Promoting Sustainable Investing in South Africa’s $500 Billion Pension Fund Market and Beyond
Across the world, sustainable investing is becoming key to higher, more stable and responsible long-term returns. As a result, many pension fund managers are drawn to companies which follow sound environmental, social and corporate governance standards as a determinant of its capacity to generate and preserve value over the long term, while they shy away from riskier investments by those who fail to do so. While the South African pension industry has been at the forefront of global best practice in terms of sustainable investment regulatory policy, the concept is nascent in the rest of Africa due to a lack of information as to why and how environmental, social and corporate governance standards should be mainstreamed into their funds.
In response to this, over the past two years, IFC has worked with the Principal Officers Association of South Africa (POA) and engaged the South African retirement industry to create the “Responsible Investment and Ownership: A Guide for Pension Funds in South Africa.” Launched in September, a number of pension funds have already begun employing the recommendation laid out in the guidelines.
In South Africa, the pension fund industry’s combined assets under management amounts to $500 billion and they own approximately 40% of the assets on the Johannesburg Stock Exchange.
South Africa’s Minister of Finance Mr Pravin Gordhan said, “Their size means they have unprecedented power to secure sustainable longer-term returns by insisting on high standards of environmental care, social concern, and better governance in the assets in which they invest.”
The guide responds to groundbreaking new requirements for pension funds in South Africa and is aimed at chairs, trustees and principal officers of retirement funds who are new to the subject of responsible investment and require practical guidance to better assess and manage the environmental, social and governance risks, impacts and business opportunities that can affect the financial performance of investment portfolios in years to come.
Saleem Karimjee, IFC Country Manager for South Africa, said “These guidelines will prepare pension fund trustees to be informed and active owners of assets entrusted to them. IFC aims to lead by example, with investments in emerging markets governed by a Sustainability Framework and corporate governance standards that help us invest in the responsible companies with high potential for good outcomes.”
IFC is examining further possibilities to replicate this effort in Ghana, Kenya and Nigeria, where the total pension fund amounts to an additional $30 billion and is growing at over 30% per annum, and as far as Latin America. The project is an initiative of the Sustainable Returns for Pensions and Society project, a joint industry initiative started by IFC and the POA, that works closely with leading pension funds, government, organized labor, investment service providers and the UN-supported Principles for Responsible Investing. This Sustainable Returns project is made possible through funding from the government of Norway. For more information and to request a copy of the guide, please visit www.sustainablereturns.org.za.