Climate Change's Systemic Risks To Investors
- Carbon risks and opportunities to financial markets in South Africa 2012
- To raise awareness of potential systemic carbon risk amongst South African financial market regulators and amongst investors
- Commissioned by WWF-SA + WWF-UK for Carbon Tracker, Trucost and SinCo in collaboration with GEPF
- Navigating Muddy Waters research series builds on existing WWF knowledgebase, and adds new local data & analysis to climate risks and investment context in South Africa
- To assess, through interviews, the extent to which institutional investors are addressing climate change risk in their portfolios; and
- To synthesise the four reports into one, cohesive report
- Design and develop research framework for institutional investors in South Africa
- Provide substantive input to all 4 reports
- To review fund manager climate change policies and integration of climate related criteria into investment decision making for publicly-traded bonds and equities. This includes the risk associated with companies that own fossil fuel reserves
- To review fund managers views on the availability of viable, alternative, low carbon investment opportunities; and
- To demonstrate the need for full, standardised, quantitative disclosure of carbon risks by companies with publicly-traded equity and bonds
See Related SInCo Project/s
NAVIGATING MUDDY WATERS RESEARCH REPORT SERIES
URL for reports
Carbon and water risks for South Africa’s top companies, bonds and equity funds
A report by Trucost which provides evidence of the investment case to understand the potential exposure to carbon and water costs through equity and bond investments in high-carbon companies, including an analysis of these costs to the Government Employees’ Pension Fund (GEPF); demonstrates the availability of low-carbon financial market investment opportunities; and illustrates the need for the financial system to manage financial risk from carbon-intensive assets during the shift to a low-carbon economy.
Unburnable carbon: budgeting carbon in South Africa:
A report by Carbon Tracker which analyses what the planned South African Carbon Budget might mean for investors in coal mining companies in South Africa. The report contains analysis of this risk to the Government Employees’ Pension Fund (GEPF).
Rolling In The Deep: Institutional Investor Attitudes To Climate Change Portfolio Risks
A report by SinCo which, through interviews with both asset owners and managers, institutional investors managing assets of close to ZAR 3.8 trillion (about US$ 439 billion) , explores the attitudes and extent to which institutional investors are addressing the climate change risk in their portfolios, using emissions and water scarcity as proxies for near term and medium term risks to investment decisions.
Climate credible investing for institutional investors in South Africa
A report by WWF which uses a case study approach to investigate some of the investment mechanisms that are currently and potentially available to help decarbonise institutional investment portfolios; and demonstrates water stewardship from an investment perspective.
WWF with SinCo + Trucost
Navigating Muddy Waters: investment risks and opportunities from mispricing carbon and water footprints
A report by WWF and SinCo which connects the findings of Parts 1 to 4 of the report series. The report synthesises key findings and provides recommendations on how to address the risks and opportunities to investors that arise from the regulatory shift towards supporting a resource efficient, low carbon, resilient and equitable economy from a carbon and water perspective.
WWF + SinCo
DOWNLOAD PDF [below]
Navigating Muddy Waters_WWF_Nov2012.pdf
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ROLLING IN THE DEEP: Institutional Investor Attitudes To Climate Change Portfolio Risks
This study by SinCo aims to:
* Explore the policies and practices used by major investors in South Africa and their integration of ESG factors.
* Test 5 problem statements (hypotheses) developed by WWF for the Navigating Muddy Waters series.
* Offer next steps for investors to re-calibrate to a next-generation investment-as-usual in a climate changed world.
The Navigating Muddy Waters research series formulated a framework using 5 overarching problem statements (below) spanning the 4 research papers by the 4 partners. The problem statements aimed to pose questions at the heart of the issue of the near term risks from mis-pricing climate risks (carbon tax), as well as medium- and longer-term risks (water scarcity). By using problem statements, the research both offered a lens through which to examine the status quo, and to explore new opportunities for structural market changes (such as regulations to promote new investments in renewable energy infrastructure). The Navigating Muddy Waters research series has built an empirical and conceptual research base and presents new questions for investors to answer, and with available information (using the GEPF as a case study):
- “Investors are not pricing climate change and freshwater risks as a result of policy, technology and environmental impacts when making investment decisions, resulting in mispriced assets and potential systemic risk.”
