2024 Must Be the Year of Sustainable Investment

Carl Roothman

In response to Finance Minister Enoch Godongwana’s recent 2024 Budget Speech announcement of USD3.3 billion to support climate change, energy, and just transition goals, Carl Roothman, CEO of Sanlam Investments, advocates for urgent and decisive action to address the escalating climate crisis – starting in South Africa and Africa.

By 2050, we’ll need a total of three Earths to sustain our current standard of living. This is based on the Global Footprint Network’s research that shows humanity is currently consuming natural resources 1.75 times faster than our planet can replenish them. So, 2024 must be a year of shared decisive action.

In 2020, global sustainable investment grew to USD35.3 trillion (R662 trillion) across five major markets. 2024 will be the year sustainable investing ‘grows up’, grows expansively, and convinces more stakeholders that deploying capital to creative, circular solutions and the most financially viable companies, is pivotal for our planet’s future. The Intergovernmental Panel on Climate Change says that it’ll cost about 2% to 4% of global GDP (by 2050) to limit global warming to 1.5%. With humanity’s future hanging in the balance, this seems a very small price to pay.

Why sustainable investing matters more now, than ever
Sustainable investment is one of the best, most innovative means to redeploy capital where it counts. Now is the moment to correct our global ecological overspending to arrest further depletion of precious shared resources. With this comes significant opportunity.

Investors play a pivotal part in choosing which companies to invest in. Additionally, asset managers have the responsibility to call out the laggards and champion the leaders. We’re at the point where a business’ sustainability agenda should impact its bottom-line.

Here are three focus areas for sustainable investing in 2024
Climate change: Munich Re found thunderstorms and earthquakes cost the globe about USD250 billion (R5 billion) last year. Additionally, the Christian Aid NGO found that the 20 costliest climate disasters of 2023 consistently impacted the globe’s poorest populations – those least able to afford to rebuild – the most. Developing countries – which also have less of a role in causing climate change – will be the hardest hit by food insecurity, water scarcity, infectious diseases, and loss of livelihood. Recent flooding in KwaZulu-Natal is evidence of this.

To move to a carbon-neutral world by 2050, we must justly transition to renewables. Right now, the financial sector is not pricing in climate-transition risk sufficiently. Due to a lack of a clear policy signal, many asset managers have adopted a wait-and-see strategy, meaning there will be no massive reallocation of capital.

This simply cannot continue to be the case. The net-zero transition calls for massive investment. The global grid alone needs to increase fivefold to support the more renewable energy. Now is the time for asset managers to ‘back’ the carbon winners of tomorrow.

Biodiversity loss: This is the year we’re likely to see significant increase in investments in companies contributing to combatting biodiversity loss.

• The WEF says over half the global economy – worth about USD44 trillion (R831 trillion) – is dependent on nature
• Global pollinator population declines are impacting crop fertilisation, jeopardising world food security
• The FAO estimates about a third of all food is wasted annually
• The WWF documents a 69% average loss in mammal, bird, reptile, fish, and amphibian species from 1970 to 2022

Moving to a nature-positive economy could unlock USD10 trillion (R190 trillion) in business opportunities and social returns, according to the WEF.

Human rights abuses: Just 11% of companies actively monitor risks with their global suppliers, such as child labour or living wages, according to the Corporate Human Rights Benchmark. Regulatory shifts will probably prompt this to change at pace. The Corporate Sustainability Reporting Directive in the EU, for example, now requires large companies to disclose their impact on people and planet.

How we’re making a difference today
ESG is a global megatrend. At Sanlam Investments, sustainability is part of our DNA. Our investments are rooted in making a meaningful impact towards a better future – environmentally, socially and from a governance perspective. South Africa and Africa urgently need to tackle critical challenges such as energy, food, 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.

