South African pensions body signs major ESG implementation agreement

Framework will help fund trustees build capacity to meet new regulations.

The South African pensions industry looks set to take a major step forward on ESG (environmental, social and governance) integration after one of its biggest trade associations signed an agreement with the International Finance Corporation (IFC) to work on implementing new sustainability regulation. The Principal Officers Association (POA) of South Africa represents 425 Principal Officers – the country’s pension fund managers – overseeing more than ZAR 2 trillion ($250bn) in assets for 6.2 million retirement fund members. Under the project with the IFC, part of the World Bank group, it will work to put together an ESG framework of local and international best practice for pension trustees to use in their response to amendments made in April this year to Regulation 28 of South Africa’s Pension Funds Act. A clause in the revised regulations on asset classes and investment limits said funds should ‘actively’ consider sustainability issues in their investment decisions. A voluntary Code for Responsible Investing in South Africa (CRISA) based on five principles of responsibility and corporate governance, and endorsed by the POA, was also launched in South Africa earlier this year as an investor version of the King III Code of Corporate Governance. The new POA/IFC framework will incorporate IFC’s own sustainability guidelines for private sector investment in emerging markets, including its approach to climate change issues and the integration of environmental and social issues into investment. It is alsobeing backed by the United Nations Principles for Responsible Investment. More than a dozen institutions covering investment practices in South Africa, Botswana and Namibia will lead the new initiative. They include the National Treasury of South Africa, the South African Government Employees Pension Fund, Financial Services Board and the Association for Savings and Investment South Africa.
The project is supported by funding from the Norwegian Government.
Wanjiru Kirima, Chairperson of the Principal Officers Association and of the new project steering committee, said: “Improving the environmental, social, and governance performance of businesses contributes to their financial resilience and profitability. Institutional investors have a key role to play in catalyzing innovation and investment, especially when it comes to climate change. This project is an innovative and practical step for the industry to help address the challenges that South Africa is facing while improving returns for pensions and society.”
South Africa currently has just two asset owner signatories to the UNPRI, the huge Government Employees Pension Fund of South Africa and the Eskom Pension and Provident Fund. There are 26 South African asset manager signatories.