Responsible Investing (RI)

• South Africa is one of the largest contributors towards Greenhouse Gas (GHG) emissions in the world, and the highest emitter of GHGs in Africa. The South African government has evidenced a commitment to mitigating climate change by signing the Paris Agreement which is an international treaty to support a net-zero world by 2050. In support of this commitment, the South African president recently signed into law the Climate Change Bill of 2024. which provides a national framework for responding to climate change. Futuregrowth recognises the importance of these commitments and has taken the position that global warming is a material factor that affects an investments’ risks and returns, as well as the sustainability of the country and the world. We have taken a position to say no to new coal and manage our exposure to carbon-intensive investments through our investment process. Recently, we have expanded on this position, we are averse to funding permanent oil and gas infrastructure with an indefinite lifespan.
  

• Futuregrowth’s non-financial analysis provides for a review of environmental, governance and social factors for both new and existing investments. This includes a review of climate-related risks from a double materiality perspective, where we consider the impact of our investments on the climate, as well as the vulnerability of an investment to climate change. This approach supports the sustainability of our investments, as well as the preservation and protection of resources and biodiversity. The assessment of climate-related risks furthermore supports global goals towards reducing temperatures in line with the Paris Agreement.
  

• Our analysis of climate related risks considers physical, transition and liability risks. In cases where a material risk is identified this would be addressed through combination of pricing, engagement and/or other mitigation practices.
  

• We support transitioning to a low carbon economy and identified opportunities for engagement with investee companies in carbon-intensive industries to disclose and mitigate climate-related risks. This includes channelling capital into deal opportunities that support a low-carbon economy at the appropriate risk return for our client funds. We have invested a total of R9.38 billion (as at 31 December 2023) in the renewable energy sector in South Africa. Our exposure is across a variety of wind, solar, CSP and hydro projects located throughout South Africa.
  

• Through our non-financial analysis, we can appropriately manage our exposure to carbon-intensive investments.
  

• As part of our climate strategy, we are committed to disclosing our climate change initiatives in further detail in line with the Task Force on Climate-related Financial Disclosures (TCFD) reporting requirements.

Our Approach to Climate Risk

In accord with the requirements of regulation 28 and our fiduciary responsibility, Futuregrowth seeks to assess all risks, including ESG and climate-related risks, as part of our fundamental investment process, and to integrate these considerations into a risk:return framework. Further, we have taken the position that global warming is a material factor that affects investments (risks and returns) and the sustainability of the country (and the world). Thus, our RI philosophy includes the goal of reducing carbon-emitting investments.

As a PRI signatory, we are aware of the mandatory PRI reporting requirements of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), and are committed to reporting on the TCFD principles as part of our overall RI strategy.

The South African government recognises the negative impact of climate change on natural resources (e.g. water and agriculture) as well its threat to long-term human development. Being a significant contributor to greenhouse gas emissions and one of the top 20 largest carbon emitters in the world, South Africa signed the Paris Agreement on Climate Change during November 2016, thereby making a public commitment to this global agreement on climate change. Futuregrowth recognises the importance of the global and local commitment towards achieving the targets outlined in the Paris Agreement. Through our internal risk-mitigation strategy and efforts, we are committed to reducing our exposure to carbon-emitting investments in an effort to limit global warming.

Physical and Transitional Climate-Related Risks

We have identified physical and transitional climate-related risks and factored them into our fundamental investment process as part of our ESG risk analysis. In cases where we identify a material risk, this would affect the rating of the underlying issuers/investee companies and the pricing of the transaction.

Opportunities

As part of our decision to transition our client portfolios to a low-carbon economy, we have identified the following opportunities:

• We engage issuers/investee companies in carbon intensive industries (or sectors that have inherent exposure to climate related risks) to determine their efforts to identify the risk, their strategy to mitigate this and their ability to report on progress in these areas on a regular basis.

• We have invested a total of R8 billion in the renewable energy sector in South Africa. Our exposure is across a variety of wind, solar, CSP and hydro projects located throughout South Africa.

Futuregrowth’s non-financial analysis framework entails the assessment of environmental, social and governance factors in the investment process. This is carried out alongside the financial analysis. The intended outcome is to mitigate overall portfolio risk.The non-financial analysis seeks to achieve the following outcomes:

• Investments are screened using non-financial factors as part of the due diligence process

• Non-financial risks are evaluated

• The Non-financial activities of investee companies are monitored

• Improvements are measured over time

• Active engagement with companies takes place when risks are identified

• Reports are provided to stakeholders on non-financial issues in a transparent and accountable manner

Futuregrowth utilises a number of stewardship approaches and tools to protect the long-term value of our investments and related economic, social and environmental interest. These include:

• Engagement

• Proxy voting at shareholder meetings

• Filing of shareholder resolutions

• Nomination of directors to Board and/ or Board sub-committees

• Leveraging roles on the Board and/ or Board mandated committees

• Taking roles on investee Boards

• Working directly with investee companies

Engagement: Futuregrowth uses an active ownership approach to engage investee companies, with the purpose of effecting positive change through engagement and making recommendations that support sustainable practices that are aligned to industry standards. Futuregrowth believes that engagement with investee companies on non-financial factors is appropriate to ensure long-term sustainability for all stakeholders. We believe in collaboration with investee companies and engaging with management to encourage companies to think about their approach to integrating, disclosing and reporting on non-financial matters. We believe that our role within the investment community is to encourage companies to aspire to responsible ways of doing business. Together, we can change the landscape of the investment community for the better and become more responsible corporate citizens.

Proxy Voting: The King IV report on corporate governance strongly recommends that shareholders become actively involved in the way companies are governed. There is also a rising trend worldwide towards increased shareholder activism. Share ownership rights, which include voting rights in person or by proxy, are financial assets. These must be managed with the same care and diligence as any other investment asset, because the integrity and value of shares may be affected by the outcomes of voting proposals. Shareholders have the power through voting rights to influence the management of a company. Actively exercising these rights is an effective way of enhancing portfolio value. Consequently, Futuregrowth places importance on its responsibility to exercise voting authority over securities that form part of its clients’ portfolios.

Through this approach towards stewardship, we encourage transparency and accountability in our investee companies.