- “The presence of dual- or triple-listed stocks results in the climate change risks in one market being mirrored in other markets.”
- “The exposure of major investors to sectors that are particularly vulnerable to climate change risks is large relative to overall assets, particularly when investments in the state-owned entities of Eskom are taken into account.”
- “Given SA’s high-carbon infrastructure, its institutional lock-in and the lack of significant low carbon market incentives...
- Market correction for climate change risks may take place over a short period of time, too short for an orderly adjustment of portfolio investors / financiers.
- Viable, low carbon investment market opportunities are required to promote the market correction for climate change risks to happen in an orderly manner over a reasonable time.”
- “Additional regulatory mechanisms need to be put in place in order for low carbon financial markets, products & services to become established, for example covered bonds.”
[Update 10 September 2012]
We have selected your fund / firm to be surveyed for our study into the investment practices of major institutional investors in South Africa. We are surveying 8 major retirement funds / asset owners and 8 major institutional investment firms (see below). This research forms part of a report to be released in late Q4 2012 by the WWF-SA + WWF-UK into investment in low-carbon growth in South Africa. The survey questions should take maximum 20 minutes to complete. The questions are part data questions and part opinions. Answers will be treated in the strictest confidence and will be used only for purposes of this study. In our report, data will only be used in aggregate - no direct or individual attribution will be made - unless we request your permission, for example to use as a quote. As a courtesy, all respondents will be acknowledged and listed in the report in 2012. The research is being conducted by SinCo for GEPF & WWF-SA + WWF-UK.
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1. The teams at WWF, SinCo and GEPF.
2. Survey respondents and interviewees at major asset owners and asset managers, research data providers, and other stakeholders, namely: Mahesh Cooper of Allan Gray, Malcolm Gray of Investec Asset Management, Anthony Walker of Prudential Asset Managers (SA), Angelique Kalam of Futuregrowth Asset Management, Jon Duncan of Old Mutual Investment Group, Gordon Wessels of STANLIB Asset Management, Brad Preston of Mergence Investment Managers, Michelle Parkinson-Ismay of Kagiso Asset Management, Brendan Smith of Sanlam Investment Management, Adrian Bertrand of GEPF, Donovan O'Riley of Pathcare Retirement Fund, Nic Andrew of Nedgroup Investments, John de Kock of Momentum Asset Management, Gordon Archibald of Unilever SA Pension Fund, Pranay Chagan of Coronation Fund Managers and the WWF-SA endowment trustee.
3. Peer reviewers and colleagues who provided additional context, including Claire Rentzke, Marlys Appleton, Rowan le Roux, Justin Smith, Samantha Braid, Jon Duncan, Trisha Kratz, the JSE team (Corli le Roux, Shameela Ebrahim, Kgalalelo Rakate, Nombulelo Siwedi and Lwanda Madlanga), Modula Mofolo, Caithleen Powers, Gareth Allison, Deanne Chatterton, Lauren Compere, Margot Hill Clarvis; as well as anonymous contributors and reviewers.
SinCo – sustainable investment consulting – is a boutique investment advisory firm specializing in sustainable investment architecture in frontier and emerging markets. Since 2006 SinCo has delivered sustainable investment architecture globally to pension funds, asset managers, private equity funds, stock exchanges and international organizations integrating environmental, social and governance (ESG) factors into investment practice for sustainable long-term investment performance. www.sincosinco.com
SinCo supports Africa Sustainable Investment Forum (AfricaSIF.org) and its mission promoting sustainable investment in Africa from www.africasif.org
The Government Employees Pension Fund (GEPF) is Africa’s largest pension fund. We have more than 1.2 million active members, in excess of 300 000 pensioners and beneficiaries, and assets worth more than R1 trillion. GEPF is a defined benefit pension fund that was established in May 1996 when various public sector funds were consolidated. Our core business, which is governed by the Government Employees Pension Law (or GEP Law), as amended, is to manage and administer pensions and other benefits for government employees in South Africa. Our job is to give members and pensioners peace of mind about their financial security after retirement. We do this by making sure that all funds in our safekeeping are responsibly invested and accounted for, and that benefits are paid out efficiently, accurately and on time. We have a solid track record in protecting our pensioners against inflation and in safeguarding the value of active members’ retirement savings. Every April, GEPF pays pension increases that largely compensate our pensioners for inflation and, where necessary, we pay catch-up increases. Actuarial valuations of the Fund are conducted at least every three years. According to the latest valuation, undertaken as at 31 March 2008, GEPF is 100% funded.
