Managers invest in the environment

Glenn Silverman, chief investment officer at Investment Solutions, is by his own admission a hard-core capitalist who fundamentally believes in maximum returns for investors. However, he started to question the focus on maximum profits and return, as well as the inherent conflict between short-term gains and long-term sustainability.

He realised he could make a difference by creating a responsible investing ethos at Investment Solutions, which manages ­200-billion in assets. By using its formidable investment power, Investment Solutions could take the lead in creating investment policy that would get asset managers asking the right questions and making investment decisions based not only on next quarter profits, but also on long-term profitability.

“I came to the realisation that the world is in a mess. Most people are sensitive to the problem but do not know what to do about it,” said Silverman, who underwent a Damascene transformation when he read a book by Australian environmentalist and businessperson Paul Gilding, The Great Disruption.

This book addresses some of the environmental, social and governance issues at large, and their potential impact on the global economy.

“It is a wonderful, easy read, tough and quite terrifying at the same time,” he said.

Call to action
Silverman had read Al Gore’s An Inconvenient Truth. However, like most people, the message and call to action got lost in the busyness of everyday life. He subsequently met with David Blood of Generation Investment Management, a British-based investment house co-founded by Gore, which focuses on sustainable investing. This meeting was part of Investment Solutions’ research into identifying companies to include in its global equity fund, rather than the sustainability aspect.

The message only really hit home when he read Gildings’ book.

“It really got me thinking that, not only is the current approach to the environment unsustainable, but that when these are combined with the other major, unsustainable, ­macroeconomic issues at play, the challenges we, as investors, face are far greater. Maybe we are not pessimistic or bearish enough?” said Silverman, who believes the global financial system is increasingly dependent on short-term, unsustainable “fixes”.

A key one is a total dependence on the need for both growth “at any costs”, and the related growth in the overall levels of debt, primarily in the Western world, to try to sustain such growth. Markets are being openly manipulated by the authorities – a form of “financial repression” – to keep the Western consumer spending, in order to try to sustain growth.

Yet, as Jeremy Grantham of GMO – a large, more than $100-billion United States-based asset management firm – said: “Rapid growth is not ours by divine right … it is not even ­mathematically possible over a ­sustained period.”

Mobilise the capital
“Only once investors start to look at environment issues in terms of how they affect your savings and retirement will it result in any change,” Silverman said.

“Generation Investment stated in its recent white paper that ultimately it would be companies and investors that would mobilise the capital needed to overcome these challenges. As individuals we are limited in what we can achieve but as a collective we can make a big difference, especially if the likes of Investment Solutions adds its muscle to the equation,” he said.

Tasked with putting together a presentation on responsible investing for a conference, Silverman started on a steep learning curve at the beginning of this year, and presented his findings and concepts to the executive committee at Investment Solutions. The response was “electric”.

“I realised that many others were thinking along the same lines and that we could use the R200-billion under management to mobilise ­capital,” he said.

Today Silverman has a responsible investment committee of 12 people who come from various areas of the company.

Business processes
“It is early days but we are very excited. We are on a path and we have a mission,” said Silverman, who admitted that the first challenge was to get their own house in order. “We have started looking at our own business processes and how we can improve the sustainability aspects of our own company.”

The next step was to send a questionnaire to about 45 fund managers who have mandates with Investment Solutions, locally and globally, to better understand their perspectives and approaches to sustainable investing strategies. Silverman said most managers responded to the questionnaire, and his team was reviewing, collating and summarising the key results and findings.

Once this was completed, the ­output would be used to engage the fund managers on how to move forward. They would then release the overall conclusions more broadly, including to the media.

“Until now we have largely left our fund managers to vote our proxies as they saw fit, within certain guidelines. We may now, though, as a consequence of our research and focus, wish to provide a more specific mandate around how to vote in terms of responsible investing,” said Silverman.

As a general rule US fund managers were not only uninterested in shareholder activism but also quite vocal in their disdain and focus on what Silverman described as unfettered, short-term capitalism.

Executive incentives
“It has been very disappointing. The response of most US managers was: ‘If we are not happy with the way a company is being managed we simply sell the shares.’”

The reality is that, given the short-term nature of chief executive incentives, they are often thinking more about their own back pocket than the environment or other more “slow burn issues”.

Silverman said fund managers in Europe, which had a greater social and environmental awareness, were far more sensitive to sustainability issues and investors there often demanded an explicit strategy for this. However, with the turmoil in the euro area, they may well have other, as big, issues on their minds.

