Blue Chip Issue 86

BLUE CHIP INVESTMENT |

BLUE CHIP INVESTMENT | DFM Do we understand how to disrupt our own value propositions? Clients are demanding this digital world. In fact, a report by McKinsey issued in June 2015 already showed that at the time of the report, 40-45% of affluent consumers who switched their primary wealth management firm in the past 24 months moved to a direct, digitally led firm. We believe in the value of financial advice and a financial advisor who digitally transforms their practice and partners with an investment platform to integrate into their back office not only frees up their time to spend time with clients, but also provides a more seamless and superior personal service to clients. With us, investing is personal and our investment platform (Momentum Wealth) is embarking on a digital transformation journey so that we can empower financial advisors with the tools and solutions to help meet their clients’ financial needs and help them achieve their goals effectively. If you ask the question of what the future of investing looks like, you will likely get many different answers. What we do know is that clients are changing and digital transformation is non-negotiable. The way to navigate this changing world is to partner with specialists in those things that we are not. Warren Buffet said it perfectly: “Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.” Momentum Wealth (Pty) Ltd (FSP 657) is an authorised financial services provider and part of Momentum Metropolitan Life Limited. Equilibrium Investment Management (Pty) Ltd (Equilibrium) (Reg no. 2007/018275/07) is an authorised financial services provider (FSP32726) and part of Momentum Metropolitan Holdings Limited, rated B-BBEE level 1. Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP 6406) and registered credit (NCRCP173) provider. 28 www.bluechipdigital.co.za

INVESTMENT | Responsible investing BLUE CHIP ESG: hype or pathway to a better future? There is hardly a conference or investment discussion lately that does not put environmental, social and governance (ESG) factors front and centre. There is a myriad of good reasons why this is the case, although I do sometimes share the view that the ESG discussion is driven more by the marketing agenda than from an investment perspective. As a broad basket of principles, I am totally on board with the intent of ESG. Environmental issues are real, and we need to address them or we will gift our children a future of turbulent weather and a planet that is more uncomfortable to live on than it is today. Looking at social factors, we cannot have a stable society if there are glaring inequalities between people. One of the future challenges will be intergenerational wealth transfer as the younger generation will have fewer opportunities compared to their parents in a more competitive and winnertakes-all environment. Governance and the proper functioning of business and ultimately markets is a key factor for the accumulation and growth of wealth. How should investors think about ESG and differentiate between the hype and real-world impacts? All participants need to get their fair share and bad governance allows different sets of stakeholders to get a disproportionate share of economic benefits, either through preference mechanisms or, in the worst-case scenario, through corruption. One of the challenges of ESG is that the three different components sometimes do not align and in other cases pull in opposite directions. As an example, addressing environmental concerns can have detrimental effects on the social factor. The transitioning away from coal can lead to job losses in areas that are dependent on the business and power stations that rely on coal as an energy source. How should investors think about ESG and differentiate between the hype and real-world impacts? To me, the obvious test is whether there is evident intent and transparency. A credible approach to ESG needs to be deliberate with a clear-cut approach and palpable outcomes. These outcomes and evidence should be shared openly and transparently. It is also important to recognise that there are many trade-offs involved and when evaluating whether the ESG approach undertaken by an investment manager is credible, it must be apparent that these trade-offs and conflicts need to be managed carefully. At Momentum Investments, we follow an integrated approach and consider how best and practically to apply ESG in different asset classes and investment vehicles. We have a climate change policy that incorporates a just transition, which recognises that action on environmental issues needs to consider the social impact, as well as incorporate the concept of fair share, meaning the main contributors to carbon emissions – the developed world – need to take the brunt of actions to address climate change. Fair share is not only a philosophical approach but also a practical one – the developed world has financial resources that are just not available in the emerging world. We therefore believe the right approach is a nuanced approach. We invest in renewable energy projects to address environmental issues but also recognise that we need to invest in Eskom bonds (government guaranteed of course), because energy security is important and currently one of the biggest threats to economic growth. Can adoption of ESG drive positive change and shape our future world? In my view undoubtedly so, but it needs to be a considered approach. At Momentum Investments, we drive both intentionality and transparency and openly share the progress (and pitfalls) that we have made in integrating ESG. For more information, visit our Responsible Investing page on momentum.co.za. At Momentum Investments, we take our role of managing clients’ money very seriously. We continuously assess what the best approaches and practices are to prudently manage clients’ capital. Through sustainable investment practices we can deliver real results for clients that ultimately benefit all stakeholders, because with us, investing is personal. Mike Adsetts, Acting Chief Investment Officer, Momentum Investments Momentum Investments is part of Momentum Metropolitan Life Limited, an authorised financial services (FSP6406) and registered credit (NCRCP173) provider. www.bluechipdigital.co.za 29