Ninety One has an obligation to help curtail disruptive climate change and ensure sustainability, says Kim.
Ninety One has become the first South Arican signatory to the Net Zero Asset Managers Initiative, which supports institutional investing aligned with the global goal of net zero emissions by 2050 or sooner.
“We believe we have an obligation to help curtail disruptive climate change, limit global warming by curbing carbon emissions, and ensure the long-term sustainability of our planet,” says Ninety One CFO Kim McFarland. “This reflects the very purpose of our firm, which calls on us to invest for a better tomorrow.”
In signing the agreement, Ninety One has committed to prioritising the achievement of real economy emissions reductions, taking account of material portfolio Scope 3 emissions (resulting from activities from assets now owned or controlled by the reporting organisation), creating investment products aligned with net zero emissions and facilitating increased investment in climate solutions.
Kim adds that Ninety One’s signature to the Net Zero Asset Managers Initiative complements the business’s support for the Paris Agreement and global efforts to limit warming to 1.5°C. “We are also aligned with the 17 specific goals in the United Nations 2030 Agenda for Sustainable Development.”
An inclusive transition
Kim believes that the world needs an inclusive transition plan that works for all its 7.9 billion people. “A drive to net zero that excludes, intentionally or otherwise, any place or enterprise could result in no net zero at all,” she says. “So, to us, the mission to reduce carbon must include the entire world.”
She explains that the carbon-intensive emerging market economies need time, encouragement and resources to adjust. “We understand this well, given our roots in South Africa. These economies, after all, are not responsible for the bulk of the emissions to date.”
Kim adds that, in a way that is entirely complementary with Ninety One’s support for the Net Zero Asset Management Initiative and articulated commitment, the company is making a case for what it calls a “just transition”.
Kim says Ninety One intends to do more than reduce portfolio carbon by simply constructing portfolios that exclude high-emitting countries and companies. “If we automatically apply an exclusionary process to achieve net zero targets, a consequence is likely to be the creation of portfolios concentrated in developed markets and asset-light industries without the transition focus on the rest. We might see places and sectors abandoned to their own devices. Instead, we seek to differentiate between the reduction of portfolio carbon and the reduction of carbon emissions in the real world.”
She says currently companies are incentivised to divest carbon-heavy assets to report declining carbon intensity. “These carbon-heavy businesses continue to operate, but often outside the public eye. If excluded, they will increasingly operate outside the scrutiny of regulated public markets to the detriment of society and the environment.”
Countries are also incentivised to “offshore” carbon emissions to other countries without changing domestic consumption patterns. “As currently measured, the carbon footprint of portfolios depends far more on the sector and regional allocation than on the progress of the underlying companies,” Kim says.
She explains that a narrow focus on lowering “reported carbon intensity” is likely to suck capital out of the developing world. “This could deny large parts of the world the capital needed to build a cleaner, greener economy.”
Kim says that Ninety One believes in active engagement and encouragement towards a transition. “Instead of risking a disorderly exit from carbon-intensive economies, sectors or companies with high carbon footprints, we will actively allocate to companies and countries that can be encouraged to deliver on transition plans and have the will to do so. We want to do all we can to bring places and enterprises on the journey to net zero.”
Change starts at home
Ninety One’s two main bases of operations are South Africa and the UK. Its new offices in London received an “Excellent” rating from the Building Research Establishment Environmental Assessment Method (BREEAM), placing it in the top 10 percent of buildings globally from a sustainability perspective.
Kim explains that the company’s grid in South Africa, however, has a carbon intensity four times higher than the UK. “We continue to assess viable options for sourcing energy from renewables and aim to have a much bigger impact on the carbon-intense energy infrastructure within South Africa.”
She adds that, historically, air travel has also formed a large component of Ninety One’s Scope 3 emissions, given the demands for travel between the two investment hubs. “We do see the increased use of virtual communications as likely to reduce our air travel from pre-Covid-19 levels and thus our Scope 3 emissions.”
Ninety One recently entered into a long-term partnership with BioCarbon Partners (BCP) to mitigate 100 percent of its Scope 1 and 2 emissions and its Scope 3 business travel carbon emissions.
BCP is a for-profit social enterprise that works to make forests and wildlife valuable to rural communities in Southern Africa. BCP does so primarily through the development and sale of carbon assets, which generates revenue used to conserve natural forests in some of Africa’s most important ecosystems. The proceeds of the carbon offsets are paid directly to the communities, which are tasked with preserving their forest environments and preventing deforestation. The aim is to ensure the proceeds from these carbon offsets are higher than the profits that could be obtained from other land-use choices to incentivise communities to take an active role in conservation.
“Our environmental footprint, wherever we are, is an integral part of the project plans. We have undertaken to monitor , mitigate and manage in every case. That which we can control, we will,” Kim concludes.
