Ninety One’s Green: ‘Deployment of capital in emerging markets in the right way is essential’

‘As investors, we have a real responsibility to ensure that we do not take the easy route when dealing with sustainability,” John Green, chief commercial officer of Ninety One, told Investment Week.

“Are you really contributing to achieving net zero in the real world? How do you think about deploying capital to assist those high emitters on their transition? If your natural approach to a portfolio is to say ‘we are going to sell high emitters and buy low [emitters]’, that is starving emerging markets from capital. 

“But that is where you actually need to be leaning in to solve that problem. For us that is an example of substance in sustainability: taking the tough questions and trying to work them out.”

Here, Green talks about sustainability and the challenges emerging markets face on their path towards net zero.

Is investing in high emitters not going against the purpose of net zero?

We do not think that you are going to solve the net-zero problem by not investing in heavy emitting industries. We think that you have to solve that problem by working with those industries as providers of capital, to come up with legitimate, sensible and practical transition plans. For us it is not an intensity only game, at least for the next five-to-ten years. It is about transition; how can you transition? That is a much more substantial way to decide than saying ‘I am not going to invest in South Africa because it is carbon intensive’.

Can every industry transition to a cleaner path?

I believe in human ingenuity. If we could beat Covid-19 in 18 months, arguably maybe two years, I believe we can solve the problem of the very difficult carbon intensive production in the next 30 years. 

Is net zero harder to achieve across emerging markets?

Obviously investing in emerging markets is more challenging than in developed markets, that is why there is premium for investing across emerging markets today. It is up to us as credible managers to deploy capital in emerging markets and to convince asset owners and investors that it can be done in the right way. That it can be done in a way that supports humanity’s goal. [Climate change] is a problem for all humanity, it is not a problem you can solve in the UK for just the UK. If we do not  approach it as a consolidated front – as humanity – we are not going to solve the problem. Therefore, deployment of capital in emerging markets in the right way is essential.

Is capital going where it is needed in order to support net zero?

Climate agencies tell us we need to invest $2trn to $3trn a year in this problem. Emerging markets today account for 50% of greenhouse gas emissions on an annual basis. If you are going to suck capital away from that problem, you are not going to solve it. You have to put capital to work in a way that you believe is going to result in a successful transition over time. And the question is: does selling a particular problem solve the problem? Or does working to think about how you can create a legitimate 15-, 20- or 25-year transition plan solve the problem? 

There are several risks around climate change. which one worries you the most?

We have a big base in Cape Town and in 2018 the city almost ran out of water. As residents of Cape Town, we had what was called Day Zero, the day on which water was going to run out. Basically, the taps were going to run dry. As a firm we had to procure water carriers to go up the mountains at night to bring water in. So, we have had this very hard, tangible experience of physical risks that are associated with global  warming. The risks of not transitioning are also very material.

With almost every report saying the Paris climate goals are out of reach unless rapid changes occur, do you think there is still time?

The one thing I can tell you is that every day I engage with our clients, with our investors, and our portfolio managers about this challenge, about how we go about as allocators of capital, in order to make a difference in the right way while still earning strong returns for our clients. I cannot say I have ever seen such a dramatic focus on a single issue in my investment lifetime. Is that achievable?

I think absolutely. Is it tough? It is a massive challenge. But the sustainability with substance approach says: let us not try and find the easy way out to solve this problem, let us tackle the problem head on.

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