Trucost Plc was established in 2000 to help organizations, investors and governments understand and quantify the environmental impacts of business activities. Over the past 11 years Trucost has researched, standardized and validated environmental data from organizations worldwide. The result is the world’s most comprehensive data on corporate environmental impacts, covering greenhouse gases (GHGs), water, air pollution and waste. This enables our clients to access:
• The most efficient approach to measuring GHG emissions and wider environmental impacts
across organizations, supply chains and investment portfolios;
• Clear identification of priority areas for reducing environmental impacts;
• Validation of source data, including completion of information gaps where data are
• Comparison of environmental performance against peers, sectors and investment benchmarks;
• The ability to create environmentally-efficient investment products.
About Carbon Tracker Initiative
The Carbon Tracker initiative is the first project of Investor Watch, a non-profit company established by its directors to align the capital markets with efforts to tackle climate change. The board of Investor Watch includes Mark Campanale and Jeremy Leggett. Investor Watch was founded in 2009 (Company No. 06888857). The Carbon Tracker Initiative is working to align the capital markets with climate change objectives through a number of workstreams:
1. Assessing Systemic Climate Change Risk
2. Challenging Valuation Assumptions
3. Accounting for Impaired / Stranded / Sub-prime assets
4. Investigating the Capital Raising process
5. Exploring the contradiction between climate policy and markets
About WWF-South Africa
Within its global programme framework, the WWF network aspires to collectively tackle environmental issues. WWF South Africa participates in a number of these initiatives, most significantly the Global Deal Network Initiative through which WWF offices are lobbying world leaders to agree on a fair and effective global climate deal in Copenhagen this year. WWF believes that business offers one of the most effective routes to finding sustainable solutions to environmental and social challenges. In response, WWF-SA has launched its Sustainable Business programme. Through this, we partner with select companies and their value chains to change the way products and services are produced, processed, used and consumed. Working together, we link businesses back to the ecological systems in which they function and depend on, and identify how commodities can be produced, companies can be run and investments can be made more efficiently and sustainably, so that ecosystems and business thrive in the future. A resilient business can only be built on a resilient ecosystem. We call this the green economy. WWF-SA’s Sustainable Business vision is a safe and sustainable future where business operates in harmony with nature. Our goal is by 2050, to have a green economy where all goods and services are made sustainably. We aim to have achieved 50% progress on this goal by 2020.
Business makes a huge impact on the natural world, and it’s critically dependent on it too.
But our natural resources such as forests and fish stocks are diminishing, carbon emissions are on the increase, and freshwater in our rivers and lakes, vital to us all, is under increasing pressure. Our current way of doing business doesn't stack up. Only the smartest, most sustainable companies who value nature will continue to thrive in the future. That's why we use our knowledge and insight to help companies make a positive contribution to the planet. There are exciting opportunities ahead - and unleashing the power of new thinking and innovation will be critical. With our expertise and experience, WWF is the ideal business adviser or partner. Our vision: we see a One Planet Future, in which business makes a restorative contribution to our natural world, supports the Earth’s adaptation to a changing climate, and benefits human well-being. This in turn will help to build businesses that last.
How we work with business
It's simply not enough for us to only work with companies that are already doing everything ‘right’. That's why we form challenging and constructive relationships with businesses that are able to drive real, lasting change. We work in partnership with companies to transform the way they do business. We also work to transform markets, bringing together investors, consumers and political leaders to work through complex issues. Increasingly we're working on green innovation to promote very different business approaches that are aligned with environmental protection.
An expert panel of speakers addressed the challenges their organisations face in responding to climate change and water scarcity, and the opportunities that this presents. The questions do not draw on any specific findings of the research but do focus on the overall theme of the research, which is the impact on investments of climate change and water scarcity. This was an opportunity to highlight innovation and best practice; and to guide institutional investors in addressing these issues.
