Funds focus on impact investing and sustainability at conference

Shafeeq Abrahams, Chief Executive and Principal Officer at EPPF

Cecilia Bjerborn Murai, who unpacked the Responsible Investment and Ownership (RIO) Guide for delegates

Tapping into the most important topic of the decade, The Batseta Council of Retirement Funds for South Africa (Batseta) opted to focus its 2022 Winter Conference on sustainability and environmental, social and governance (ESG) considerations with the theme Responsive, Resilient, Responsible.

Not only in South Africa, but globally too, funds need to flex their collective muscles to ensure a sustainable future for all. As stewards of capital, retirement funds have a responsibility to future generations to invest sustainably while also building capital. Economic models are moving increasingly towards a green economy and investors and trustees need to understand the challenges and opportunities they face.

And holding some R3 trillion in assets at the end of 2021, retirement funds in South Africa can be a significant catalyst for impact investing in the country.

Creating value and improving the world

In her opening address, Caroline Henry, Chairman of the R175 billion Eskom Pension and Provident Fund (EPPF), stated that “Retirement savings are multi-generational by nature so it doesn't help to retire into a world of relative financial soundness yet your surroundings leave devastation for future generations in terms of lack of food security or energy security and environmental poverty. We need to change the mindset that investments into these asset classes should expect to reap suboptimal returns or excessive risk.”

Shafeeq Abrahams, Chief Executive and Principal Officer at EPPF, took delegates through the EPPF’s learnings of South Africa’s recent and not-so-recent past, the significant levels of inequality in the country and the need to build trust and confidence between fund members, staff, partners and society in general.

As a major player int the South African retirement fund landscape, the EPPF maintains a strategic initiative “to deliver decent investment returns for members whilst moving beyond investment risk and investment returns to include impact.” The fund is equally committed to effecting social transformation through its investment activities as it is to honouring its obligations to members in terms of investment returns.

The EPPF has found success in investing in high-impact infrastructural investments such as student accommodation, education and hospitals, retail property in townships and rural areas and renewable energy. The fund has also aimed to increase the talent pool in the country with supporting the growth of emerging managers.

Building a better future responsibly

Kenyan-based independent sustainable finance and infrastructure consultant and author of the International Finance Corporation’s (IFC) “Sustainable Investment in Sub-Saharan Africa” Cecilia Bjerborn Murai unpacked the Responsible Investment and Ownership (RIO) Guide for delegates. This guide aids South African retirement funds to integrate environmental, social and corporate governance (ESG) factors into their investment processes and is based on best practice in both South African and international regulations and standards.

“We need this guide,” explained Murai, “because we need a better investable environment. The investment horizon needs to shift from a focus on short-term results, to also consider the medium- to long-term outcomes and we should be looking at absolute value rather than relative value in order to build a better future.” Spearheaded by Batseta, the RIO Guide has been compiled and updated by a task team under guidance from the IFC.

Responsive: doing the right thing

Trustees and office bearers will need to take ESG considerations into account when making investment decisions and they will need to look at the risks and the opportunities which they present.

There are regulatory pressures as well as societal and possibly also pressure from members to use retirement fund assets as a force for change in South Africa. Funds will need to prepare and develop policies that incorporate ESG principles in their investment philosophies. At the same time, fund trustees will need to continue to manage the funds with due care and respect for their fiduciary duties, to ensure that market-related returns are achieved for the benefit of the members.

This will be a journey for many funds and trustees as it will need significant upfront and ongoing commitment. As Jan Mahlangu, Retirement Funds Coordinator at Cosatu, summed it up: “We can’t only tick boxes. We need to do the right thing.”