23 Nov 2021
Hear from Ninety One CEO Hendrik du Toit on how to invest for a successful net-zero transition.
This was the first COP where the finance sector was present in force. We will only achieve a successful energy transition if finance is involved at scale, so that was a positive. There was also growing recognition that we need to support the emerging world’s net-zero transition, and that it will necessarily be slower. This is important because there is now an honest conversation about how we can build a realistic net-zero pathway for the whole world, including emerging markets. So I came away from COP26 reasonably optimistic, but there’s a huge amount of work to do to keep global warming below 2-degrees Celsius.
My concern is that the initial drive for net zero focused largely on creating low-carbon portfolios. It’s not difficult for investors – in developed countries especially – to divest from ‘dirty’ industries, most of which are based in emerging markets. But that risks starving the emerging world of the capital it needs to transition and leaving high-carbon assets in the hands of less scrupulous owners with no interest in decarbonisation. So Ninety One is arguing strongly for a focus on financing real-world, sustainable emissions reductions, rather than creating low-carbon portfolios.
A tiny number of stocks account for the bulk of emissions. In South Africa, two companies produce almost half of all emissions, namely Eskom, the electricity utility, and Sasol, the energy and chemical company. If an investor divested from a heavy emitter, they would have a lower-carbon portfolio. But if that emitter is then bought by an unscrupulous investor with no interest in decarbonisation and who is simply aiming to maximise cashflows, the world is no closer to net zero. Responsible ownership will play a key role in the transition to a cleaner greener world.
It would deny capital to countries with carbon-intensive energy systems, which primarily means emerging markets. That would create a social disaster and likely result in no net zero at all. So it is very important that we don’t leave anyone behind and that the net-zero transition is inclusive. As investors, we need to be focused on achieving net zero by 2050, rather than short-term goals that do not support real-world emissions reductions.
There are essentially two ways. As I said, one is to remain invested in companies and engage with them to support their transitions. The other is to invest in companies whose products and services are enabling or accelerating the transition to net zero. We need to do both, and Ninety One is committed to doing so.
With Western central-bank policy normalising, economic growth rates diverging and global trade still readjusting to life after lockdown, investors have a complex environment to navigate in 2022.
Ninety One’s portfolio managers assess the outlook across their asset classes and regions.
Our team also takes a deep dive into the outlook for emerging markets, as well as into how sustainability will drive investment outcomes next year and beyond.