Date: Tuesday 20 November
Venue: Atrium Hall, Johannesburg Stock Exchange, One Exchange Square, Gwen Lane, Sandown
Time: 10:00 to 12:00 – registration begins at 09:30
09:30 10:00 Registration and snacks Facilitator: Thembisa Dodo
10:00 10:05 Welcome address Corli le Roux, JSE
10:05 10:10 The global context of water scarcity and climate change Morne du Plessis, CEO, WWF SA
10:10 11:00 Presentation of report findings Facilitator: Ray Dhirani
• Introduction, Malango Mughogho, WWF
• Unburnable carbon: budgeting carbon in South Africa - James Leaton, Carbon Tracker
• Carbon and water risks for South Africa’s top companies, bonds and equity funds - Liesel van Ast, Trucost
• Shuffling feet: institutional Investor attitudes to addressing climate change risks in portfolios - Graham Sinclair, SinCo
• Responsible investing for climate change and water in South Africa - Ray Dhirani and Malango Mughogho, WWF
11:00 11:15 Q&A Facilitator: Malango Mughogho, WWF
11:15 11:45 Panel discussion Moderator: Graham Sinclair, Principal, SinCo
• Shameela Ebrahim, Senior Strategist, Strategy and Public Policy, JSE
• Saliem Fakir, Head of Living Planet Unit, WWF SA
• Malcolm Gray, Portfolio Manager, Investec Asset Management
• John Oliphant, Acting Principal Officer and Head of Actuarial and Investments, Government Employees Pension Fund
11:45 12:00 Q&A Facilitator: Malango Mughogho, WWF
12:00 12:10 Closing address Morne du Plessis, CEO, WWF SA
12:10 12:30 Snacks Facilitator: Thembisa Dodo
Investors exposed to climate and water risks, says WWF report, 22 Nov 2012 eWISA http://www.ewisa.co.za/news/article.aspx?id=3b80c51f-cfe3-485c-b9e2-7485174a2929
HomeScience & Tech: Science & Tech: Climate of concern Environment by Charlotte Mathews, Financial Mail, 28 November 2012 http://www.fm.co.za/scitech/2012/11/28/climate-of-concern
Africa Water Network 20 November 2012 at 9:40am via NEPADWater · http://www.facebook.com/AfricaWaterNetwork/posts/389619107779028
Home» General Water Sector News from Africa» Investors exposed to climate and water risks, says WWF report
Investors exposed to climate and water risks, says WWF report http://nepadwatercoe.org/investors-exposed-to-climate-and-water-risks-says-wwf-report/
Investors exposed to climate and water risks, says WWF report By: Idéle Esterhuizen Mining Weekly http://m.engineeringnews.co.za/article/investors-exposed-to-climate-and-water-risks-says-wwf-report-2012-11-20
Navigating Muddy Waters: Securing Investment Returns under Carbon and Water Constraints, Posted on 20 November 2012
*The impact of carbon tax on your shares: Just how exposed is your investment portfolio to greenhouse gas emissions? Moneyweb INVESTMENT INSIGHTS Author: Sasha Planting| 11 September 2012 12:26 http://www.moneyweb.co.za/mw/content/en/moneyweb-tax?oid=611386&sn=2009+Detail
Sustainability Investment News: Institutional Investors Unprepared for Climate Change Impacts in South Africa by Robert Kropp, Socialfunds.com, 6 December 2012 http://www.socialfunds.com/news/article.cgi/3697.html
BUSINESS NEWS: Carbon tax impact: While National Treasury puts the finishing touches to its policy document on carbon taxes, due out in the next month, the Government Employees Pension Fund, WWF, Carbon Tracker, Trucost and sustainable investing consultancy SinCo, are investigating the carbon risks facing financial markets in South Africa. by SASHA PLANTING, The Citizen CitiBusiness, 11 September 2012 http://www.citizen.co.za/citizen/content/en/citizen/business-news?oid=316419&sn=Detail&pid=146848&Carbon-tax-impact-
Two SA mining firms among top carbon disclosure leaders Published in: Legalbrief Environmental: Issue No: 0279 Tue 18 September 2012
Trying to keep up with our brainy customers. @esgarchitect on carbon tax http://t.co/BEXKT3k1
Business: Investors ‘face mixed bag of risk in SA’ BY SUE BLAINE, Business Day, 21 NOVEMBER 2012, 07:53 http://www.bdlive.co.za/business/2012/11/21/investors-face-mixed-bag-of-risk-in-sa
National / Science & Environment: SA needs to do more to reduce global emissions — Carbon Disclosure Project
BY SUE BLAINE, Business Day, 22 NOVEMBER 2012, 20:48 http://www.bdlive.co.za/national/science/2012/11/22/sa-needs-to-do-more-to-reduce-global-emissions--carbon-disclosure-project
National / Science & Environment: Legislating SA’s carbon tax is on the backburner BY SUE BLAINE, Business Day, 09 NOVEMBER 2012, 11:02
CNBC Africa http://www.businessghana.com/portal/news/index.php?op=getNews&id=175993
FOR IMMEDIATE RELEASE
20 NOVEMBER 2012
WWF: Investors highly exposed to climate change and freshwater risks
A new report released today by WWF-South Africa (WWF-SA) and WWF-UK, in collaboration with Carbon Tracker, Trucost, SinCo and the Government Employee Pension Fund (GEPF), shows that institutional investors are failing to systematically factor in climate change and freshwater risks when making investment decisions.
