Nov 7, 2022
07 November 2022, The transition to net zero will not be linear or simplistic, especially for companies in carbon-intensive emerging market economies like South Africa. A high-emitting company of today will only have a role to play in the net zero economy of tomorrow if it has an ambitious, credible, and implementable plan to transition toward a greener, cleaner future.
As asset managers who are invested in these companies, it is our responsibility to support their transition to net zero, to use our shareholder vote responsibly and to approach decarbonisation from a real-world world-perspective and not from our own portfolio perspective. We do not support ‘portfolio purity’ or divestment.
Remaining invested in the high carbon emitters in our existing portfolio, specifically those in emerging markets, is the right thing to do. It is not about where the company’s or country’s carbon position is today – rather it is about their willingness and ability to move the needle on their carbon emissions. In contrast, divesting from high emitters to cleanse the portfolio does nothing for contributing to real-world decarbonisation.
Corporate South Africa is making progress, with several firms pledging to achieve net-zero emissions by 2050, inclusive of companies from the hard-to-abate industries, like cement manufacturer PPC, paper and pulp producer Sappi, and Sasol.
However, most companies globally, but particularly in emerging markets – do not yet have a clear plan on how they’re going to get to net zero by 2050. Therefore, it is our role as shareholders to encourage, measure and engage the high emitters in our portfolio on their transition, to go on the journey of transition alongside them, with special focus on emerging markets. To ensure that we do this with integrity, we have developed an in-house ‘Transition Plan Assessment Framework’ that scores our heaviest emitters on three key principles: level of ambition, credibility of plan, and implementation of plan.
Additionally, financial planning and allocation to transition is critical to consider. The capital expenditure requirements, the impact on revenues and expenditures of this plan, and whether the company can afford it are all indicative of how seriously the company is taking transition and of the potential for transition success. Included in the assessment of transition is the consideration and measurement of social impact to ensure that the transition is sustainable both for people and planet.
Achieving net zero is a global problem. The ideal outcome would be for sectors and countries that can achieve it more easily to decarbonise faster, and for hard-to-abate sectors and developing countries to have slower pathways.
It is essential to South Africa’s economy to execute on the decarbonisation strategy. Local corporates have begun to engage, and in some instances, taken the lead on the opportunity and risk presented by the transition. The approach we are taking enables us to have a clear view on where we are today, and where we are going in light of where we desire to be. Net zero offers both a threat and an opportunity for South Africa and at Ninety One we continue to stand firm in our position of support for both a country and at company level for a just transition to a low-carbon, thriving future.