investing in. The other 10% is looking at our own businesses transition plans,” she says.
This means looking at the transition plans of the largest contributors to Ninety One’s financed emissions. “We have some 1200 corporate investments across equity and debt but only 24 companies are responsible for 50% of our financed portfolios emissions. I call them the heavy emitters.”
Moola continues: “It would be easy for us to reduce our own carbon emissions by simply selling those 24 companies – but that would not change anything. What we are about as an organisation at Ninety One is seeking to have real world impact. Of course, we are also working with the tail, but working with the high heavy emitters is likely to have the greatest effect.”
Transition strategies
Ninety One has developed an in-house assessment framework which looks to address the three pillars of any transition strategy.
Firstly, they look at the ambition of transition plans. “This is more of an art than a science. A crucial part of this for us is adjusting for geography. Clearly, in emerging markets, transition plans are going to take longer, and since 55% of all our investments are in those markets compared to just 45% in developed markets this is a crucial element in our thinking.”
Secondly, they look at the quality of the plan. Ensuring that it takes account not just of current technology but also technology yet to be developed. And, she explains, “ideally, we would like to see that every company’s plan is fully costed”.
“Finally we focus on implementation, what are we actually seeing happen. In this regard we are seeking to gain a clear view of progress towards the end goal.”
Energy transition is Moola’s primary focus as much of what goes on in the other high-emitting sectors such as industry and transport is dependent on electrification. “Therefore, we decided to focus on this one area to start with and then broaden out. We intend to gradually start adding areas and have done preliminary work around biodiversity and diversity and inclusion.”
Moola’s team of five provides a coordinating role across the business. When it comes to the actual engagement with companies “we delegate this to the person who is most likely to have an impact. For example, one of my colleagues used to run the copper division of a leading mining company. They are in a far better position to engage the large mining companies than I would be”.
Moola does get involved in company engagements, however, where there are holdings in several different funds or where there is a less experienced analyst who is responsible for an investment.
Energy crisis and just transition
Clearly the fact that companies in Europe, particularly in Germany, are being forced to burn coal as they lose supplies of Russian gas is having an effect on short-term transition plans that are reliant on electrification and linking to the grid.
However, for developed markets, Moola believes this is a short-term concern. “The good news is that the outlook for renewables has probably improved significantly over the medium term. We prefer to focus on the 2030 outlook rather than the targets over the next two to three years,” she explains, adding that the Inflation Reduction Act in the US is helping ensure that renewables are the cheapest option by quite a margin.
“My main concern when it comes to the effects of the war in Ukraine is that the enforced return to burning coal is likely to undermine any efforts to persuade emerging markets that they should be accelerating the phase out of coal in their own countries.” Ahead of COP26 there had been a growing consensus, but it might be more difficult now for that consensus to hold sway.
Ninety One are one of the investors backing the Impact Investing Institute’s Just Transition Initiative.
Moola adds: “As we think about transition, it’s important that we concentrate on a just transition. There may well be many people who lose jobs, and we need to bring those people along with us and to mitigate against significant job losses in emerging markets. If we don’t try to mitigate the impact on the losers from transition, there is a real risk of a socio-political backlash to transition. The first step involves consulting the affected workers and communities. This is so often missed by companies and governments.”
She adds: “One characteristic we are seeing in emerging markets is that corporations are often ahead of their governments in the energy transition. This makes our engagement all the more important.”
In developed markets, Moola believes we have become increasingly more sophisticated in pricing in the financial realities of climate change and the various risk factors around it, led by the regulators but also by the consumers.
“Where work still needs to be done is in carrying that revolution through into emerging markets. Here politicians tend not to be aggressive in setting targets and corporates have a much more significant role. This makes our fight for change all the more important.”
