The Responsible Investment and Ownership Guide

A tool for integrating ESG into the investment process
This guide supports South African retirement funds with the integration of ESG considerations into their investment processes. It provides guidance on the development of the policies, procedures and protocols necessary to meet the requirements of best practice, including those set out in Regulation 28 of the Pension Fund Act 

What do we mean by ESG integrated investment?

There is no single agreed definition, but generally, Sustainable, Responsible and ESG-integrated investment (terms that generally can be used interchangeably) is commonly understood to mean:

The integration of environmental, social and corporate governance (ESG) considerations (and other relevant long-term economic risks and opportunities) into investment management processes and ownership practices, in the belief that these factors can impact financial performance.

The 'Why', the 'What' and the 'How' of
RI and ESG integration and the content of this guide.

WHY do we need to do this?
HOW can we implement this?
WHAT outcomes can we expect?

If you are new to this topic,  start here.

You will find answers to a series of commonly asked questions about ESG and Responsible Investment practices for pension funds.

This covers some of the most common questions and concerns raised by pension funds in South Africa as they start the journey of ESG integration.

The RIO tool takes you through the steps that will help you develop the policies, procedures and protocols necessary to meet the regulatory obligations in relation to ESG integration.

The seven steps provide an overview of what is required and recommended and include sample checklists and templates to help you get started.

This section contains a more detailed discussion on ESG topics globally and within South Africa. 

ESG investment strategies and their application are discussed in detail.

Responsible Investing is considered in terms of the real-world outcomes and impacts we are looking to achieve.

How using this tool will help you

  • It will enable you to use ESG insights to help manage investment risks and returns over the long-term.
  • It will help you to engage with investee companies on ESG issues of particular concern.
  • It will allow you to exercise your voting rights conferred by share ownership when ESG issues of concern arise.
  • It will formalise your fund’s approach to ESG risk management through appropriate policies and service provider agreements.
  • It will enable you to collaborate with others to develop, share and promote ESG best practice.
  • It will allow you to incorporate ESG thinking into your fund’s strategic portfolio allocation.
  • It will provide you with the knowledge to incorporate long-term ESG related incentives into investment management agreements.
  • It will help your fund comply with the requirements of Regulation 28 and the FSCA Guidance Notice.

On which guidelines is the tool based ?

This tool is anchored in both national and international regulation and best practice.

It covers the requirements in Regulation 28 and the FSCA Guidance Notice On Sustainability Of Investments And Assets In The Context Of A Retirement Fund’s Investment Policy Statement and it incorporates the guidance provided under the Code for Responsible Investment (CRISA) which is further reinforced and complimented by the King (IV) Report on Corporate Governance for SA, 2016 and the Sector Supplement for Retirement Funds.

The tool has also drawn significantly on international practice and experience available from the global investor network Principles for Responsible Investing (PRI).

Isaac Ramputa

Batseta is enormously proud to present the updated version of the Responsible Investment and active Ownership (RIO) Guide, a practical tool to support the retirement fund investment industry to integrate ESG into the investment process.

Isaac Ramputa

Batseta is enormously proud to present the updated version of the Responsible Investment and active Ownership (RIO) Guide, a practical tool to support the retirement fund investment industry to integrate ESG into the investment process.

The Responsible Investment and Ownership – A Guide for Pension Funds in South Africa (the RIO Guide) was first published in September 2013 in response to the added requirement under Regulation 28 of the Pension Fund Act which requires pension funds to actively consider ESG factors in their investments. The RIO Guide was at the time produced under the project “Sustainable Returns for Pensions and Society” which was convened in 2011 by Batseta (formerly the Principal Officers Association of South Africa), IFC (International Finance Corporation), the Government Employees Pension Fund (GEPF), and the Association for Savings and Investment South Africa (ASISA), alongside a project working group comprised of an additional 15 stakeholder organisations from the South African pension fund investment industry . More about the history of the RIO Guide can be found here.

In June 2019, South Africa’s new Financial Sector Conduct Authority (FSCA) issued further regulatory guidelines to drive implementation of Responsible Investment by pension funds, namely Guidance Notice 1 of 2019: Sustainability of investments and assets in the context of a retirement fund’s investment policy statement.

With this updated version of the RIO Guide we have aimed to further empower South African retirement funds to comply with the Regulation, Guidance Notice and the voluntary Code for Responsible Investing in South Africa (CRISA) that calls for integration of environmental, social, and corporate governance (ESG) factors in pension fund investment decisions.

