Responsible investing has long led a life in the shadows as finance advisers in the City have traditionally been hesitant about getting involved in environmental, social and governance (ESG) investing. However, recent changes undertaken by some of the biggest players in the field – including the Royal London Asset Management and Liontrust, both of which have made ESG an integral part of their cultures – indicates that ESG might finally reach the mainstream.
Indeed, the mindset that investments will only bear success if they focus on the needs, wants and abilities of local populations is slowly taking hold across much of the business world, with several indicators pointing towards a commercial landscape in which ESG objectives play an increasingly pivotal role. Cases like the Juukan Gorge scandal in Western Australia highlight the errors of the past, while enterprising solutions like Yabiso in the DRC, started by Israeli businessman Dan Gertler, suggest a more sustainable blueprint for the future. With greater uptake now an inevitability, it’s vital that companies actually adhere to sustainability and corporate responsibility rather than merely paying lip service.
The Rio Tinto tipping point
The idea of incorporating ESG goals into a company’s business strategy is not a new one, but for many enterprises it has served as mere window dressing to the more substantial aim of turning ever greater profits. But 2020 might just be the year when that trend was stopped in its tracks, with the destruction of sacred Aboriginal caves in Juukan Gorge in Western Australia by mining magnates Rio Tinto a crucial case study in the development of corporate social responsibility.
In the immediate aftermath of the episode, Rio Tinto initially responded by issuing a formal apology and docking the bonus of its executive suite. However, that token gesture was not deemed far-reaching enough by the company’s own shareholders, who demanded the head of CEO Jean-Sébastien Jacques – despite the fact that Rio Tinto’s share price had been growing 40 per cent in the six months prior to the incident and delivering returns of 183 per cent and 229 per cent to the company’s shareholders in London and Australia. Jacques’s sacking was the first widely noted illustration of the power ESG now wields over profit.
Dan Gertler and Yabiso leading by example
The fallout from the Juukan Gorge incident feels like something of a watershed moment for ESG, and it’s hoped that corporate responsibility will play a more influential role in business strategy going forwards. Africa especially would benefit from greater societal involvement in its investment opportunities given that it’s home to almost a third of the world’s mineral resources and 16.7 per cent of its population, but barely more than 1 per cent of global wealth. Thankfully, one company is seeking to address that horrific imbalance with an innovative new venture aimed at redistributing wealth among the everyday citizens of the DRC.
Expected to be launched in the coming months by Israeli native Dan Gertler, Yabiso – meaning “it’s ours” in the Congolese language of Lingala) – is open to investment, but only from laypeople of the country. Corporate entities, regulators and government officials are strictly prohibited. Congolese citizens may invest up to €10,000 in the firm, with dividends paid out annually from the royalties of the Metalkol mining project, an asset acquired by Dan Gertler for $83 million in 2017. Because investment capital is non-existent for many Congolese, Gertler has facilitated their involvement with the launch of a loan mechanism for up to 100 per cent of the share value where the first five years free from interest.
Transparency and accountability are crucial
Dan Gertler’s model innovates in an area of great relevance to developmental objectives, and it’s initiatives like these which prioritize the prosperity of the communities in which they are based in tandem with the company’s own success, which are desperately required in Africa and beyond. As awareness surrounding ESG issues increases in Africa beyond Gertler’s Yabiso venture, more and more investors are factoring such criteria into their portfolio choices. Indeed, a recent Morgan Stanley survey revealed that some 80 per cent of asset owners now incorporate ESG into their investment selection process, a jump of 10 per cent from 2017. In the US, $17 trillion of assets deployed sustainable investment strategies last year alone, and PwC estimate that almost 60 per cent of European mutual funds will be comprised of ESG assets by 2025.
That has led to a surge in the number of companies who claim to integrate ESG into their modus operandi. But is it a sign of meaningful change, or merely a dangling carrot to attract investors to their organization? According to a leading commentator on the topic, it’s difficult to tell at the moment, since companies are far too often simply taken at their word. In order to better regulate such behaviour, there is a need for more consistent guidelines and increased regularity with which reports are issued, while the introduction of basic financial reporting principles must also be incorporated into ESG accounting standards. Without these fundamental changes in the way companies are fact-checked for their claims of sustainability and societal responsibility, it’s impossible to separate the real drivers of change from those piggybacking on their progressiveness.
Responsible investments bring strong ROIs for all
It’s clear that ESG is a growing concern in the minds of business owners and investors alike. Norway’s sovereign wealth fund – which is the largest in the world – has indicated that it will pressurize beneficiaries of its capital to be more transparent in their ESG accounting, while tech giants such as Apple and Tesla are now insisting that all members of their supply chain adhere to ESG ideals.
On the other side of the coin, businesses who fail to do so are coming in for increasingly severe criticism, as the sacrifice of Jacques at Rio Tinto shows. That makes the work done by Dan Gertler in the DRC all the more encouraging and sets an example for others to follow. But while Yabiso is a positive step in the right direction, it will take some years until Gertler’s ideas contained within it are fully adopted across the business world. In the meantime, the priority must be the encouragement of ESG ideals and the simultaneous prevention of their exploitation by opportunistic companies looking to curry favour with investors by boarding the bandwagon in name alone.