Divestment is not the answer if we want to reach net-zero by 2050. That is the argument put forward by Hendrik du Toit, founder and CEO of investment manager Ninety One, in the firm’s 2022 investment outlook.
The Q&A look-ahead focuses heavily on fund managers’ takeaways from COP26, with Du Toit saying he left the event ‘reasonably optimistic’, in part because more honest conversations are being had about the inclusivity needed to reach the climate change goals being set around the world.
Talking in a webinar accompanying the 2022 outlook, Du Toit notes that Covid-19 had helped push climate concerns to the forefront. ‘The pandemic has accelerated the appreciation of the seriousness of the sustainability challenge,’ he says – and not just in the world of politics or finance but also at a broader societal level.
Inclusivity around net-zero goals is essential, Du Toit adds in the Q&A, arguing that what this means in practice is that responsible stewardship – rather than divestment – is needed to drive a global transition to a greener economy. In the webinar, he says it is ‘very clear’ that the finance industry must deal with heavy emitters, but not by ‘ignoring them and letting them go into ownership that has no interest in the [net-zero] transition’.
‘It’s not difficult for investors – in developed countries especially – to divest from ‘dirty’ industries, most of which are based in emerging markets,’ he says in the Q&A. ‘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 decarbonization.’
For Du Toit, the focus should be on financing sustainable reductions, rather than low-carbon portfolios, where he says the initial drive for net-zero has largely been focused. He warns that a portfolio-focused policy risks denying capital to those high-emitting countries – which are largely in emerging markets.
‘That would create a social disaster and likely result in no net-zero at all,’ he says. ‘So it is very important that we don’t leave anyone behind and that the net-zero transition is inclusive.’
Investors need to be focused on long-term goals and net-zero by 2050, he adds, rather than short-term targets that fail to support real-world reductions. He also notes that across portfolios, a small number of stocks account for most emissions. In South Africa, for example, where Ninety One was founded in 1991, electricity utility Eskom and energy and chemical firm Sasol produce almost half of all emissions. Du Toit says that even in these situations, he does not see divestment as the answer.
‘If investors divested from a heavy emitter, they would have a lower-carbon portfolio,’ says Du Toit. ‘But if that emitter is then bought by an unscrupulous investor with no interest in decarbonization that is simply aiming to maximize cashflows, the world is no closer to net-zero. Responsible ownership will play a key role in the transition to a cleaner greener world.’
Ninety One, which saw assets under management increase by 7 percent to £140 bn ($186 bn) in the six months to September 30, 2021, is a signatory to the Net Zero Asset Managers Initiative, which works to support the goal of net-zero by 2050 or sooner.