Nazmeera Moola

The world needs to invest over US$4 trillion a year by 2030 if we are to reach net zero emissions by 2050.^[1] Of that, US$1 trillion is needed for the energy transition in emerging markets and developing countries^[1].

For the transition to net-zero carbon, global investors need to finance swathes of new infrastructure and industrial change among companies that produce the highest emissions today but have credible transition plans. Emerging market companies are at the heart of this transition finance opportunity.

Nazmeera Moola, Chief Sustainability Officer, Ninety One: “The battle for net zero is going to be won or lost in the emerging market corporate sector because that is where the investment is needed. By providing finance to these companies – at commercial rates – investors can tap into this long-term investment theme and make a real-world contribution to the global energy transition.”

EM economies already account for over 60% of today’s emissions but are on a trajectory to represent more than 90% of emissions growth by 2030.^[3] While EM government commitments to the transition to net zero vary and many lack ambition, plenty of EM companies are seeing this as a business imperative and a way to create a durable, competitive advantage:

Annika Brouwer, Sustainability Specialist, Ninety One: “Many EM companies are ahead of legislation or government action and are looking to build low-risk business models.”

The field of transition finance is broad. As part of the Asset Manager Asset Owner Task Force at the Sustainable Markets Initiative, Ninety One helped to develop a Transition Categorisation Framework approach across five categories. Among the three core groups, first are green investments that need to be made, new infrastructure, the new technologies; second is decarbonisation investment in high emitters that have a transition plan; and the third is investment in the enablers to the transition in other sectors. The last two relate to interim phase-outs and companies/sectors that are aiming to transition, but yet to establish a transition plan.

Moola continued: “Among both high emitters and solution providers, we already find that many companies are looking to use debt to finance the climate-oriented evolution of their businesses. Companies in this space are often competing in global markets and rely on financing solutions both from traditional channels (e.g., banks) and, increasingly, through public and private credit markets – especially as regional and local banks face more limited balance sheet capacity. We believe that debt will be the work horse of transition finance.”

Furthermore, there is a role for both public and private debt markets here. While the heavy emitters are large existing companies and tend to rely on public markets to finance their transition, the development of the technologies of tomorrow that will move the world’s economies closer to net zero is largely happening in the private sector and outside of public debt markets. Because the technology does not yet exist to enable the five critical industries that represent over 85% of global emissions (power, industry, transport, agriculture, buildings) to reach net zero, investors should also lend to smaller innovating companies that can help avoid carbon in the medium term.

Brouwer concluded: “While transition finance represents a long-term opportunity for investors, there is a significant potential benefit in being an early mover. Early investors can seek to benefit from credit spread compression stemming from cash flow growth and from improving credit quality as this field of investment moves to the mainstream and as companies that fail to transition are penalised as transition risk is increasingly priced. This has the potential to provide them with competitive returns with tangible climate benefits.”

———

[1] IEA, World Energy Outlook 2022, https://www.iea.org/reports/world-energy-outlook-2022
[2] IEA, World Energy Outlook 2022, https://www.iea.org/reports/world-energy-outlook-2022
[3] Our world in data based on the Global Carbon Project. This measures C02 emissions from fossil fuels and cement production only – land use change is not included. Statistical difference (included in the GCP dataset) are not included here.

The post The transition finance opportunity in emerging markets appeared first on AdviserVoice.

Nazmeera Moola

A transition to net zero is unlikely to be neat or methodological. Evidence suggests we are at the start of a disorderly transition. How disorderly the transition becomes will be influenced by asset owners, investors, and companies’ own emission-reduction plans. The latest research paper by Ninety One, A disorderly transition^[1], argues that growth in transition investments and transition-related targets can help mitigate disorder to achieve a lasting transition to net zero.

Nazmeera Moola, Chief Sustainability Officer, Ninety One: “Reaching net zero will rely on investment in new green infrastructure as well as investment in decarbonising high-emitting companies. Both are needed to achieve real-world decarbonisation. This is especially true of the five sectors that are responsible for more than 90% of global emissions and are essential for economic growth – power, buildings, mobility, industry, and agriculture.  These industries are central to global development. Any disruption to their output will have a significant impact on the global economy. The transition, therefore, must be as orderly as possible.”

From disorderly to orderly

Decarbonisation of high emitters takes time. These companies cannot change overnight. They are capital-intensive with fixed assets and established business models that need to evolve. In most cases, new technologies will be required to help companies decarbonise. In certain countries, for example, South Africa, pronounced social issues such as employment and workers’ rights take precedence over environmental considerations. We cannot always simply put “planet” before “people”.

There is no one-size-fits-all solution for heavy-emitting sectors. Corporate environmental strategies have diverged substantially due to a range of factors, such as uncertainty around technologies, timescales and structural changes. Even within specific sectors, such as utilities, companies are setting very different courses towards net zero, with some companies far more aggressive in their pursuit of renewable energy strategies.

The chances of a more orderly transition increase with a coherent transition assessment framework that can define credible transition opportunities. Here, the Sustainable Markets Initiative’s Transition Categorisation Framework^[2] helps identify and support transition potential, and, where appropriate, sets aside problem cases. This is fertile ground for active managers seeking alpha from success stories — companies facilitating the transition rather than perpetuating the problem — and where the market does not fully understand or price in the transition potential.

Moola continued: “As credibility builds and the investment industry learns to assess transition plans, we expect asset owners to become increasingly comfortable with adopting transition-based climate strategies. The highest-emitting companies and industries require investors who can own them, challenge them on the credibility of their plans, and hold them to account over time, as they evolve.”

