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The importance of including sustainable investments in your portfolio

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PLANNING PERSPECTIVES

By Palesa Tlhoeloe

Worldwide, there’s a growing interest in sustainable investing, both among institutional and retail investors. What is sustainable investing? Also known as socially responsible investing, it incorporates non-financial factors into the decision-making process when identifying risks and growth opportunities. These factors have been given an acronym: ESG, which stands for environmental, social and governance.

So, in short, sustainable investing is about more than turning profits; it’s also about supporting initiatives that will benefit the planet and vulnerable communities.

This kind of investing is gaining traction in South Africa. There’s a strong belief that long-term financial performance is often linked to how good an organisation manages its ESG issues. As a result, many local asset management companies, insurance companies and pension funds have adopted the United Nations-backed Principles for Responsible Investment (PRI) and the Code for Responsible Investing in South Africa (Crisa). Both of these codes are not legislated – in other words, there’s no law requiring companies to abide by them. Rather, they guide how investors should encourage responsible practices in the organisations they invest in.

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Does ESG make financial sense?

That’s the first question people ask. If a fund or asset manager focuses on sustainable investing, will returns be compromised?

On this, the PRI’s mission statement is clear: “We believe that an economically efficient, sustainable global financial system is a necessity for long-term value creation. Such a system will reward long-term, responsible investment and benefit the environment and society as a whole.” Accordingly, the PRI has formulated six voluntary investment principles developed by investors to integrate ESG practice into organisations. (Find out more at www.unpri.org.)

In South Africa, Crisa is broadly aligned with the PRI principles. The most important custodian of CRISA is the Association for Savings and Investment South Africa (Asisa). The Financial Planning Institute of Southern Africa (FPI) has also recently formed a Social Responsibility and Ethics Committee to promote sustainable investing.

Asisa represents the interests of the country’s asset managers, collective investment scheme management companies, linked investment service providers, multi-managers and life insurance companies. Its mission is to promote a savings culture in South Africa, and sustainable investing complements this mission.

On a personal level, at Imvelo Wealth, we also promote sustainability by encouraging clients to live simply and within their means and by including ESG in investment strategies wherever possible.

Don’t wait – the future is now

Almost all of South Africa’s leading industry players – companies and individuals who manage institutional and retail client portfolios – are unanimous in their belief that it makes sense to invest in organisations that have a strong ESG focus.

Raine Naudé, an ESG Analyst at Allan Gray, sums it up nicely: “Investors should select an investment manager or fund where the responsible investing strategy best aligns with their needs and values,” she writes. “In addition, by actively managing your fund and engaging with the companies in which we invest, we contribute both to safeguarding your investments and to helping your investments have a net positive effect on society.”

This is true of Allan Gray and almost all other respected asset management firms. There was a time when companies made huge profits at the expense of the environment and vulnerable people, but that time is over. It’s all about long-term sustainability – both for your savings and for life on earth.

Palesa Tlholoe, CFP, is co-founder and a wealth manager at Imvelo Wealth.

This article first appeared in the December 2021 issue of our free digital magazine IOL MONEY, which you can access here.