Episode Transcript
Keesa Schreane: Welcome to the Refinitiv Sustainability Perspectives Podcast. This is Keesa Schreane. We're hearing the valid rationale that it's not as feasible for smaller economies or developing economies to make the same climate changes at the same pace as developed countries because they may not have the resources and the historical advantages that developed markets have. Many sustainability and ESG stakeholders say that support is needed in this area. Today South Africa stands to benefit from about $8.5Billion over the next three to five years in partnership with countries regions such as the UK, USA and the EU. There's a lot to dig into around partnerships in general and around some of the activities happening in South Africa, so today we'll speak with South African business leader Jonathan Oppenheimer, Executive Chairman of Oppenheimer Generations, to get his feedback on partnerships and opportunities, as well as risks in the region. Jonathan's career includes N.M. Rothschild and Sons, as well as De Beers, where he held a number of senior management roles in southern Africa and London, and where his family has quite a legacy. And we're going to get into that. He's currently also on the board of trustees of the Carnegie Endowment for International Peace, an organization focusing on advancing the cause of peace through its global network of policy research centers. Jonathan, welcome to the podcast.
Johnathan Oppenheimer: Thank you Keesa, it's great to see you and sort of great to carry on the conversation from last time.
Keesa Schreane: Exactly. And you know what, you and I, we grabbed coffee I guess a couple of months ago now and you mentioned talking about your family's work, the successes, the failures, and that can be quite a challenging conversation, to say the least.
Johnathan Oppenheimer: It was.
Keesa Schreane: It was! One thing you shared with me is that you tend to meet those conversations head on. And so, you know, I know that a lot of our listeners are probably thinking some of the same things that your other counterparts and those you've been engaged with have thought about wanting to ask about. So why don't we just talk initially about what your family's work consisted of in the past and how that impacts the work that you're doing today?
Johnathan Oppenheimer: Absolutely, and I’ll try and keep it as short as possible. You're inviting me to talk for about three hours and I know you don't want that! So, the reality of it is my great grandfather started our business, or really founded Anglo American in 1917, and that was a big mining company, which then became a diversified conglomerate in South Africa and across southern Africa and then globally. We were heavily involved in that, operated that until my grandfather really retired in the mid-80s and then my father was involved, but not as chairman, but just as a senior executive. And come 2000, we really were beginning to realise that as family, we like being operators and we were no longer operators. So, my father led the take private of De Beers, the diamond mining company. We did that in partnership with Anglo American. And from 2001 til 2012, the family ran De Beers and I think it was a truly extraordinary time. Sold it in 2012, back to Anglo American and post-2012 has really been the next chapter of the Oppenheimer family's life. And that's been focused on trying to create businesses that are generational in nature, sustainable in nature and make a meaningful and permanent contribution to the people we work with. And that's been thematic of the family's approach to business for as long as I can remember and as long as I understand our family history.
Keesa Schreane: So let's talk about the 'S' if we look at ESG, the social component, and I know that many times if you look at the diamond industry overall, that's something that a lot of people point to. And some of the issues there. So, let's start with that. First of all, I'd like to get your thoughts just on the 'S' in general as it relates to that industry. if you've seen changes? And then switching gears, want to get your thoughts about how we can inject capital specifically in the region and in South Africa, the best way to inject capital as it relates to a sustainable society, whether that be microfinance or whether it be looking at alternative sectors? What are your thoughts around your area of expertise in your particular industry and then other ways, meaningful ways to inject capital into society there?
Johnathan Oppenheimer: So firstly, just for clarity sake. As a family, we were out of the mining business since 2012, so no longer have any exposure to the extractive businesses. However, the thematic of the 'S', as you call it, society, actually, I can trace way back to before the Second World War, when the family were involved in the development of the Copperbelt, and my great grandfather said something which was truly interesting. If you're going to be involved in "business" and I put big, inverted commas around it forever, you need to think about educating your workforce. You need to think about the wellbeing of your workforce. You need to think about the community you draw that workforce from. You need to think about the ecology of the environment you're in because the last thing you want to do is poison your groundwater and then have to spend huge amounts of money cleaning it to feed your people. And so, the longer the time horizon of a business, the more thoughtful that business is about integrating into the environment it's in. If I trade with you for 30 seconds and I never need to see you again in my life, I can rip you off, if we're going to have a marriage of 20 years, I can't afford to piss you off. I mean, Keesa, you and I can have a conversation and if I never see you again, you can hate me for the rest of my life. But if I want to see you again every day for the next 10 years, we're going to have to be honest with each other. And I think that's something that is often lost. The longer the time horizon of the business, the more engaged it is in the environment it operates. If it intends to be there forever, if it's a short term, in and out game, different story. And I think for me, it was most typified in 1954, my great grandfather said, so think about that, that's sixty eight years ago, nearly 70 years ago and only how long ESG is now, the conversation, maybe the last five or 10 years, he said, 'we're here to make a profit. If you don't make a profit, you don't survive. So, we're here to make a profit. But in such a way as to benefit the peoples and communities with whom we operate. That was in 1954, and that was simply the verbalization, the codification of something that we'd started doing in the 1920s. So ESG, to me is not something that's new, it's something that's very much an integral and essential part of any business's DNA. Or rather, I should say any business that intends to be in around for the long term’s DNA.
