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Ninety One’s 2022 Investment Outlooks: The challenges of normalisation

While the transition to normalised monetary policy creates uncertainty for the macroeconomic outlook, continued vaccine roll-outs are expected to help underpin growth in 2022. With this backdrop, where can investors turn to during the year ahead to find returns and invest for a better tomorrow? 

Hendrik du Toit, Founder and Chief Executive, as well as several of our portfolio managers discuss their outlooks for 2022.

 

Hendrik du Toit, Founder and Chief Executive:

As we look ahead to 2022, Ninety One has its sights set on a date much further into the future – 2050, by when we should reach global net zero. To have any hope of achieving this target, Investors must direct capital towards reducing real-world emissions, rather than focusing on short-term ‘feel-good’ carbon targets

What did you make of COP26?

This was the first COP where the finance sector was present in force. We will only achieve a successful energy transition if finance is involved at scale. At COP26 there was also growing recognition that we need to support the emerging world’s net zero transition, and that it will necessarily be slower. This is important because there is now an honest conversation about how we can build a realistic net zero pathway for the whole world, including emerging markets. I came away from COP26 reasonably optimistic, but there’s a huge amount of work to do to keep global warming below 2-degrees Celsius.

Are asset managers and owners tackling the net zero transition in the right way?

My concern is that the initial drive for net zero focused largely on creating low-carbon portfolios. It’s not difficult for investors – in developed countries especially – to divest from ‘dirty’ industries, most of which are based in emerging markets. But that risks starving the emerging world of the capital it needs to transition and leaving high-carbon assets in the hands of less scrupulous owners with no interest in decarbonisation. Ninety One is arguing strongly for a focus on financing real-world, sustainable emissions reductions, rather than creating low-carbon portfolios.

Can you explain the difference between a low-carbon portfolio and a portfolio that supports real-world decarbonisation?

A tiny number of stocks account for the bulk of emissions. In South Africa, two companies produce almost half of all emissions, namely Eskom, the electricity utility, and Sasol, the energy and chemical company. If an investor divested from a heavy emitter, they would have a lower-carbon portfolio. However, if that emitter is then bought by an unscrupulous investor with no interest in decarbonisation and who is simply aiming to maximise cashflows, the world is no closer to net zero. Responsible ownership will play a key role in the transition to a cleaner greener world.

What are the risks of focusing on reducing emissions at the portfolio level? The risks of focusing on reducing emissions at the portfolio level would mean denying capital to countries with carbon-intensive energy systems, which primarily means emerging markets. That would create a social disaster and likely result in no net zero at all. So it is very important that we don’t leave anyone behind and that the net zero transition is inclusive. As investors, we need to be focused on achieving net zero by 2050, rather than short-term goals that do not support real-world emissions reductions.

How can investors support the net zero transition?

Investors can support the net zero transition in two ways – remain invested in companies and engage with them to support their transitions. The other is to invest in companies whose products and services are enabling or accelerating the transition to net zero. We need to do both, and Ninety One is committed to doing so.

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