Down with Greenwashing: Schroders campaign demonstrates commitment to delivering more than returns

Assets under management in sustainable investments (or, at least, in investments labelled "sustainable"), hit a record $1.7 trillion in 2020. But while this is positive on the face of it, it has also gone hand in hand with an increase in the scope and sophistication of "greenwashing".

According to Kondi Nkosi, South Africa Country Head for Schroders, this makes it increasingly hard for investors – including asset owners, pension funds, and end consumers – to gauge which companies and financial institutions are actually driving real change through positive impact and what is mere trumpeting. “Apart from the recent announcement by the New Zealand government, ESG- and sustainability-related claims and credentials are largely unregulated and disclosures are – for the most part – not mandatory. As stakeholders, it’s up to us to demonstrate tangible impact.”

Speaking in light of Earth Day, celebrated globally on 22 April, he adds that, “Earth Day serves as a reminder that our planet and its inhabitants should be our number one investment.”

In an effort to address this, Schroders has unveiled its MyStory series, showcasing the impact that investments can have on society and how assessing this impact can help deliver risk-adjusted returns for clients.

Carolina Minio Paluello, Global Head of Product, Solutions & Quant comments:

“As investors, the way we direct capital not only shapes the financial returns we achieve, but also the type of impact we have on the world. Understanding the impact that businesses have on society and the planet is crucial in determining their true costs and ultimately their impact-adjusted profits.”

In the first episode we hear from Katherine Davidson, Portfolio Manager, Global & International Equities, who explains how a mobile-based payments system, pioneered by technology business Safaricom, has had a transformative impact in Kenya.

Safaricom is the largest mobile network operator in Kenya. Its 3G network covers 94% of the Kenyan population. In 2007 Safaricom launched a mobile-payments system called M-Pesa. M-Pesa has enabled millions of people to make instant and secure cashless transactions by SMS, without needing to have a bank account.

Katherine Davidson, Portfolio Manager, Global & International Equities, explains:

“Safaricom has an attractive track record of growth and profitability. With 75% of the Kenyan population being under the age of 35, it is also well-positioned in a young market where we expect businesses and services based on connectivity to boom.

“But, there is another part of its story, which is the transformative effect that M-Pesa has had on society.

“This technology has significantly enhanced the livelihoods of millions of Kenyans, lifting many families above the poverty line. Safaricom commissioned KPMG to quantify its wider societal impact and found that the ‘true value’ of its business was 10 times its profits and more than 6% of Kenyan GDP – driven by direct and indirect job creation, infrastructure and investments.

“In the same way we, as investors, monitor financial performance, we are also tracking the social and environmental impacts that a business generates."

Watch the full MyStory video here.

Carolina Minio Paluello, Global Head of Product, Solutions & Quant continues:

“The way we invest is changing, driven by a fundamental shift in how companies are being viewed and valued. Where once we considered only risk and return, we now assess a third dimension – impact risk. At Schroders, we’re looking for businesses that are going to succeed in the long term. We believe that companies with a purpose that goes beyond profit will be more durable, which could mean better risk adjusted returns over the long-term for investors.”

-ENDS-

Watch Video: The telecoms business which pioneered a payment system lifting thousand out of poverty

This is a first in a series of articles we will be sharing over the next few weeks to demonstrate why “impact” should be considered as a fundamental investments dimension alongside Risk and Return.

BEYOND PROFIT

Profit is only the beginning. When we invest, we should expect more than financial returns.

MAKE AN IMPACT THROUGH SUSTAINABLE INVESTING

The way we direct capital not only shapes the financial returns we may achieve but also the type of impact we have on the world.

Sustainable companies not only have a positive impact on society and the environment but their business models have the potential to be more resilient and better placed to support long-term growth. So sustainable investing makes both investment and social sense.

WHY IS SUSTAINABLE INVESTING IMPORTANT?

Sustainable investing looks not only at what profits a company generates but how it generates them. This involves a fundamental shift in how companies are viewed and valued. Understanding the impact they have on society and the planet is crucial in determining their true costs. This is because negative activities are risks that can translate into a financial cost to a company. Identifying these risks means we can calculate their impact-adjusted profits.

This is the foundation of how we invest. Alongside risk and return, we consider a third dimension – impact risk – which is embedded into the investment process. Only by considering these three pillars together can we uncover a company’s real investment potential.

Your capital is at risk with investing.

HOW DO YOU MEASURE IMPACT?

impactIQ is our set of tools that measure the impact that companies have on society and the environment. Used as part of our investment process, impactIQ examines the externalities of companies, the risks that unsustainable practices pose to their business, as well as their overall alignment with the UN SDGs (Sustainable Development Goals).

WHAT IS ACTIVE OWNERSHIP?

Active ownership is a core part of sustainable investing. A regular and active dialogue with business leaders provides us with an extra dimension of understanding of how a company operates and its intentions. This is something that financial data alone cannot identify. We engage with the companies we invest in to help them transition towards a more sustainable business model.

Schroders plc

As a global active asset manager, the way we direct capital not only shapes the financial returns we achieve for our clients but also the impact that the companies in which we invest on their behalf might have on society. The relationship between these two outcomes has rapidly evolved as we see a fundamental shift in how companies are viewed and valued. Understanding the impact that they can have on society and the planet is crucial in assessing their ability to deliver risk-adjusted profits.

Our ongoing success is built on a history of experience and expertise, whereby we partner with our clients to construct innovative products and solutions across our five business areas consisting of Private Assets & Alternatives, Solutions, Mutual Funds, Institutional and Wealth Management and invest in a wide range of assets and geographies. By combining our commitment to active management and focus on sustainability, our strategic capabilities are designed to deliver positive outcomes for our clients.

We are responsible for £574.4 billion (€641.7 billion/$785.1 billion) * assets of our clients, managed locally by 42 investment teams worldwide. As a global business with over 5,500 talented staff across 35 locations, we are able to stay close to our clients and understand their needs. We have over 200 years of experience in investment and innovation and remain committed to creating a better future by investing responsibly for our clients.

Further information about Schroders in South Africa can be found at https://www.schroders.com/en/za/intermediary/