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27four ESG Annual Asset Manager Survey

The 27four Investment Managers’ Annual ESG survey aims to help asset owners and other investors understand the level of ESG adoption and integration among South African asset managers, and to serve as an indicator of ESG investment trends and sustainable finance in the South African market.

This third iteration of the survey focuses on private markets, which includes private equity and private debt. It follows on from the first survey, which was released in 2022, that considered firms that manage domestic listed equity mandates, and the second survey, which was released in 2023, that covered fixed income and credit mandates.

Private markets are considered to be well suited to implementing ESG strategies. The investment process for private equity, for example, means that ESG factors can be considered at multiple points including pre-investment screening, due diligence, and post-investment. Unlike in listed equity and fixed income, private market investors often take a large ownership interest, which means that they potentially have greater influence on ESG performance and a stronger incentive to be active owners. Many ESG issues are also more likely to materialise in the mediumto long-term, which can make them more relevant to private market investors who generally have longer holding periods and less liquidity than investors in public markets.

Globally, reports point to a shift in private markets where ESG implementation is increasingly motivated by value creation rather than risk management. Sustainability trends are being recognised as an opportunity. Impact, which is commonly defined as positive, measurable social and environmental outcomes alongside financial returns, is becoming increasingly mainstream. Systemic issues such as climate change are also becoming integrated into investment decisions.

A common perception is that ESG implementation in private markets is reasonably well developed in South Africa and the wider region. This is often attributed to the role of development finance institutions (DFIs) such as the World Bank’s International

Finance Corporation, the UK’s British International Investment and the Dutch FMO, which fund various asset managers. The DFIs have strong ESG commitments and require their asset managers to align with their responsible investment policies. This survey indicates that the basic steps of ESG implementation are well-embedded. However, although there are some pockets of excellence, overall responses also suggest that many firms are lagging best practice in other areas.

The focus appears to be more on ESG as a risk management tool than on ensuring that responsible investment practices improve sustainable outcomes in the real-world. There is also surprisingly little engagement by survey respondents on climate risks, which points to inadequate consideration of systemic risks.

If South African private market investors are to remain at the forefront of developments in responsible investment, it is evident that they now need to go beyond the basics and take steps to ensuring that impact is given greater attention.

Previous surveys

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