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2019 Investment Views

A focus on ESG

28 November 2018
Authors: Tom NelsonHead of Natural Resources, Therese NiklassonGlobal Head of ESG

Tom Nelson and Therese Niklasson discuss key ESG themes for 2019.


Therese: Tom, I have seen you fiddling a little bit with this little black gadget here.

Tom: Yes.

Therese: What is it?

Tom: So this is a lithium battery and I think this is a very relevant object at this point in time, particularly as we think about the energy transition, which is almost an industrial revolution. In our view, batteries and the economic improvement that is being made in the construction and scaling of batteries on an industrial scale will enable us to move away from effectively the burning of hydrocarbons towards really a decarbonised and cleaner energy future.

Therese: It is funny that you mention it is a lithium battery because obviously electric vehicles is one of the biggest uses of lithium batteries. What I think about instinctively when I hear lithium as well is conflict minerals.

Therese: We have some great solutions in front of us that we can develop but they are always going to bring some form of other challenge which we are going to have to address from another perspective if you like.

Tom: Absolutely and that is why we think, as specialists in these industries and these sectors and as active managers who talk to these companies, who understand how they operate, we think we have got an advantage over a lot of other people in the market and certainly over passives because ultimately you have to make a value judgment.

Climate change

Tom: So looking ahead to 2019 and climate change is at the top of the agenda really for all asset owners and allocators and the Task Force for Climate-related Financial Disclosures, which I think I have got right, TCFD-

Therese: Correct.

Tom: -has given us all a framework and some reasonably well-defined recommendations for what we need to do going forward. Can you talk a little bit about TCFD and the implications for us in 2019?

Therese: Of course. I mean the TCFD is interesting from many perspectives but I think, most importantly, this was one of those key moments where sort of mainstream leaders, like Michael Bloomberg and Mark Carney, stepped into this space and sort of added their experience and sort of professional angle to the importance of this issue by creating this framework effectively and we like frameworks in the ESG industry because it allows us to come together and focus cohesively across a number of different areas.

These recommendations touch on things like the governance structure of your organisation, on the way you measure it, the strategy, etc. It was predominantly developed for corporates to start reporting and communicating to their stakeholders around climate change for this framework but, as asset managers as well as asset owners, we are also using this framework to try and think about what our risk exposure is. Obviously, indirectly, we have the exposed risks of all of these companies.

We have made a commitment. We have been supportive of the TCFD since the beginning and it is a multi-year approach to addressing these issues, starting with working on the governance internally. As you know because you were part of it, we released our statement on climate change about 3 years ago now, which was set out along very similar lines.

I think the next challenge for us will be working with our clients to figure out how we can report better to them on these issues but also internally how we can build the structures for better information about the companies and their inherent risk exposure. The challenge here, as you know, is that companies don’t all disclose their carbon footprints. They don’t all report along the same lines. We, obviously, try and encourage the CDP approach to this but we also see a lot of really smart service providers out there starting to build tools and systems for us to make fairly accurate sort of estimates around what the sort of direct and indirect footprints of these organisations are.

Tom: Yeah. So it has given a sort of legitimacy and, as you say, a framework which, when there are multiple different bodies and organisations and groups trying to focus institutional owners and allocators on the same subject, this has created something that everyone can get behind, which seems vital and very well-timed.

Therese: Absolutely and I think the momentum that we are seeing gathering behind the TCFD and how it is sort of referred to as “the framework” in the market is actually very helpful and it is quite flexible as well, which we like because we need to allow these systems to be tailored to each organisation.

Tom Nelson
Tom Nelson Head of Natural Resources
Therese Niklasson
Therese Niklasson Global Head of ESG

Important information

This content is for informational purposes only and should not be construed as an offer, or solicitation of an offer, to buy or sell securities. All of the views expressed about the markets, securities or companies reflect the personal views of the individual fund manager (or team) named. While opinions stated are honestly held, they are not guarantees and should not be relied on. Investec Asset Management in the normal course of its activities as an international investment manager may already hold or intend to purchase or sell the stocks mentioned on behalf of its clients. The information or opinions provided should not be taken as specific advice on the merits of any investment decision. This content may contain statements about expected or anticipated future events and financial results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, new legislation and regulatory actions, competitive and general economic factors and conditions and the occurrence of unexpected events. Actual outcomes may differ materially from those stated herein. In Australia, this document is provided for general information only to wholesale clients (as defined in the Corporations Act 2001). In South Africa, Investec Asset Management (Pty) Ltd. is an authorised financial services provider.

All rights reserved. Issued by Investec Asset Management, issued November 2018.

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