When I moved back to South Africa from the UK 2 years ago, I wanted to set up a pension fund to start a monthly contribution to provide for my financial needs when I am older. A scary statistic: if you want to replace 75% of your pre-retirement income you need to save at least 22.5% of your income for a period of at least 30years.
I found a financial advisor and asked about the available pension schemes in South Africa. He suggested an Allan Gray pension fund. This looked good, and gave quite good returns. But then I noticed something very disturbing. The top 10 companies in this fund included SASOL – who are responsible for the majority of SA’s carbon emissions due to their highly carbon intensive coal to petrol plants, Anglogold and Harmony Gold – I had at the time just finished a piece of research on the devastating impacts gold mining is having on SA in terms of environmental degradation and water pollution and British American Tobacco – known for funding science which “proved” that smoking did not cause cancer.
I couldn’t in good conscience invest any of my money in these firms as it would go against everything I believe in and everything that I was campaigning against.
I asked my advisor of there were any green or ethical funds available here in South Africa, like the Co Op Bank whom I banked with when living in the UK, or Ethical Investors in the UK which covers ethical, socially responsible and environmental investment.
He suggested another fund called Element Earth Equity Fund. This sounded more promising, but again, when I dug into the detail I found that their top 10 shareholders also included AngloGold and SASOL. Hardly the “green” fund I was hoping for! I continued my research, but found that with the majority of funds I would be investing my money into large multinational gold or coal mining companies.
Just as I was about to despair, and begin to hide my money in my mattress, my advisor came back to me with a money market fund. Instead of buying shares in large companies this is a money lending fund. He also suggested that I invest my money in an entrepreneurial sector fund – where you buy shares in small start-up companies. These two looked, although not completely ethical, a whole lot less horrific than the previous funds. The return on the money market fund may not be as good, but in my mind this was a small price to pay.
So although South Africa does not have a completely environmental fund available yet, you do have some better options than investing your hard-earned money into polluting companies. Here are a few ways that you can invest in unit trusts without compromising your principals.
- You can invest in a money market fund which provides you with a lower return but doesn’t buy shares in any companies. E.g. Momentum Cash Management Fund
- You can avoid different sectors of the stock market entirely (like Oil & Gas, Mining etc) by investing in a specific sector fund. There are many of these which will only buy shares in companies in a specific part of the economy. For example a retail fund, Technology funds, Finance Funds, Property funds. You can see the different sectors of the stock market by looking at the stock page in your daily newspaper and see what companies are included in each sector.
- You could avoid large companies by buying into a small cap fund, which only invests in smaller listed businesses. The big polluters are usually enormous companies, so the small cap or entrepreneur funds won’t include many of these.
- Start asking for, and enquiring about, ethical and environmental funds from your bank, from your financial advisor or from your current pension provider. This is a great opportunity for the citizens of SA to create demand for these funds.
There is also some good news on the horizon. I spoke to Arthur at Three Laws Capital this company was founded a few years ago and is about to launch the first unit trust climate change fund in South Africa. This fund is aimed at smaller pension funds, as well as individuals. They will be looking to invest in listed companies that will mitigate or adapt to climate change. All companies will be vetted according to a broad based climate analysis. Three Laws Capital however won’t exclude any companies, so if a large company is doing some work to offset their carbon they will be included in the analysis. Here I guess they will need to be very careful of companies’ green washing tactics. (My personal rule of thumb is to look at whether the company is spending more money on advertising their green project that on the actual green project itself).
I will keep in contact with Three Laws Capital, as their new fund looks like it could be very promising and is the first green pension fund of its kind in SA.
If you know if any ethical investments in South Africa, I’d love to hear from you.