Have you had any clients ask you about whether their portfolio is ‘sustainable’ or ‘ethical’? According to a Morgan Stanley survey from 2025, over 88% of polled investors reported an interest in the sustainability of their portfolio, with the majority of these investors being Gen Z or Millennials.
While this survey is not necessarily representative of your own client base in South Africa yet, you will undoubtedly be asked more regularly about sustainability and your approach by prospective clients.
Responsible investment has grown into one of the most complex and contested corners of the asset management industry. Sustainable fund assets reached a record $4.13 trillion globally by the end of 2025, according to Morningstar data. That is a market more than four times larger than it was in 2018. The number of funds carrying sustainability or ESG labels has multiplied to keep pace, and regulators have had to run hard to catch up.
Responsible investment is difficult precisely because there is no single definition. Individual investors hold different priorities and definitions of ‘sustainability’, and no single product can perfectly accommodate them all. Responsible investment has matured into a family of approaches, each with a different philosophy, a different set of trade-offs, and a different theory of change. ESG integration is not the same as negative screening. Negative screening is not the same as active engagement. Thematic investing is not the same as impact investing. And yet all of these labels can appear on the same factsheet or on competing funds that hold entirely different portfolios.
For an advisor the important questions become: 1) how does my client define responsibility or sustainability? And 2) how do different products achieve these goals differently and also achieve strong investment return? These need to align for a successful investment portfolio that delivers on both the return mandate, and responsibility mandate, of the client.
The Approaches
Responsible investment is not a single strategy. It is better understood as a set of levers which combine into an approach taken by an asset manager.
Negative screening is a familiar lever – with a long history in South Africa and being the oldest form of responsible investing. This is where companies or sectors not passing an ethical or environmental test are excluded from investment by a manager – usually at the outset when managers are looking for companies to invest in. Classic examples are tobacco, controversial weapons or thermal coal.
In modern asset management, active engagement and stewardship is commonly implemented as a matter of course in investing. Where it applies to responsible investment is where engaged investors use their shareholder rights to push companies toward better, or more ethical, behaviour. This is usually achieved through direct dialogue with management, voting at AGMs, or filing shareholder resolutions.
On the other side, ESG integration is a broad, ‘catch-all’ term for the use of ESG factors in pricing and modelling by managers. Rather than making portfolio decisions based on ethics alone, managers systematically factor environmental, social and governance risks into their financial analysis – pricing in, for example, future carbon taxes, regulatory exposure or reputational risk as part of a company’s long-term valuation. The goal is not a “cleaner” portfolio in a moral sense, but a more accurately priced one.
Positive or best-in-class screening is the opposite of negative screening. Instead of removing the worst actors, it selects the leaders within each industry. A best-in-class fund might own an oil company – but only the one with the most credible transition plan in the sector.
Finally, thematic investing builds portfolios around specific structural trends. Examples include clean energy, water security, the circular economy, healthcare access. These strategies tend to have the clearest identifiable link to real-world outcomes, because the investment thesis is explicitly tied to companies providing solutions to global problems.
In practice, almost no fund uses just one of these approaches. They combine and layer them, in different sequences and with different degrees of emphasis. Two managers available to South African investors illustrate how differently these levers can be pulled in practice.
Philosophies in Practice
Baillie Gifford
Baillie Gifford’s starting point is not a checklist or ethical screening. The Edinburgh-based firm is growth-oriented, owning companies for five to ten years or more, based on a genuine view of where the world is heading. Sustainability, in their framework, is not a constraint applied to an otherwise financial process. It is part of how they identify companies likely to be worth significantly more in a decade than they are today.
The practical consequence is that ESG analysis lives with the individual investment analyst as part of their investment thesis. For a company like CATL, the battery manufacturer, the sustainability question and the financial question are the same question: is this business positioned to benefit from the shift to a low-carbon economy, and will that benefit compound over time? Baillie Gifford uses qualitative scenario analysis, asking what happens to a company’s future cash flows under different climate transition pathways, rather than relying on backward-looking third-party ESG scores.
On exclusions, Baillie Gifford applies firm-wide screens on controversial weapons across all directly managed portfolios, and most of their sustainability-oriented funds apply revenue thresholds that keep out companies deriving more than 10% of income from fossil fuels, tobacco or gambling. Engagement is used as a tool to push companies further, faster (particularly on climate transition credibility) with divestment reserved as the final escalation.
Coronation Fund Managers
Coronation’s approach is grounded in a different conviction: that a company managed poorly on sustainability grounds is, eventually, a company that will destroy value. Their integration
of ESG is therefore driven by the investment analyst’s financial model. Material risks, for example a future carbon tax, a water scarcity exposure, a governance failure, are either modelled explicitly into long-term earnings forecasts or factored into the margin of safety used to size a position. The sustainability question and the valuation question are treated as inseparable, but here the route is through the numbers rather than the narrative.
Coronation does not apply a firm-wide exclusion policy, choosing instead to stay invested in companies where they believe they can influence behaviour and use their position to push for better outcomes. Coronation’s view is that broad sector exclusions, particularly in the South African market, would eliminate a significant portion of the investable local market and give ownership of those companies to shareholders with no interest in holding them accountable. Their escalation process runs from private management dialogue through to board engagement and AGM action.
What this means for you and your clients
No approach to responsibility is perfect or complete for each unique investor. Each one reflects a coherent set of beliefs about where influence comes from, what drives long-term value, and what responsible investment is actually for. The Baillie Gifford view is that sustainability is a growth signal and the best thing you can do is identify the companies solving the world’s largest problems before the market fully prices that in. The Coronation view is that staying engaged is more powerful than walking away, and that a valuation-driven investor has the tools to hold companies accountable from the inside.
This is where the advisor’s role is most important. A client who wants their money out of fossil fuels entirely needs a different fund from a client who is comfortable with a manager that will hold an oil company provided they believe the transition plan is credible. A client who is drawn to the idea of investing in companies actively solving problems like clean energy, healthcare access, financial inclusion needs a different fund again.
The question worth asking when recommending any responsible investment strategy is not just “Does this have an ESG label?” It is: what does this manager actually do, what do they exclude and why, how do they engage, and what is their theory of change? Those questions do not have universal right answers. But increasingly, your clients will care more about not only the advisor who can articulate investment returns, but also the sustainability of those returns.
Join the Conversation
On 6 July 2026, Fossil Free SA is hosting a free FPI CPD-accredited webinar — Responsible Investing and Investment Merit – that brings these questions into the room.
Guest speaker Siobhan Cleary, Head of Sustainability at Baillie Gifford and the JSE, will be joined by a panel including Leila Joseph, ESG Analyst at Coronation Fund Managers, and Brett Wallington, Founder and CEO of Paragon Impact. The webinar runs from 10:00 SAST via Zoom.
Register at https://tinyurl.com/responsibleinvesting.
- Sam Bovim is a Sustainable Investment Analyst at Fossil Free South Africa.
