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BLUECHIPINVESTMENT | Responsible investmentSocially responsible investment:a lifeline, not a passing trendIf you are a truly conscientious financial advisor, there’s a vital conversation that you should be havingwith your clients: climate change.“On our current path, civilisation as we know it willdisappear.” That’s the blunt, stark warning Universityof the Witwatersrand graduate and former UK chiefscience advisor, Sir David King, has for us on climatechange. It won’t be tomorrow, it won’t be any time soon – but atsome point, the cumulative damage of ever-mounting naturaldisasters caused by climate change will become more than globalsociety can bear, unless we follow the recipe for safety that Kingand many other climate scientists recommend; rapidly eliminatingall emissions, repairing ecosystems and building resilience.This warning may perhaps sound strange to you in the Trumpera of mass climate change denial, but the unhappy truth is thatclimate change is real, and in fact, scientists have, if anything,underestimated – not exaggerated – the full dangers. Globalwarming is accelerating, and we risk triggering “tipping points”,such as the Arctic Sea and glacial ice loss and the loss of the Amazonrain forest: where human ecological damage starts cascadingunpleasant feedbacks.Climate change and investorsClimate change threatens investors in several ways. Firstly, there arethe physical risks of being on a planet facing ever greater numbersof natural disasters, especially droughts, floods and sea-level rise.Secondly, the direct financial risk of having your savings investedin dead-end fossil fuels and missing out on greener growth. Thirdly,the indirect economic damage of living in economies that areincreasingly dragged down by the fossil fuel industry’s “externalities”– the full costs of their pollution that they impose on us.South Africa’s climate vulnerabilitiesThe likely impacts of climate change on South Africa areextreme; and these should be considered in the contextof a world also facing varying but compounding knockonimpacts: Gauteng, which contributes around 34%of South Africa’s GDP, is facing severe water risk fromdegraded infrastructure and climate change. The CSIRsays South Africa’s water demand will outstrip watersupply by 17% by 2030. Mining, which uses 5% of SouthAfrica’s water, can’t function without it.Continued fossil fuel dependenceThe social cost of our continued fossil fuel dependence for SouthAfricans is immense, over half a trillion rand annually, according tothe International Institute for Sustainable Development, more thanfive times the revenue government receives from the industry.The 2018-2021 Northern Cape drought wiped out R14-billion inagricultural output, while Cape Town’s “Day Zero” crisis cost theWestern Cape 5% of its GDP in 2018. By 2050, rising seas could drownR1.3-trillion worth of coastal property.ESG isn’t charity – it’s at least a survival strategy and at best areturns engine. In 2023, Kroll found that, “ESG leaders earned anaverage annual return of 12.9%, compared to an average 8.6%annual return earned by laggard companies.” Tech companies withhigh ESG ratings doubled returns compared to lower-rated peers.If you’re driven by data, then the data is clear, as this IEEFAsummary finds: “ESG funds continue to thrive and outperformtraditional funds across equity and fixed-income asset classes.”And, “ESG portfolios offer better downside risk protection, withhigher upside beta than downside beta in most nations,” observesthe Strategic Finance newsletter.According to Robeco, “A 2015 meta-study from Friede et al undertookan exhaustive, quantitative study of the entire universe of2 250 published academic studies on ESG performance spanningfour decades of data from 1970 to 2014. The analysis concludedthat ESG correlated positively to corporate financial performancein 62.6% of studies and produced negative results in less than 10%.”David Le Page, Director,Fossil Free South AfricaOur green economy opportunityThe global green economy will hit .3-trillionby 2050. For South Africa, renewables alreadyemploy 32 000 people compared to coal’s82 000. Green jobs are projected to surge to275 000 by 2030.The data is unambiguous: fossil fuels area dead end. A genuinely green economy isthe only meaningful growth story left. SouthAfrica’s financial planners can either guideclients through this transition or explain whythey didn’t. 58 www.bluechipdigital.co.za

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