Keesa Schreane: And I love the thought of that, a business's DNA. It seems very interconnected. So, we have the economic aspect. We also have the social aspect, the human capital aspect that seems those are the conversations that you all had as business leaders.
Johnathan Oppenheimer: And the environmental aspect, if I can interrupt.
Keesa Schreane: And the environmental aspects, absolutely. And just the interrelatedness of those. And I'm wondering if we look at those types of relationships and then mirror that against the relationships that businesses have with other entities, like not for profits, like an endowment, foundations, even government. What types of partnership successes have you seen in terms of your work in the endowment, not for profit sector and in terms of what's going on in South Africa that you've been a part of in terms of those partnerships, what does success look like and what should the aspiration be for the region?
Johnathan Oppenheimer: I see it in two separate parts. The first part is where have we focused in our own philanthropic activities as a family and as an institution. And then secondly, where other institutions have prospered. And in the first instance, we believe that the giving of money without the ambition of an economic return is best focused at catalysing change. So, if you can imagine a journey towards a more sustainable position, you can catalyse that change by basically being a social VC fund. And that's how I see philanthropic money. It needs to go into catalyse behavioural change, catalyse technology change to move to a greener economy, catalyse to engage people in an educational process. Whatever it happens to be, it needs to be catalytic. There are philanthropic institutions out there that have done extraordinarily good work, but where they have funded and continue to fund activities. And there I'm always a little wary from my own personal perspective because the institution that they support is then dependent on the generosity of the founder. There is no permanence in it, and you'll see the theme in my, everything I talk about is about permanence, it's about longevity. It's about generational success and impact.
Keesa Schreane: And what about the government's role, I mean, I know that we're talking about philanthropy and we're talking about business and working together. Do they in your mind have a role here? And if so, what would that be?
Johnathan Oppenheimer: So I think government has a huge role to play, but it sometimes confuses its role. Government's role is to frame the environment it wants the nation to develop it. It needs to frame how you treat your people. It needs to frame how you treat the environment. And then it needs to create the space by framing those as outcomes, not as a series of tight regulations that say, you go to your office by walking three steps forward and then two to the left and then three to the right and then three forward and two back and then once to the right, if they are as prescriptive as that, then there's no space for innovation, there's no space for catalytic change. There's no space to make the green economy infinitely more competitive than the dirty economy. And so, government's role is in setting how you should treat people, how you should look after and husband the environment and then create the space for business to innovate inside the box. And it is a vital role. It's a critical role. It's a role that I think governments miss more often than not, when politicians start thinking that they can influence the very short term by dictating X or Y, then we have a problem. And I think the polarization that we are seeing around the world, whether it's in the US, whether it's in Europe or even here between just call it, the polarization of politics, is at its core about a shorter- and shorter-term prescriptive path, rather than finding common unity in society about aiming at a long-term goal.
Keesa Schreane: How successful do you think that the South African region, specifically the business sector, how successful have they been so far at taking this long-term view that you propose?
Johnathan Oppenheimer: I think that, it would be wonderful if business was homogeneous. You could say the business has been successful or business has been unsuccessful. There are businesses across the world and there are many here in South Africa that are the unsung heroes that are generational in nature and have extraordinary relationships with their communities where they are making enormous contributions to the wellbeing of hundreds of thousands of people. And then there are other businesses that are much more short term in their outlook, much more usury and are doing extraordinary harm. And I think it is an investor's job to look at those and make that judgment call. Do I pursue super returns through an exploitative business opportunity, or do I pursue good returns for a very long time through a sustainable, contributing business?
Keesa Schreane: And to ask you to put on your investing hat, to put on your hat in the endowment. Are there specific sectors or areas in your region that you found to be most compelling to really, again, have that long term theme that you would say, now this is where the opportunity lies?
Johnathan Oppenheimer: So it's funny that you ask it because this is a debate I was having with some of my senior leaders literally yesterday and we were talking about, is Nigeria a good investment destination? And the answer is Nigeria's complicated. There are pockets within Nigeria that are great investment opportunities. We just as a family got ourselves into a position where we have a business in Nigeria, which we control, and it's super exciting. There's great growth opportunity and we're convinced we can take this business to a position where it is competitive in Nigeria, competitive in Africa and absolutely competitive in the world, and we're really excited by it. In the same breath, if you offered me an opportunity personally and to invest in oil and gas in Nigeria, I would be quite reticent.
Keesa Schreane: So it sounds like opportunities on one end, but then to be very mindful of where the challenges might be is probably the best investment opportunity there is.
