By Jim O’Neill and Dolores Bamford

Within the investment community, environmental, social and governance (“ESG”) evaluation has shifted from the margin to the mainstream.  Below, Jim O’Neill and Dolores Bamford address economic growth and opportunities in South Africa as well as the integration of ESG evaluation into the investment process.

 

Africa’s Growth Conditions by Jim O’Neill

More and more investors are increasingly focused on the opportunities in Africa. In the past few years, foreign companies have already significantly raised their presence on the African continent. According to Jim O’Neill, South Africa is likely to keep its status as the richest economy out of the African 11[1] in terms of incomes per capita through 2050. O’Neill expects that this group of African countries could deliver significant growth and higher incomes over the next several decades. The rise of Africa’s middle class is already slowly changing consumption and production patterns. This process is set to accelerate in the years to come. But for this 2050 scenario to materialise, improving growth conditions remains critical. Transparency and an environment conducive to business are what African leaders should be concentrating on. 

 

Jim O'Neill said: "I believe that some of the world's leading emerging markets - those that are at least 1% of global GDP - should be redefined as "Growth" markets.  Growth and Emerging markets have started to feature more in investors' portfolios and given the growth rates in many of these economies, I expect this trend is likely to continue.  With regards to Africa, in the past few years, foreign companies have raised their presence on the continent.  With the economic opportunities and increasing investment in Africa, there is rising investor interest in the region.  The concept of sustainable investing could also feature more prominently in African investment opportunities."

 

Case for sustainability: access tomorrow’s leaders today by Dolores Bamford

When evaluating companies, management’s proactive focus on sustainability can be an indication of a strong corporate strategy and business model. An increasing body of industry research demonstrates that introducing ESG criteria into the stock selection process can increase the probability of outperformance over the longer term. Assessing ESG issues provides portfolio managers with a unique view of a company’s operations and management quality. Researching ESG factors is an important part of evaluating company risks and that ignoring these factors in investment analysis could be a detriment to performance.

 

All three categories of ESG – environmental, social, and governance – are important factors to consider within the investment process. Environmental considerations are particularly important in the analysis of sectors such as Energy and Utilities, and human rights and social issues are critical to businesses with a global footprint. We believe that strong governance is as important and is an indication of shareholder orientation. In particular, factors such as board composition, management incentive compensation and overall accountability to stakeholders all permeate the culture and impact the long-term performance of a business.

We see investors take a range of approaches to ESG implementation, depending on their resources, values & beliefs, ESG policy, and investment objectives.

GSAM’s robust global research and our Firm’s commitment to corporate citizenship and environmental stewardship

 

Within our Fundamental Equity business we have regional investment teams across the globe who are responsible for investment research. The investment teams in both developed and emerging markets include ESG specialists that understand local business practices and meet with company management teams in order to help shape market-specific ESG analysis. These meetings with company management teams are also an opportunity to collect data on those companies where disclosure may not be strong.

Finally, ESG integration is consistent with GSAM’s quality approach to investing and focus on risk management, as well as Goldman Sachs’ commitment to corporate citizenship and environmental stewardship at a firmwide level. The Goldman Sachs Group, Inc.  has extensive reporting on these initiatives. A copy of our Environmental, Social and Governance report can be found via the following link: http://www2.goldmansachs.com/s/esg/HTML1/default.htm

Compliance code: 60657.OTHER.MED.OTU .

See also http://www.goldmansachs.com/gsam/worldwide/insights/jim-oneill/viewpoints/index.html

[1] African 11 include Congo, Egypt, Ethiopia, Kenya, Morocco, Nigeria, South Africa, Sudan, Tanzania, Uganda and Zimbabwe.