A partnership for long-term impact

With a 30-year track record and deep in-house expertise, Futuregrowth Asset Management continues to lead in sustainable investments. Its approach focuses on risk mitigation and unlocking long-term value through responsible investment practices, exercising sound judgement, and innovation.

Angelique Kalam, Head of Sustainable Investment Practices at the company, offers a compelling insight into how Futuregrowth integrates non-financial factors into its investment philosophy.

Instead of ESG, Futuregrowth favours the term ‘non-financial factors’ to better reflect a broader and more integrated approach to risk and opportunity assessment.

“At Futuregrowth, we recognise we are part of a wider capital allocation mechanism. As responsible investors, we aim to direct capital towards sustainable and responsible enterprises,” explains Kalam.

This means assessing companies holistically – looking at cashflow, governance, alignment of interests, and risk-return profile – while also understanding each sector’s unique sustainability risk considerations.

More than financials

What sets Futuregrowth apart is its ability to price sustainability risks appropriately. “We evaluate companies based on their long-term viability, not just financials,” Kalam notes. “The risk profile for a company in the housing sector will differ from one in the agricultural sector, so our frameworks are tailored accordingly.”

The company is fortunate in that it is not constrained by benchmark indices like many equity managers. This flexibility, particularly in fixed income, enables them to avoid exposure to companies whose sustainability risks cannot be priced or mitigated.

“We’re able to take decisive action when we believe that we’re unable to price for certain risks. Our history, such as pausing lending to state-owned entities in 2016, shows our commitment to sustainable outcomes,” says Kalam.

A strong emphasis is placed on good governance. “We look for management teams with skin in the game and strong boards with relevant expertise, independence, and diversity,” Kalam says.

These elements support long-term strategy execution and risk oversight – ensuring Futuregrowth’s risk-return profile aligns with client mandate objectives. Futuregrowth also uses proprietary sustainability frameworks that differ depending on whether a company is listed or private. With listed companies, the team utilises publicly available data. However, in private markets,

Futuregrowth engages directly with management to access information and can incorporate non-financial recommendations into legal loan agreements, in some instances incentivising improvements through interest margin adjustments.

This proactive engagement strategy allows Futuregrowth to not only assess risk but also contribute to positive change in investee companies. “It’s about using our position as capital allocators to shape better outcomes,” says Kalam.

No tick-box approach

A critical feature of Futuregrowth’s methodology is its avoidance of what Kalam refers to as a ‘tick-box’ non-financial (ESG) approach. Each deal is reviewed holistically, using a judgement-based approach that combines in-depth research, sector-specific analysis and peer collaboration.

Analysts synthesise both financial and non-financial information to make informed investment recommendations based on the risk return benefits, which are then presented to the appropriate decision-making forum, such as the investment or credit committee.

That approach is backed by a culture of internal collaboration. “Our analysts don’t operate in isolation,” Kalam explains. “We have a ‘cradle-to-grave’ approach where the analyst oversees a transaction from the time of pre-screen until the loan is repaid. Every transaction is reviewed in pre-screen meetings, where insights from experienced team members help refine the focus of due diligence.”

Bondholder engagement as a lever for change

Futuregrowth actively engages borrowers – particularly in the private markets where we've had more success in achieving improved outcomes – using its role as a bondholder to drive sustainability outcomes. A recent agricultural transaction provides a strong case study.

The company, a vertically integrated agri-business involved in farming, processing and exports, was evaluated on governance, environmental and social grounds. Governance risks, including keyperson risk and a lack of board independence, were flagged during due diligence.

Futuregrowth recommended the appointment of an independent board chair and developing a succession plan for the founder-CEO. These recommendations were integrated into the legal agreement, with clear timelines for implementation. Importantly, borrowers who meet these recommendations are incentivised through margin adjustments, lowering their cost of capital as they improve their sustainability practices.

“We can’t impose changes; rather, we engage companies. It’s a partnership,” Kalam emphasises. “Once the borrower understands the rationale, they realise it’s not just about mitigating Futuregrowth’s sustainability requirements. It’s about strengthening their own business and ensuring its more sustainable for the future.”

Environmental and social due diligence

Robust environmental and social assessments are also a part of the Futuregrowth’s risk assessment. In the same agri-business example, the analyst evaluated water usage, irrigation practices, crop insurance and labour conditions. These factors are particularly vital in climate-sensitive sectors like agriculture.

“Responsible water use, crop resilience, and fair labour conditions all directly impact long-term sustainability of operations,” says Kalam. “We want to see whether companies are protecting their people and resources, not just for today but for the future.”

Institutional expectations drive accountability

According to Kalam, companies seeking institutional capital should be aware that funding expectations differ from traditional bank lending. “When you access the capital markets, you enter a space governed by fiduciary duty. We are mandated to assess and manage non-financial risks in our clients’ best interests.

Developmental investing and fiduciary duty South Africa’s challenges around infrastructure, inequality and inclusive growth are well documented. With over R35bn currently allocated to developmental investments, Futuregrowth plays a significant role in addressing them.

But Kalam is quick to clarify where the responsibility lies. “Our fiduciary duty is to make commercially sound investments with appropriate risk-adjusted returns on behalf of our clients,” she says. “Delivering infrastructure or inclusive growth is the role of government and DFIs. That said, the private sector, particularly institutional investors, can play a role.”

The firm’s participation in South Africa’s Renewable Energy Independent Power Producer Procurement Programme (REIPPPP) is a prime example. “We’ve invested in 32 renewable energy projects across solar, wind and other technologies,” says Kalam. “This is a great model of public-private partnership where risk and return are aligned.”

Climate tops the agenda

Asked about the dominant themes in sustainable investing today, Kalam is unequivocal: “Climate is front and centre – locally and globally. In South Africa, we’ve seen the real impact of climate change in floods, droughts and agricultural instability. These aren’t just environmental issues; they’re social and economic as well.”

Futuregrowth continues to engage investee companies, especially in high-emitting sectors, to assess their readiness and resilience. “We want assurance that they understand the risks and are taking steps to mitigate them. Many companies still don’t have clear decarbonisation plans and targets for 2030 and 2050, and reporting remains superficial.”

She also highlights other growing themes, including transformation, diversity, equity and inclusion (DEI), remuneration and artificial intelligence.

“Sustainability is no longer a niche; it’s the future of capital markets.”

Policy reform is a key enabler

Kalam notes that meaningful progress in sustainable investing depends on enabling policy. “Private capital doesn’t lack funding.

What we need are investable opportunities backed by strong policy and market reform and robust frameworks,” she explains.

She cites the proposed State Enterprise Bill, aimed at improving governance at SOEs, as a step in the right direction. “Institutional investors don’t define policy, that’s government’s role. But we have a responsibility to engage and provide input where policy decisions impact our clients.”

Clear, consistent regulation builds investor confidence and creates inclusive, investable markets. “We saw this with the REIPPPP,” she adds. “When the risk-return profile aligns, capital flows. “We cannot ignore non-financial risks any longer,” Kalam concludes. “The impact is real, and our role as stewards of capital is to help shape a more sustainable, inclusive economy, without compromising returns.”

This article was originally published in the August issue of MoneyMarketing SA and republished with permission.

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