Transition investments for asset owners

Public companies account for the vast majority of the world’s emissions, forming an important transition universe for equity and debt. With the bulk of this transition potential sitting in the five top-emitting sectors, many companies in these sectors are household names in developed and emerging market economies. We expect transition debt to form the backbone of new capital to fund transition plans. The lower cost and flexibility of debt markets support innovation and, crucially, the ability to link lending to transition-related goals and targets. Debt will also be the most effective tool to mobilise private capital from wealthy nations towards emerging markets, where the bulk of emissions growth needs to be addressed.

The low-carbon transition will have marked macroeconomic effects – notably, the potential for higher inflation. Investment in the transition leaders across the five highest-emitting sectors could provide some inflation protection and solid returns. In the  longer term we will, we believe, arrive at a global energy system that is cheaper and less vulnerable to supply shocks.

Moola said: “It is our view that the low-carbon transition will prove Darwinian for many industries in the medium- to long term, but especially to those industries that sit at the crux of the problem. Companies in these economic areas that can successfully make the transition by either developing new technologies or through significant decarbonisation of key industrial processes stand to be rewarded by the market via enhanced access to debt and equity financing and higher market valuations.”

Conversely, companies in these emissions-intensive areas that are unable to evolve will experience the opposite. They will likely face an increasing struggle to access capital and to attract lower market multiples. This should present considerable opportunity for active managers seeking alpha generation, as winners and losers diverge sharply over the coming years. All the more so because the starting point includes sectors and industries that trade on a very significant discount to the broad market. We expect this ̒transition premium’ to manifest itself more clearly in the coming years.

Actionable steps

Transition investing is set to keep growing in importance, especially as it is becoming clearer that starving heavy-emitting sectors of capital is not going to solve the real-world problem. We believe that in core investment mandates, asset owners should assess the transition plans of their heavy emitters and commit to robust engagement with those companies to encourage and catalyse their transition. This should replace a policy of divestment from all high-emitting companies. “Clean portfolios” achieve nothing. Additionally, asset owners should consider dedicated allocations to transition strategies, both equity and debt, that specifically target the areas and sectors that need to decarbonise and incorporate robust assessment of the transition credentials of all investments in the strategy. This should include measurement of the carbon-avoided or the reduced impact of the investment.

While there will inevitably be subjectivity around the appraisal of a company’s transition plan – as there has always been around the strategic and financial plan of any company – it is important that this does not get in the way of engaging with heavy-emitting companies across the main five high-emitting sectors to drive the evolution of their business models.

Moola concluded: “Disorder is a spectrum and minimising the level of disorder is likely to have the best outcome for the planet, economic growth and, ultimately, investment performance.”

——–

[1] A disorderly transition
[2] Sustainable Markets Initiative’s Transition Categorisation Framework

The post A disorderly transition: Averting chaotic disorder in the transition to net zero appeared first on AdviserVoice.

Daisy will be responsible for implementing Ninety One’s Net Zero commitments, across the firm and within portfolios. She will also work closely with investment teams in the development of sustainable products, as well as with clients to help inform them of the firm’s approach to sustainable investing and help them develop their approach.

Daisy joins Ninety One from the Institutional Investors Group on Climate Change (IIGCC), where she served as Programme Director.

In this role, she helped to establish the Paris Aligned Investment Initiative and spurred on more than 140 IIGCC members to commit to net zero portfolio emissions. Previously, she was an Advisor – Sustainable Infrastructure, at the Inter-American Development Bank Group, following over ten years in various climate and finance focused roles at the Civil Service. She began her career as a Researcher in Sustainable Finance for the WWF, after graduating with a Masters from both the London School of Economics in Environment & Development and from the University of Edinburgh in Politics.

Nazmeera Moola, Chief Sustainability Officer, Ninety One said: “As a signatory to the Net Zero Asset Managers Initiative, Ninety One is committed to ensuring that our portfolios achieve net zero emissions by 2050. Given our emerging markets heritage, we also understand the importance of setting net zero targets that do not depend on exclusion and divestment and can be assessed in the real economy – otherwise net zero will remain a pipe dream, as opposed to the reality we seek.

“Daisy’s deep level of experience in working within the sustainable finance sector, coupled with her passion for transforming the investment industry for the better, positions her as an ideal member of our team”.

The post Ninety One appoints Daisy Streatfeild as Sustainability Director appeared first on AdviserVoice.

This includes investment integration, advocacy, corporate transition to net zero and developing and implementing efforts to mobilise dedicated funding for an inclusive net zero transition.

Hendrik du Toit, Founder and Chief Executive, Ninety One said: “We are committed to the goal of net zero carbon emissions by 2050 and believe that the best way to achieve this is through a fair and inclusive transition. We cannot pretend that decarbonising portfolios is the same as decarbonising the world and want to ensure that no one is left behind, including emerging markets. Finance has a vital role to play in transitioning the real economy to net zero, and the time to act is now.

“Nazmeera has been at the forefront of our firm’s initiatives in this area. In her new role, she will oversee Ninety One’s investment integration, the development of our transition frameworks, commercial opportunities, and policy engagement. Nazmeera’s depth of expertise and experience give her the ideal attributes for this key role.”

Previously, Nazmeera was Deputy Managing Director and Head of South African Investments at Ninety One. Nazmeera joined Ninety One in 2013 from Macquarie First South, where she was Head of Macroeconomic Strategy.

She began her career as an economist at Merrill Lynch in South Africa and London. She graduated from the University of Cape Town with a Bachelor of Business Science degree and is also CFA® Charterholder. Nazmeera is a member of the South African Presidential State-Owned Enterprises Council, and a trustee of the Constitutionalism Fund.

The post Ninety One appoints Nazmeera Moola as Chief Sustainability Officer appeared first on AdviserVoice.