Silverman said one of the more pleasing surprises were comments from international investors about how “leading edge” the South African fund management industry and investment regulations were.

Local pension funds are governed by Regulation 28, along with the recently released code for responsible investing in South Africa,  both of which discuss investors’ duties to consider environmental, social and governance aspects when investing. Regulations on the fair treatment of customers are in the offing too.

Dedicated focus
Silverman said that most fund managers, including the South African ones, would like to do the “right thing”. The challenge was to define what exactly that was and how best to implement it, especially when many investors took a very short-term approach to investing.

“I am absolutely convinced about the case that a focus on sustainability can reduce risk, and quite materially so. The case for additional returns is less clear, though there is mounting evidence that even returns are enhanced with a focus on sustainability. If we can get managers to simultaneously focus on raising returns while reducing risks, and at the same time assisting the global environment, then that would really be the investment holy grail. I think a dedicated focus on these issues takes one a long way down that road,” said Silverman.

He said Investment Solutions was still working on its formal responsible-investing manifesto and that there was still much more work to do. “This is an evolution not a revolution, the practicalities are tough but we simply have to find a better solution – the current one is simply not sustainable.”

Sustainability or responsible investing mean different things to different people. But ultimately it is about investing in businesses that make investment decisions that take into account good corporate governance as well the effect on the environment and society, which will improve their long-term profitability and lessen risks.

Silverman quoted Michael Power, strategist at Investec Asset Management, who argued that it was unacceptable that we had reached the height of arrogance in believing that we could print money to fund our unsustainable lifestyle, knowing full well that our children would pay for it in future.

Silverman is going through what he describes as a personal paradigm shift, yet his greatest challenge is not convincing fund managers about the importance of responsible investing but trying to convince his 17-year-old daughter why she does not need that additional pair of shoes she so desperately desires, and what her choices today mean for her future.

Subscribe to the M&G

These are unprecedented times, and the role of media to tell and record the story of South Africa as it develops is more important than ever.

The Mail & Guardian is a proud news publisher with roots stretching back 35 years, and we’ve survived right from day one thanks to the support of readers who value fiercely independent journalism that is beholden to no-one. To help us continue for another 35 future years with the same proud values, please consider taking out a subscription.

Maya Fisher French
Guest Author

Related stories

The economic effects of racism are more deadly than Covid-19

A recent report shows that racism has cost the US economy $16-trillion in growth over the past two decades. If the financial-services industry wants to show that Black Lives Matter, it needs to rethink how it allocates capital

Steenhuisen is a shoo-in as DA leader, but he needs help

The biggest challenge for the next leader of the Democratic Alliance will be to get politicians like Mbali Ntuli onside

GDP is stuck in the doldrums

The latest economic figures and the effect of the coronavirus on the global economy are bad news for South Africa’s already tepid domestic growth outlook

Municipalities need youthful leaders

Midvaal mayor Bongani Baloyi shows the value of competent young leaders who prioritise accountability and challenge the status quo

A decade to achieve Vision 2030

The new year marks the countdown to reaching the goals set out in the development plan for the country

Strategic trends in Africa in 2019

Economic growth is on the up, but so is debt; foreign powers are circling and democracy is retreating, but people power continues

Subscribers only

SAA bailout raises more questions

As the government continues to grapple with the troubles facing the airline, it would do well to keep on eye on the impending Denel implosion

ANC’s rogue deployees revealed

Despite 6 300 ANC cadres working in government, the party’s integrity committee has done little to deal with its accused members

More top stories

The Nigerian government is killing its citizens — again

‘Nigeria kills its people. Nigeria has always killed its people.’

Finance probe into the Ingonyama Trust Board goes ahead

The threat of legal action from ITB chairperson Jerome Ngwenya fails to halt forensic audit ordered by the land reform minister

Ailing Far East Rand hospital purchases ‘vanity’ furniture

Dr Zacharia Mathaba, who purchased the furniture, is a suspected overtime fraudster and was appointed as Gauteng hospital chief executive despite facing serious disciplinary charges

Institutions of higher learning should commemorate their casualties

The bust of Matikweni Nkuna at Tshwane University of Technology is an example of how we should honour those who fought for equal access to education

press releases

Loading latest Press Releases…

The best local and international journalism

handpicked and in your inbox every weekday