Our Approach to Climate Risk
In accord with the requirements of regulation 28 and our fiduciary responsibility, Futuregrowth seeks to assess all risks, including ESG (climate related) risks, as part of our fundamental investment process, and to integrate such considerations into a risk:return framework. Further, we have chosen to have a position on climate risk which incorporates our belief that global warming is a real factor affecting investments (risks and returns) and the sustainability of the country (and the world) for all citizens. Thus, our Responsible Investment (RI) philosophy includes the goal of reducing carbon-emitting investments.
As a PRI signatory, we are aware of the mandatory PRI reporting requirements of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), we are committed to report on the TCFD principles as part of our overall RI strategy.
The South African government recognises the negative impact of climate change on natural resources (e.g. water and agriculture) as well its threat to long-term human development. Being a significant contributor to greenhouse gas emissions and one of the top 20 largest carbon emitters in the world, South Africa signed the Paris Agreement on Climate Change during November 2016, making a public commitment to achieve global agreement on climate change. Futuregrowth recognises the importance of a global and local commitment towards achieving these targets as outlined in the Paris Agreement, through our internal risk-mitigation strategy and efforts, we are committed to reduce our exposure to carbon-emitting investments in an effort to limit global warming.
Transition and physical climate-related risks and opportunities
We have identified physical and transition climate-related risks and opportunities and factored them into our fundamental analysis as part of our ESG risk tools and analysis. In cases where we identified a material risk, this would affect the rating and pricing of the underlying issuers/investee companies.
Some of the transition-related climate opportunities we identified included the following:
- As part of our decision to transition to a low-carbon economy, we engage issuers/investee companies in carbon intensive industries or sectors that have inherent exposure to climate related risks, to determine their efforts to identify the risk, a strategy to mitigate and to report on progress in these areas on a regular basis.
- In an effort to transition our client portfolios to a low-carbon economy, we have invested a total of R8 billion in the renewable energy sector in South Africa. Our exposure is across a variety of wind, solar and CSP projects located across South Africa.