As a result, there is a risk that the listed bonds and equities of companies in high carbon sectors are mispriced, which could lead to financial instability when the market recognises the realities of resource constraints owing to water scarcity and greenhouse gas (GHG) emission limits, and re-prices these securities accordingly.
“Making risk-adjusted returns is at the heart of the investment industry. Water scarcity and climate change are material risks yet our research shows that many investors are not taking these risks into account. This may result in future investments and financial market stability being severely compromised”, says WWF-SA’s Sustainable Business Programme Manager, Malango Mughogho.
Constraints on returns that investors face from investments in South Africa’s bond and equities markets as a result of climate policies and water scarcity include:
• A potential limit on revenues earned by the sale of coal as a result of regulated limits on GHG emissions. Carbon Tracker’s research shows that listed coal reserves for domestic use on the JSE exceed a carbon budget for coal related sectors by 7.2GtCO2e
• An increase in the costs faced by underlying company investments as a result of the planned carbon tax. This is particularly relevant for investors in the carbon- and energy-intensive basic resources and energy sectors. Trucost’s research shows that carbon liabilities could cut Eskom’s interest coverage by 22% and that carbon costs could be material to many
companies in the ALSI: for 55 companies in the nine highest-emitting sectors, carbon costs for taxable operational emissions and 50% of carbon liabilities from electricity-related emissions would equate to 7% of combined earnings on average.
• An increase in the costs faced by underlying company investments as a result of companies being forced to internalise the full environmental cost of water. According to Trucost’s calculations, the external value of water used by operations and first-tier suppliers of JSE top 100 companies, reflecting levels of scarcity in South Africa, could total more than R56
billion ($6.8 billion) annually.
The report also shows that investors have limited choices with which to address these investment constraints, highlighting the need for government and regulators to urgently address this issue.
The report follows a recent International Energy Agency report  which showed that two-thirds of proven fossil fuel reserves cannot be used if the world is to limit global warming to 2°C and also highlighted freshwater risks in relation to energy.
 International Energy Agency: North America leads shift in global energy balance, IEA says in latest World Energy Outlook (16 October 2012). See
WWF is one of the world's largest and most respected independent conservation organisations, with almost 5 million supporters and a global network active in over 100 countries. WWF's mission is to stop the degradation of the earth's natural environment and to build a future in which humans live in harmony with nature, by conserving the world's
biological diversity, ensuring that the use of renewable natural resources is sustainable, and promoting the reduction of pollution and wasteful consumption.
WWF South Africa
WWF South Africa is a national office that is part of the WWF network. We are a local NGO that for more than 40 years has worked towards the aim of inspiring all South Africans to live in harmony with nature, for the benefit of our country and the well-being of all our people.
WWF stands for the World Wide Fund for Nature
See www.wwf.org.za for more information. Follow WWF on twitter http://twitter.com/WWFSouthAfrica. Join our Facebook page http://facebook.com/WWFSA
For more information and interviews:
+27 82 538 7710
+27 21 657 6657
*Embargoed for release: 12h00 Tuesday 20 November 2012*
Cape Town, South Africa
INVESTORS FACE CLIMATE CHANGE AND WATER RISKS IN THEIR PORTFOLIOS
A new 5-part report series – Navigating Muddy Waters - released today by WWF-South Africa, in collaboration with Carbon Tracker, Trucost, SinCo, the Government Employee Pension Fund (GEPF), and WWF-UK shows that institutional investors in South Africa are failing to systematically factor in climate change and water risks when making investment decisions.
