Prioritising a transformative and sustainable investment approach in South Africa’s pension and retirement fund industry

The South African retirement sector is undergoing a significant evolution, marked by the increasing integration of Environmental, Social, and Governance (ESG) principles in investment strategies. Traditional financial returns remain a core objective, but the focus has broadened to include sustainable and socially impactful outcomes. This evolution is not only a response to global trends but also a proactive measure aimed at addressing South Africa’s unique socioeconomic challenges. One example of this shift is the Nedgroup Investments Multi-Managed Future Focus Equity Fund, a bold initiative that combines the pursuit of long-term capital growth with a strong commitment to sustainability. This fund exemplifies how responsible investing can contribute to South Africa’s long-term prosperity while aligning with the United Nations Sustainable Development Goals (SDGs).

Global trends and South Africa’s unique opportunity

As the global geopolitical landscape evolves, there is a noticeable trend among some of the world’s most influential regions and companies reducing their focus on responsible investing, Sustainable Development Goals (SDGs), and gender-based initiatives. In contrast, South Africa stands at a critical juncture where its pension and retirement funds have a unique opportunity to drive change and continue to promote ESG integration. While the global trend seems to pivot away from these principles in some regions, South African funds have an even greater responsibility to champion ESG and gender equity, areas where the country faces pressing challenges.

The role of the Nedgroup Investments Multi-Managed Future Focus Equity Fund

The Nedgroup Investments Multi-Managed Future Focus Equity Fund not only responds to these challenges but also leads the way in demonstrating that responsible investing is not just ethically sound but financially prudent. Despite recent shifts in the focus on ESG and SDG principles in various markets, this fund underscores the importance of maintaining a commitment to transformation and responsible investing. The evolving economic and political landscapes in some areas have seen a reduction in emphasis on ESG factors, with certain regions rolling back climate-related regulations and weakening policies aimed at fostering social equity. However, the empirical evidence remains clear: responsible investing continues to deliver robust financial returns and long-term benefits, proving that integrating ESG principles is a strategic choice for enduring retirement fund success.

Why incorporating ESG in equity investing makes sense

Integrating ESG factors into investment strategies isn’t just about feeling good, it’s smart investing. Over time, studies have shown that companies committed to strong ESG practices tend to outperform their competitors. They are better at managing risks, bouncing back from economic setbacks, and keeping clients happy. So, even though some parts of the world are dialling back on sustainable practices, the global market still recognises their importance. According to the Global Sustainable Investment Alliance (GSIA), over $35 trillion is now invested in sustainable assets worldwide, and the number continues to increase.

A unique opportunity for South Africa

While some countries may be stepping away from incorporating ESG principles, South Africa cannot afford to. The nation’s unique socio-economic challenges, such as extreme inequality, high unemployment, and environmental issues, make it imperative to keep championing sustainable and equitable solutions. South African pension and retirement funds, like the Nedgroup Investments Multi-Managed Future Focus Equity Fund, are impactful and can make a real difference. The fund’s investment philosophy to deliver market-beating returns while prioritising transformation and responsible investing can drive meaningful change that benefits not just investors, but the entire country.

Addressing social inequalities and gender equity

South Africa remains one of the most unequal societies in the world, with the Gini coefficient ranking it among the top countries for income inequality. According to the World Bank, South Africa’s Gini coefficient stood at 0.63 in 2020, a clear indication of the disparity between the rich and the poor. Simultaneously, the country faces the urgent need for transformation, including gender equity within the investment industry.

As of 2022, the South African Institute of Race Relations (SAIRR) reported that the unemployment rate for women was over 40%, compared to approximately 35% for men. In this context, pension funds and retirement funds that focus on ESG and gender equity can contribute significantly to addressing these challenges. By prioritising investments in companies and asset managers that embrace diversity, gender equality, and social transformation, South African funds can play a pivotal role and bridge the gap. This is why the Nedgroup Investments Multi-Manager team has partnered with three black-owned asset managers with diverse boards and investment teams to manage the Multi-Managed Future Focus Equity Fund.

The role of pension fund trustees and investment committees

As South Africa faces ongoing challenges related to climate change, income inequality, and governance transparency, funds that prioritise ESG principles help mitigate these risks and align financial returns with national development goals. The role of pension fund trustees and investment committee members in South Africa plays a critical role in shaping the future of the country’s retirement sector. Given the strong empirical evidence supporting the financial and social benefits of ESG investing, it is essential that trustees and committees continue to embrace these principles. The importance of aligning investments with the SDGs and ensuring that retirement funds contribute to the transformation of the South African economy cannot be overstated.

Here are some reasons why pension fund trustees should prioritise funds like the Nedgroup Investments Multi-Managed Future Focus Equity Fund:

1. Long-term financial returns: As shown in global and local studies, funds that integrate ESG factors into their investment processes tend to outperform their peers in the long-term, providing strong returns for retirees.

2. Social and economic transformation: By investing in companies committed to transformation, gender equity, and sustainability, trustees can play an active role in shaping a more equitable and inclusive South Africa. This is in line with the national goals outlined in the National Development Plan (NDP).

3. Risk management: The world is changing rapidly, and geopolitical instability, environmental challenges, and social unrest present significant risks. Funds that prioritise ESG in their investment processes are better positioned to navigate these risks and provide stability for retirement portfolios.

4. Regulatory compliance and accountability: The South African government has placed increasing emphasis on responsible investing through initiatives like the Code for Responsible Investing in South Africa (CRISA). Pension funds that adopt ESG principles within their investment process are better positioned to meet regulatory requirements and demonstrate accountability to their stakeholders.

Conclusion

As South Africa navigates its economic challenges and opportunities, the focus on responsible investing is more critical than ever. The Nedgroup Investments Multi-Managed Future Focus Equity Fund is a leading example of how South African pension and retirement funds can contribute to both financial growth and social change. By prioritising ESG integration, gender equity, and sustainability, this fund aligns with both global trends and the unique needs of the South African context. While some global markets may be retreating from ESG principles, South Africa’s pension funds have an essential role to play in fostering a more sustainable, equitable, and resilient society. For trustees and investment committees, investing in funds that have ESG engraved in their process is not just a sound financial decision, but a strategic choice that contributes to the long-term success and well-being of the country’s economy and its citizens.