Responsible investing toolkit for retirement fund trustees
The majority of Southern African retirement funds will be well equipped to integrate environmental, social and corporate governance (ESG) factors into their investment decisions within the next two years. The required training programmes and practica
Wanjiru Kirima, chairperson of the Principal Officers Association (POA) as well as the Sustainable Returns Steering Committee, says the new Regulation 28 and CRISA, both introduced last year, have expanded the fiduciary duty of retirement fund trustees significantly. This, she adds, requires a whole new set of competencies to help trustees properly implement the required ESG criteria.
To help trustees and principal officers achieve these competencies, the steering committee launched the Sustainable Returns Project, which Kirima describes as a collaborative effort by the entire investment industry to implement a world-class system by learning from each other and changing together.
Initiated by the POA, the project is run in partnership with the International Finance Corporation (IFC), a member of the World Bank Group, through the Sustainable Returns Steering Committee.
The project is supported by the Association for Savings and Investment South Africa (ASISA), the Government Employees Pension Fund (GEPF), National Treasury, the Financial Services Board (FSB), Institute of Retirement Funds (IRF), trade unions and a number of other stakeholders.
“This project is about highlighting for trustees the importance of integrating ESG issues into investment processes and to help them understand the systemic risks these issues pose over the long term for the value of the investment portfolios entrusted to them. Once trustees appreciate this, we will provide them with the tools needed to develop investment mandates that will allow their asset managers to apply responsible and sustainable investment practices.”
She adds that ultimately this project will empower institutional money to positively influence environmental, social and corporate sustainability by forcing responsible investment decisions.
Kirima says only once all retirement funds, as the biggest asset owners, fully appreciate the importance of responsible investing can an initiative like CRISA truly come into effect.
“Investment managers are bound by the investment mandates given to them by asset owners like retirement funds. Only once these mandates change to include ESG issues, can investment managers fully implement CRISA.”
“Currently we have a situation whereby our big retirement funds like the GEPF and Eskom have put in place systems that enable them to successfully integrate ESG requirements into their investment mandates and to then monitor the implementation and measure the outcomes. But the same is not true for many of the other retirement funds.”
Kirima says rather than wait for each and every retirement fund to reinvent the wheel and to come up with their own systems, the Sustainable Returns Committee, which has industry wide representation, will ensure that international best practice is followed right from the start and that a comparative system is implemented for all Southern African retirement funds.
“IFC is our technical partner. As the largest global financial institution investing in private enterprises in emerging markets, IFC through expert consultants is helping us develop world-class tools that are relevant to Southern Africa. At the same time the large retirement funds represented on our steering committee are sharing with this project their learnings and the systems currently being applied by their principal officers and trustees to implement ESG issues. National Treasury and the FSB are guiding this project to ensure the tools and training are achieving the regulatory goals.”
The two-year project consists of four phases, which will cover among other aspects the analysis of current investment practices within the retirement and pension fund industry in Southern Africa as well as the development and introduction of tools, templates and training.