Recent examples of our commitment:

• In 2017 we joined Dutch Development Bank, FMO, as shareholder in a strategic partnership with Climate Fund Managers (CFM). Through our partnership with CFM, we can respond to the urgent climate crisis the world faces, particularly in developing economies. CFM uses blended finance structuring to attract public and private capital into high-impact sectors. They strive to make sustainable investments into climate-themed sectors relating to green energy, clean water, and sanitation, as well as the protection of coastal ecosystems. CFM raised USD950 million (R17 billion) into Climate Investor One (CI1) – a dedicated renewable energy fund investing into projects in developing economies. It is now in the process of fundraising for Climate Investor Two (CI2), a fund focusing on water, sanitation, and ocean in the same geographies – having raised over USD850 million in commitments to date. Sanlam’s contribution to these funds and initiatives is approximately USD70 million (R1.3 billion).
• Additionally, ‘SDG Namibia One’ was announced at COP27. A collaboration between CFM, the Namibia Government’s Environmental Investment Fund, and Invest International, it focuses on energy transition and green hydrogen, seeking to raise USD1 billion (R19 billion) in funding. An initiative with the same objectives for South Africa was announced last year in conjunction with Invest International, the DBSA, and the IDC. These initiatives both fall under the umbrella of ‘Climate Investor 3’, with further countries currently under consideration. As a result, we are delivering significant impact to communities across Africa, Asia, and Latin America – through access to renewable energy, climate-resilient water supply, and waste management services – and to the planet, by mitigating the effects of and adapting to climate change, even in places such as the Galapagos Islands.
• Our dedicated Sanlam Investments Sustainable Infrastructure Fund aims to invest R11 billion on local projects that drive economic growth, market development, and job growth, with an emphasis on environmental sustainability in South Africa.
• In the past decade, the Sanlam Group has successfully invested more than R12 billion in the construction and operation of long-term sustainable infrastructure projects throughout South Africa and in the rest of Africa. Sanlam’s infrastructure investments span across crucial sectors including renewable energy, conventional power generation, telecommunication, transportation, digital infrastructure, water infrastructure, and Public Private Partnership (PPP) assets. These include at least 32 investments across different geographies in South Africa, Mozambique, Egypt, and Nigeria.
• In combatting biodiversity loss, Sanlam Group is the first and, currently, the only adopter from South Africa, and one of a select few within the African continent, of the Taskforce on Nature-related Financial Disclosures (TNFD). This reporting framework identifies how nature impacts an organisation’s immediate financial performance, or the longer-term financial risks that may arise from how the organisation, positively or negatively, impacts nature. This commitment is not merely symbolic; it is reflected in our proactive engagement and strategic investments through our portfolio companies, underscoring our role as a leader not just in finance, but in fostering a sustainable future for all.

It’s not too late
We can still course correct, but only if we act today. Asset managers and investors should be confident that they have a pivotal part to play in directing capital to where it’ll have maximal impact in a future we need.

Sanlam Investments proudly supported the Africa Green Economy Summit in Cape Town from 21 to 23 February 2024. As one of South Africa’s largest black-owned asset managers, we purposefully prioritise investments that foster the sustainability of people, communities, and the planet.

Disclosure

Sanlam Investments consists of the following authorised Financial Services Providers: Sanlam Investment Management (Pty) Ltd (“SIM”), Sanlam Multi Manager International (Pty) Ltd (“SMMI”), Satrix Managers (RF) (Pty) Ltd, Graviton Wealth Management (Pty) Ltd (“GWM”), Graviton Financial Partners (Pty) Ltd (“GFP”), Satrix Investments (Pty) Ltd, Amplify Investment Partners (Pty) Ltd (“Amplify”), Sanlam Africa Real Estate Advisor Pty Ltd (“SAREA”), Simeka Wealth (Pty) Ltd and Absa Alternative Asset Management (Pty) Ltd (“AAM”); and has the following approved Management Companies under the Collective Investment Schemes Control Act: Sanlam Collective Investments (RF) (Pty) Ltd (“SCI”), Satrix Managers (RF) (Pty) Ltd (“Satrix”) and Absa Fund Managers (RF) (Pty) Ltd. Sanlam is a full member of ASISA. Please note that past performances are not necessarily an accurate determination of future performances, and that the value of investments/collective investment units/unit trusts may go down as well as up.

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