Raquel Pichardo-Allison reports on the environmental, social and governance factors affecting South African pension funds
The new regulation 28 governing pension funds’ investment practices is bringing the issue of responsible investing to the fore in South Africa.
Speaking at the Principal Officers Association Winter Conference in Johannesburg in June, Andrew Canter, chief investment officer at sustainable investment manager Futuregrowth Asset Management called the regulations the “elephant in the room”.
The regulations, which went into effect on 1 July, say it is part of a fund’s fiduciary duty “to give appropriate consideration to any factor which may materially affect the sustainable long-term performance of the fund’s assets, including factors of an environmental, social and governance (ESG) character”.
It continues: “This concept applies to all assets and categories of assets and should promote the interests of a fund in a stable and transparent environment.”
ESG therefore, can no longer be ignored.
Dan Matjila, chief investment officer of the Public Investment Corporation, which manages the assets of the Government Employees Pension Fund (GEPF), South Africa’s largest scheme, said his firm places an emphasis on developmental investing (DI) – investments that are high impact and high returning.
He described the investments as a catalyst for economic growth. “If we do it well, we can really put this economy on steroids,” he said.
“If you look at SMEs (small-to medium-sized enterprises)... in South Africa they account for almost 91% of formal business, they contribute north of 50% of GDP and provide over 60% of employment. If you have those kinds of statistics, DI becomes a strategic asset allocation.” (See our interview with the GEPF investment head John Oliphant on page 18 to read more about their developmental investing programme.)
Sipho Sidu, principal officer of The Mines Provident Fund said the pension fund industry can do more to gear responsible investment to the benefit of the members.
“As principal officers, we do not spend time looking at what we do for our members. We can have this discussion at high level and talk about all the nice things that sort out the problems of the world. But there is very little that we do for our own members in this matter,” he said.
He said his ZAR19bn ($2.8bn) fund comprises members in mainly rural areas of South Africa, yet many of the responsible investment products they’ve invested in have benefited urban areas.
So you then sit back and ask the question, how does this...benefit my members when after 40 years, he has to retire and he still has to walk the same distance he walked before he went to sell his labour. I think it starts there. Once we can address this, once we can take control of the products offered in this industry...we could get some results,” he added.
However one attendee said trustees and principal officers should not restrict themselves to only investing for the betterment of their members.
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The Universities Superannuation Scheme (USS) allegedly obstructed a whistleblower as she tried to discover the true value of the deficit in its defined benefit (DB) section, according to reports.
The Cost Transparency Initiative (CTI) has launched a number of templates and guidance to help pension schemes deliver greater value for savers with enhanced disclosure of transaction cost information.