Interview: David Le Page

Privatising wealth; socialising risk

David Le Page is coordinator of Fossil Free South Africa, a campaign for fossil fuel divestment based in Cape Town South Africa. You’ll find them here.

Paul Edmunds: Tell me about Fossil Free South Africa’s work.

David Le Page: We’re a campaign asking people to stop investing in coal, oil and gas because they are the principle causes of climate destruction. Our campaign started with asking the University of Cape Town to stop investing in fossil fuels and we’re still trying to persuade them to do that. We think that UCT is the leading university on the continent, and as a leading centre of climate change research, should absolutely not be investing in fossil fuels: it sends a very dangerous signal to society at large when you have experts in a particular risk category still investing in and fuelling that risk. You might say that it’s akin to a doctor smoking in front of their patients.

P: It seems plain to me that continued investment in fossil fuels will, if anything, hasten our demise. Or in a better secenario, if the near future involves less reliance on fossil fuels, it seems like a pretty poor thing to invest in. Why are we not getting this advice from our banks and asset managers?

D: Well, we’re not getting it from South African banks and asset managers but we’re certainly getting it from banks and asset managers overseas. Black Rock, which is the biggest asset manager in the world, has recently announced that it’s divesting certain classes of assets, and there is a huge range of institutions overseas that are acting on this now. One I thought that was noticeable recently was the staff pension fund of the European Central Bank. If there’s anybody that’s cautious, it’s central bankers, and they’ve certainly taken care of their future wellbeing by ensuring that their pension funds are divested.

Another example that came up recently is that of the Swedish Central Bank which is no longer going to be investing in Australian government bonds because of climate risk. Australian government bonds are, in theory, triple A-rated bonds, but a bank like the Swedish Central Bank is deciding that they don’t want that because Australia is a bad risk in terms of climate impact.

I think that the proportion of institutions that have divested to take a moral stand is relatively small, but in the long run it amounts to the same thing. We advocate for divestment because we think in the long run everyone is going to be more prosperous, happy and have a better, lower-risk life if we all divest from fossil fuels now. So, it’s a moral stand but it’s also a very practical one.

To go back to my earlier point, the question is really why South African banks and asset managers are not taking a stand on divestment from fossil fuels. At the moment there seems to be this almost religious belief, or religious attachment to investment in companies like Sasol. Which is now looking ridiculous. Sasol lost an enormous proportion of its value just in the early few months of this year. You can argue that this is related to non-climate related aspects of its business model, but the fact is that any investment in fossil fuels is increasingly dangerous, not just because of the climate risk that’s attached to this but because – and this is an element of risk that has always been there – of the sheer volatility that’s associated with dependence on fossil fuels.

The markets go up and down, and these are companies that are very often amoral run by countries that are amoral, like the Saudi’s, the Russians and so forth. When you put yourself at the mercy of fossil fuel markets, you’re putting yourself at the mercy of people like the Saudi’s and the Russians. Which is hardly desirable. As long as there were no alternatives it was to some degree understandable, but we now have the alternatives and we should be moving to those as quickly as possible.

P: If we accept that the world economy is structured in such a way that concentrates money and power in small parts, how can we be sure that our ‘responsible’ investments are not doing the same thing but in another place? Is it reasonable or moral to expect to grow our wealth by investment in anything?

D: I think it’s reasonable to ask questions about the very basics of the systems of savings and investments that we have and who those benefit at the moment. That said, one of the ways in which the current system does concentrate wealth is essentially that it privatises profit and socialises risk. So, those of us who have investments in Sasol get the dividends and the benefits of being invested in Sasol (or did while there were benefits to being invested in Sasol). But what we don’t get is in excess of R60 billion of climate damage that Sasol does every year, and not just to humans. That’s one costing based on a concept called ‘The Social Cost of Carbon’ which talks to the future damage done to the climate by each single ton of carbon dioxide. And the longer we delay action on climate change, the more those costs increase.

But there are other categories of damage done by companies like Sasol, particularly the costs of their air pollution. So what we need is an investment model that says we are no longer prepared to invest in institutions that socialise their risk. Those social risks need to be internalised into business and investment models. And we screen out those companies that try to socialise that risk. That doesn’t just mean for climate issues but for all other issues: human rights issues, for air pollution, for other categories of environmental destruction, or governance risk.