Commissioned by WWF, boutique sustainable investment advisory firm SinCo played a key role with project partners in building this new evidence-based research base. The analysis uses multiple perspectives to understand and then through a targeted list of next steps, to influence the investment value chain. Graham Sinclair co-authored Report 5: Navigating Muddy Waters Synthesis Report released today. The SinCo team presents the research and analysis in Report 3: Rolling In The Deep: Institutional Investor Attitudes To Climate Change Portfolio Risks to be released by WWF and SinCo in early December 2012.
“SinCo’s research findings for WWF indicate risks tied to policy, environmental, social and technology impacts are latent in investment decisions,” said Graham Sinclair, Principal at SinCo and co-author of the report. “Take for example, the planned carbon tax in South Africa due in the next 24 months. From our analysis of institutional investor attitudes, if a carbon tax price appears in portfolios, it is modeled at very low prices; more for equity than fixed income portfolios. This suggests investors are not factoring in the costs, downplaying the industry impacts, not valuing low-carbon business models, or ignoring it.”
SinCo supports WWF in calling on investment regulators, asset owners, investment managers, investment analysts, securities exchanges and companies to take action in 2013 to fully price in externalities. The impacts of water scarcity are poorly tracked by investors but may have material valuation effects.
“We agree that regular, standardized, verified and publicly-available reporting of material climate risks like carbon dioxide emissions or water intensities by all companies – including state-owned enterprises with major carbon footprints like Eskom or Transnet - makes sense for long-term investors,” Sinclair added. “And institutional investors themselves need to be reporting in the same way what their portfolio footprints are.”
Report 5 synthesizes analysis from 4 reports including Report 3: Rolling In The Deep: Institutional Investor Attitudes To Climate Change Portfolio Risks analyzing attitudes and activities of asset owners with portfolios of over ZAR1,055 billion ($121 billion) and investment managers managing portfolios of ZAR 2,744 billion ($317 billion). Carbon dioxide emissions and water scarcity are proxies for near term and medium term climate risks to investment decisions.
Mis-priced climate risks in South Africa matter to every citizen, every saver and every pensioner. Because investment is domestically concentrated because of limits on investment outside South Africa, with a maximum of 5% allowed in Africa and 20% invested globally.
FOR MORE INFORMATION:
SinCo – sustainable investment consulting – is a boutique investment advisory firm specializing in sustainable investment architecture in frontier and emerging markets. Since 2006 SinCo has delivered sustainable investment architecture globally to pension funds, asset managers, private equity funds, stock exchanges and international organizations integrating environmental, social and governance (ESG) factors into investment practice for sustainable long-term investment performance. SinCo has grown to be an agile advisory team delivering high-value, high-impact investment services globally. SinCo engagements deliver innovative sustainable investment policies, strategies, indexes, research and education projects that move our clients up the ESG learning and experience curves smarter and faster.
NOTES TO EDITORS:
WWF stands for the World Wide Fund for Nature.
See www.wwf.org.za for more information.
Contacts for WWF-SA
+27 82 538 7710
+27 21 657 6657
Sustainable Business Programme Manager
+27 76 025 8382
+27 11 447 1213
 Cross rate used ZAR 8.63521 : US$ 1.
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“Graham is a delightful and hard-working colleague. He teaches on the CSR graduate programme I lead at the University of Geneva and has been getting better every year. He is ready to take criticism and advice in a non-combatative, mature and friendly way. He is truly an expert in his field and I would highly recommend him for teaching, advising and as a colleague. My fortune to have met such a brilliant person who, no doubt, will be a future leader of many important concerns.” - professor and co-ordinator, CSR executive education programme, Washington DC USA and Geneva, Switzerland.
“Graham has a passion for Responsible Investing & Sustainability and
as Chair of the Prudential Assets Working Group [PAWG] he brings this
unique passion and energy to the group.
With his focus and dedication to the sustainability cause, he manages to
bring his valuable insights from various experiences in developed
markets and always manages to apply this to the South African context.
He is a valuable and respected member of the Prudential Assets Working
Group.” - analyst, ESG asset manager and colleague, ASISA, Cape Town, South Africa.