Beyond the buzzword: Why sustainability is the bedrock of modern investing
Sustainability is no longer a buzzword or a fad in the investment world. At Old Mutual Alternative Investments, it is a fundamental part of our operations, shaping every investment decision we make. Over the years, we have moved beyond only considering Environmental, Social and Governance (ESG) risk factors to embedding sustainability and positive outcomes into our business processes and investment mandates.
Our journey towards integrating sustainability began several years ago, but it was around 2018 and 2019 that we really formalised this approach. We implemented environmental and social management systems across all business units, ensuring that sustainability is not an afterthought but a core consideration alongside financial and operational risks. This systems-based approach means sustainability is woven into every stage of our investment process, rather than being left to the discretion of any single individual or team.
It is important to clarify that we see sustainability is a broader concept than either ESG or impact investing, it which encompasses the overall financial and non-financial performance of a business. In some sectors, ESG has come to mean focusing only on risk mitigation and compliance only while impact investing is generally a smaller subset of investments aimed at delivering specific positive social or environmental outcomes. For us, sustainability encompasses both risk management and maximising positive impact across our investments.
One of the key differentiators is the practical way in which we are able to work with our portfolio companies. We do not simply assess environmental and social risks at the point of investment and move on. Instead, we conduct detailed due diligence to identify gaps and areas for improvement. We then collaborate with these companies to develop and execute action plans to mitigate risks and enhance sustainability performance. These plans are prioritised, resourced and tracked over time to ensure progress.
Of course, there are times when potential investments do not align with our sustainability policies and we are prepared to decline opportunities on those grounds. We believe responsible stewardship and engagement enable our portfolio companies to become more sustainable and resilient businesses, which benefits all stakeholders.
In the South African context, sustainability has unique and complex dimensions.
We face pressing social challenges, including unemployment, poverty and inequality, alongside the urgent need for reliable energy production coupled with environmental protection. Our business units reflect this diversity with focused mandates – some targeting impact in critical areas such as housing and education, others investing in infrastructure or supporting black ownership and economic transformation. Collectively, these efforts piece together a broader societal impact beyond what any single investment could achieve.
Measuring success is a critical part of our sustainability journey.
For risk mitigation, success is demonstrated by progress against environmental and social action plans and for impact investing, success comes from assessing tangible outcomes relevant to each business. For instance, renewable energy companies are measured on how much clean energy they generate, and educational investments on student pass rates or enrolment growth. We also track diversity and transformation metrics to assess social progress.
There are established frameworks and tools available globally to help standardise impact measurement. We are members of the Global Impact Investing Network (GIIN), an organisation seeking to increase the scale and effectiveness of impact investing to address critical social and/or environmental challenges. We use GIIN’s framework, tools and metrics called IRIS+ to ensure our impact measurement approach is robust and credible. While there is still work to be done to harmonise frameworks, these tools help provide transparency and accountability in what can sometimes seem a nebulous space.
A question we’re often asked is: “Is sustainability a hard sell?” My experience is that the conversation has become markedly easier over the last decade. There will always be a healthy debate, especially when times are tough and initiatives carry a cost. This challenge is a good thing; it forces us to articulate the “why” clearly and reinforces the need for a business case. We must demonstrate that what we do is not a “nice-to-have” but a necessity for long-term viability. Recent studies from firms like MSCI and Sustainalytics consistently support this, showing that companies that manage their ESG risks effectively tend to perform better. In the South African context, this is undeniable; without a social license to operate, even the most financially sound business can falter.
What excites me about this field is that it is never static. It is a smorgasbord of ever-evolving challenges and opportunities. It is the perfect arena for those of us who are naturally curious. The learning never stops.
Looking ahead, another question we’re often asked if we’ve “arrived”. The answer is a definitive no. Sustainability is not a destination; it is a continuous journey of evolution and improvement. How long have we been talking about transformation and gender diversity? We are not done. We will be done when we have solved these profound challenges. Until then, our work continues to build a future where financial returns and positive impact are inextricably linked.
For us, sustainability is about creating lasting value, both financial and societal. It is about managing risks and opportunities holistically and embedding responsibility into every layer of decision-making. We believe businesses that do good and operate sustainably are better positioned for long-term success and we are committed to advancing this ethos in everything we do.
Swanepoel is the Head of Sustainability at Old Mutual Alternative Investments & African Infrastructure Investment Managers (AIIM).