Johnathan Oppenheimer: And to not think of it as geographic. You have to think about it in an integrated, holistic approach. So, the business we own is in light goods manufacturing, light goods manufacturing, serving a 200 million people market, 200 plus million people market, great opportunity. Oil and gas with excessive government oversight and rent seeking against it in a very concentrated form, not such a good opportunity. And they both occur in the same geography, which is Nigeria.
Keesa Schreane: So if we think about that and I love that, we can look at it that way. Let's not think about geography, but let's think a little broader than that. What are some of the primary differences between how the region, South Africa region, needs to approach climate and social change? Should we all be looking at that from the same, Is it really, we all need to do the same thing. We all need to be reading from the same hymn book? Or are there differences in South Africa? Do you think that there are some key differences in the way they should approach it, as opposed to simply looking to the U.N. or looking to one global authority to approach it?
Johnathan Oppenheimer: Let me throw a little quick stat at you, which is quite interesting a sort of medium industrialized country, the sort of rule of thumb that I've always been taught by all the experts I talked to is a thousand megawatts of power per million people is the necessary amount of power to support a middle income country. In Africa we have, so South Africa is at about 500 megawatts per million people right now. Actually, with the power crisis we've got right now, we're lower than that, but we have installed capacity roughly 1000 megawatts per million people. We've got 40 odd thousand megawatts of installed capacity and we've got a population of 55 million people. If you go to Nigeria, they've got a population of 200, 210 million people. And I stand under correction, but they have less than ten thousand megawatts of installed capacity. So, you're looking at five megawatts of power per million people. That's pretty much non-existent power for the vast majority of Nigerians. So, if you start talking about uplifting the economy, you need to produce more power. There's a great opportunity in this and there's a great risk. There's a great risk because it's expensive, but there's this great opportunity if we can reduce the cost to leapfrog Africa ahead of the rest of the world by basically missing the carbon creation of energy, we can go straight to green. But we need to reduce the capital cost of green dramatically to do that, whether it's solar, whether it's wind, what other renewable energies are out there, hydrogen, we need to leapfrog generationally to the equivalent of 5G from landlines because that's the opportunity that Africa has because we just don't have the infrastructure. But it does mean, and it goes back to the point that you touched on really at the beginning of the conversation, it does go back to this very essence of releasing capital to Africa and getting a return for that capital because capital, sadly, unless it's philanthropic or donor money, which is concessionary, demands a return. So how do we get to a position where the capital that is flowing to Africa achieves a necessary return that from a risk adjusted perspective, people want to send it to Africa? You can't force capital to go anywhere. It's a coward. You have to entice it, and we need to find the right way to entice capital to Africa and entice it against doing the right things. Green energy, socially responsible programs which look after our people, creating the opportunity for our people in the continent, in South Africa, here across the whole continent to feel that their lives are getting better, and they need to be getting better.
Keesa Schreane: What else can we do to entice capital, i.e. entice the owners of capital of assets? Isn't the message already clear? What else can we possibly say that we haven't said before to entice capital?
Johnathan Oppenheimer: It's not so much what's said. It's what's done. So, I have an investment vehicle. I'll share this with your listeners. I have an investment vehicle here in South Africa where we want to invest permanently in businesses in Africa. And in the last five years, we've deployed about $500 million, which is real money. Our team who do the scanning for investments has looked at over 500 transactions. And our return on capital, because we're obsessed with compounding and operational yield rather than balance sheet growth is relatively low compared to our peer group. We've looked at five hundred investments. We found 10 that meet our financial criteria. That's scary, and that means that people are overvaluing the balance sheets. They aren't truly looking at the intrinsic value that is created in the P&L or the income statement that you guys would call it in the States. And it's really, really important to think about businesses that are sustainable in their operations, not in how a PE firm chooses to value them. And the more you can build these businesses that produce goods and services and service this exciting growing population, which is going from what, 1.1 billion people today to 2.2 /2.3 billion by 2050, an urban population which is going from four hundred and fifty million people to 1.2 billion people by 2050. If you can service them and give them goods and services which make their lives better, then by definition, you will have great, extremely profitable, sustainable businesses that meet the social criterias. The piece that we need to really now so focusing on is make sure that they also meet the ecological requirements of not doing harm to the world.
Keesa Schreane: So looking at things from a long-term perspective, which would include looking at sustainable operations and really seeing the interconnectedness between climate, environment, governance, which we talked a bit about
Johnathan Oppenheimer: 100%
Keesa Schreane: Yep, as well as our impacts of how we run our businesses on the environment. Jonathan Oppenheimer, such a great conversation. As always, thank you so much for joining us.
Johnathan Oppenheimer: Coffee next time I'm in New York.
Keesa Schreane: Ok. Coffee on you. Next time me.
Johnathan Oppenheimer: On me!
Keesa Schreane: Thank you.
Johnathan Oppenheimer: Thanks so much.
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