Over recent years, climate change has been pushed up the public agenda as the planet faces unprecedented warming. For investors trying to drive change, it is a complex challenge . “To find a solution to the problems facing the world from a climate change perspective, we are all going to have to pull together in the same direction,” says head of charities at Investec Nicola Toyer. “But different economies and countries are at very different stages of their journey towards net-zero.”
For Toyer, this highlights the balancing act inherent in the “E” in ESG (environment, social and governance) investing. “There have been a lot of companies and governments signing up to agreements and commitments but there is very little evidencing of what they are actually doing. There is a lot of talking and very little tangible action. This, coupled with the stark difference between the reliance on fossil fuels of developing and developed nations, shows how challenging change is going to be.”
This is also a pressing concern of charity investors and one that Investec discusses in detail with its clients. “These are probably the type of questions we get asked the most: how do you consider the environment with the investment? And what are we doing about fossil fuels?”
Finding an answer to these questions is not going to be straightforward. To effect real change, there is going to have to be meaningful engagement at many levels, says Toyer. “I believe that we can’t just divest from all fossil fuels. Essentially, if you do that you’re passing the problem on to somebody else. What’s going to be the impact on the people who live in developing countries that are reliant on coal? Their jobs? Way of life? Even powering their homes? There is social impact of environmental decisions and some of those outcomes can conflict with charities’ values. We want to educate charities as to what the impact of their decision-making will be. Ultimately, it’s their decision, but you have to think about what responsible investment actually means.”
Engagement with companies
For Toyer, it comes down to stewardship and leveraging the power of being a stakeholder. “How we engage those companies and being active investors on behalf of our clients is key. If you decide you are not going to invest in fossil fuels, who will be putting pressure on companies to effect change from a shareholder point of view? It is important that clients understand there’s also an impact when they choose not to invest.”
Investec recognises that some industries are not viable options for investment, both from an ethical and financial standpoint, says Toyer. “There are companies we won’t invest in, such as energy companies that aren’t committed to the Paris Climate Agreement or show no progress on achieving those targets. We look at the investment cases and the sustainability angle over the long term. Thermal coal for example is not a sustainable business because it’s a big polluter and the financial return is just not viable.”
As a group, Investec has aligned its goals with UN Sustainable Development Goals (SDGs), and specifically prioritised two core SDGs: one being SDG 13 Climate action; and the other SDG10 – reduced inequalities. Toyer adds: “Our overarching purpose is creating enduring worth, living in, not off society. This purpose is at the heart of everything we do and is at the core of our decision making as a business.”
Engagement with charities
As the issues around ESG investing become more nuanced, so do the conversations with clients. “There are lots of different moving parts that have raised awareness of ESG issues over recent years and that naturally has led to investors looking at what they can do with their own investments,” says Toyer. “They want to understand how we can report on ESG issues within their own portfolios.”
This is true of all clients but with charities, it has come to the fore over recent years, adds Toyer. “Trustees are more professional in what they expect from investment managers. They want investing to be aligned with their values.”
This is partly due to public scrutiny, suggests Toyer, with the rise of social media and risks of reputational damage constantly only a post away. “There are a whole host of factors that have led to why ESG investment has gained more prominence and changed the conversation with investors. And funds that have a sustainable or ESG label have done phenomenally well. My view is that investments shouldn’t actually need the ESG label as assessing ESG factors is primarily about risk management and how this might impact the financial return of a business – for example managing the risks of climate change or human rights abuses. It is about how companies are incorporating sustainability within their businesses; leaving a positive footprint and not a negative one.”
What we do
At Investec, our Charities Investment Service underpins our corporate purpose to create enduring worth, living in society, not off it. We are responsible for preserving and growing the wealth that is entrusted to us by over 1,100 charities; supporting them in delivering their mission. Sustainability is core to our investment approach and we will aim to deliver your financial goals, while ensuring your values are protected. We will take the time to understand your charity and can provide local charity specialists through our 14 regional offices across the UK.
Fast facts
- Over £3.5bn in charitable AUM and £43bn of total assets*
- Top 10 manager of UK charities, with over 80 years experience
- Donated £10m to projects and 9,468 staff volunteering hours in 2021
- Investec Beyond Business: created 53 social enterprises, with over 350 jobs
- UN PRI and UK Stewardship Code signatory
* As at 31 March 2022
Nicola Toyer is the Head of Charities at Investec
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