And what we increasingly see – and this is the buzzword in investment circles – is this concept of ESG: environmental, social, governance risks. The idea that if you take cognisance of these categories of risk, you’ll get better returns. The evidence is overwhelming that that’s the case.

There are lots of problems still with ESG investing at the moment. Often the ways in which companies are screened are far less than transparent. There is a host of different methodologies for doing this screening. Sometimes companies are marked very highly just for reporting on the problems which are contained within their business models and not marked sufficiently on what they are doing to manage those risk factors. But even given all those problems, the evidence from overseas is that investing that takes these factors into account gives you similar or better returns to those that people are accustomed to.

P: Am I right in saying that you can’t uncouple environmental, social and governance issues in any investment?

D: Well, they can be distinguished, but the likelihood will always be that a company that takes care of one category of risk is going to be taking better care of those other categories of risk. If you’re talking about a company that’s prepared to completely trash the environment, it’s unlikely that the character of their management is such that they are absolutely fastidious about their governance practices and are at the same time fastidious about their social practices, which would be how they take care of their workers and their communities.

P: Okay, we’ve taken our money out of fossil fuels. Where do we invest it now?

D: Divesting can also be just re-investing in all those other non-fossil fuel-related categories in which one is currently investing. Or that’s almost invariably what it means in South Africa at the moment. There are some that think that’s an unduly risky approach, but it’s been shown that divestment from fossil fuels, at least, would not have harmed portfolios going all the way back to 1920. So the question remains whether it would be harmful to portfolios in South Africa, and we’ve got two or three lines of research that are not conclusive on that but which indicate quite strongly that if you’d been divested from 2013 to 2017 in South Africa, the more carbon you took out of your portfolio the better your returns would have been. And I’m thinking here of research from companies like SMP index providers, and a boutique index provider based in London called ET Index Research.

So we have some fairly hard data to suggest that in South Africa, even without re-investment in renewables necessarily, you can get decent returns from divestment. The ideal would probably be to re-invest in wind and solar energy, but that isn’t really possible at the moment because there aren’t many renewables companies of any ilk on the JSE. Although that should be changing relatively soon: as I understand there’s going to be a renewable energy company listed there from around the middle of this year.

P: In an earlier discussion we talked about ‘direct investments’, in fact a particular one called the Sun Exchange. Are those not possible places to put some money, and earn some income as well?

D: Yes. The Sun Exchange indeed, and of late they’ve been sending out emails pointing out that the sun is still shining amidst the meltdown of the global markets. The decline in global markets has absolutely no effect on returns from an investment in the Sun Exchange.

P: But aside from that sort of thing, there’s a paucity of opportunities in South Africa. You know I’ve been scratching around with my very blunt instruments, and every time I’ve found something that I think looks promising I’ve sent it your way, only for you to pick it apart. The most recent I sent was an ESG offering from Investec. You dug around in there and found French oil and gas company Total in the portfolio.

D: Yes. The problem is that there aren’t really any satisfactory alternative mass or group investment vehicles at the moment in South Africa. It’s been a major problem for us as a campaign, because whereas divestment campaigns in markets like Europe and the US have been easily able to point people to alternative investments, here in South Africa we just don’t have them. So we’re trying to advocate for that new class of investments at the same as trying to advocate for people to actually invest in them. We’ve had discussions along the way with different asset managers, and we now have at least three that are – to various degrees – interested in starting fossil fuel-free funds.

P: You said to me about that Investec fund which included Total, that such an inclusion was due to their use of the Carbon Disclosure Project or Protocol. What this means is that Total was deemed good enough for inclusion because they are good about disclosing the risk they pose to the climate even while doing nothing to mitigate it.

D: One does have to look closely at these things. Despite that something is labelled as an ESG fund, one does have to dig down into the details to check who gets in there. The JSE, for example, for years had its own Social Responsibility Index which was eventually completely discredited because one of the leaders on the index was Lonmin which, in the wake of the Marikana massacre, started to look absolutely ridiculous. The JSE now uses FTSE Russell as their source of ESG data, but there are still lots of problems with what ranks as a high scoring ESG company according to FTSE Russell. So we tend to take ESG ratings as a step in the right direction but still needing a bit more scrutiny.

That, by the way, should be applied even to companies that have what seem like headline virtuous business models. We would argue for ESG screening even of wind and solar energy companies. You don’t get a free pass if you’re a wind or solar company; we also want to see that you take care of your workers and that you have strong and robust governance practices.

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