As a leading industry association, Batseta recognises that more than any other investor, retirement funds depend by their nature on a long-term investment horizon. There can be no doubt that we face real challenges in South Africa and globally and institutional investors also need to take account of these. The effect on the environment of a particular company needs to be considered when deciding whether or not to invest in that company. In addition, there is the company’s governance record and how the company affects society, whether in its employment practices or the effects of its operations on the communities that are close to it.

Without an ongoing sustainable base from which we operate, retirement funds will not be able to continue to deliver returns for their members, spouses and dependants.

A fund also needs to be able to do intelligent risk assessments – assessments that will take into account the monetary return on an investment as well as the feasibility of an ongoing success if a fund continues to invest in a certain way. For this reason, the RIO Guide continues to be a critical tool for the South African retirement investment industry; it empowers boards of Trustees to take responsibility for their investment choices by giving them means to be directly involved in shaping investment strategies that will support sustained economic growth and long-term returns for pensions and society.

The task team from IFC and Batseta gratefully acknowledge their debt to all concerned and extend their thanks and appreciation for the time, information and advice that has been contributed.

Batseta would like to extend a special thank you to IFC whom through funding from the Swiss Government’s State Secretariat for Economic Affairs (SECO) was able to provide financial and technical expertise for this updated guide to materialise.

Additional special thanks and acknowledgement goes to the invaluable contributions from the individuals from the institutions that supported the update of the RIO Guide through their participation in an Expert Review Panel (in alphabetical order):

  • ASISA Academy: Adrian Bertrand
  • Batsets Asset Owners Forum South Africa: Isaac Ramputa
  • Batseta Secretariat: Anne-Marie D’Alton
  • The Congress of South African Trade Unions (COSATU): Jan Mahlangu, Dusty Ngwane
  • CRISA working group: Corli le Roux
  • Eskom Pension and Provident Fund: Ndabezinhle Mkhize
  • Financial Services Conduct Authority, Olano Makhubela
  • Government Employees Pension Fund (GEPF): Nilesh Moodley
  • IFC: Cecilia Bjerborn Murai, Ben Gaffney, Louise Gardiner
  • Impact Investing South Africa National Task Force: Susan De Witt
  • Old Mutual Investment Group: Jon Duncan
  • Principles for Responsible Investing (PRI): Nicole Martens
  • Trustee Representation: Jolly Mokorosi, Independent Trustee and Principal Executive Officer

South Africa’s retirement fund industry is one of the largest in the world. The investment decisions of the country’s retirement funds have a direct and indirect bearing on pensioners, society and environment they will retire in.

Their size means that they have unprecedented power to champion and secure sustainable long-term returns by insisting on high standards of environmental care, social concern and better governance (ESG factors) in the assets in which they invest.

Olano Makhubela, FSCA

South Africa’s retirement fund industry is one of the largest in the world. The investment decisions of the country’s retirement funds have a direct and indirect bearing on pensioners, society and environment they will retire in. Their size means that they have unprecedented power to champion and secure sustainable long-term returns by insisting on high standards of environmental care, social concern and better governance (ESG factors) in the assets in which they invest.

It is important to remember that ESG factors are not about owning a few or certain assets in an effort to tick boxes in a sustainability checklist. Instead, the correct approach is to test every asset against these ESG factors as part of prudent risk management to identify and manage risk.

This places an enormous responsibility on trustees, who are tasked with overseeing our retirement savings and are under statutory duty to ensure that these savings are managed prudently, properly and for the benefit of members and pensioners. Our trustees, as representatives of the ultimate owners of the assets, need to take an active approach in ensuring that companies and projects they invest in uphold the highest standards of care in how they are managed, how they treat employees and the environment they operate in, including how companies approach social and critical issues like gender and racial inequality, as well as animal poaching.

To assist the industry, Regulation 28 of the Pension Funds Act and the FSCA Guidance Notice 1 of 2019 confirms and provides guidance on the regulatory requirement to consider the impact of ESG factors on the performance of all investments, especially over the long-term, across all asset classes. This is in line with global best practice and reflects the global and regional evidence of the impacts of climate change, social inequality and poor governance in organisations. As this guide shows, there is compelling evidence that ESG factors influence the financial performance of investments. These linkages are now becoming critical and will remain so in the future.

FSCA welcomes and supports this updated version of the RIO Guide as it provides guidance to all trustees on how to best consider and give effect to the regulatory requirements.

We should not (always) wait for compulsion or legislation to do the right things.

We acknowledge and thank the many institutions and individuals for their invaluable input to this updated version of the RIO Guide.