ESG Topics

Key environmental, social and governance topics

Technology and innovation

Responsible investment predicates the need to eliminate ‘information asymmetry’ from investments for improving anti-fraud and anti-corruption efforts. The challenge from an investment monitoring perspective at the asset owner, is the ability to trust and to verify information across the value chain of its investments. Blockchain and artificial intelligence applications hold promise in positively impacting investment screening and monitoring by providing a tamper-proof record or e-mandate of transactions to highlight risk and liability more accurately.

Nilesh Moodley, ESG Manager, Government Employees Pension Fund 

Pensions as a form of social security represent a proxy for development – the promise of a livelihood beyond employment. In the African context, this development is hindered by many challenges, one of which is the establishment of strong institutions and good governance. By leveraging technology and innovative approaches, pension funds have the ability to improve governance and strengthen institutions within their value chains and increase the social dividend yield. 

There are a myriad of technologies that could provide solutions to governance issues in emerging markets. The most popular of these are financial technology (Fintech) based solutions which include blockchain, artificial intelligence (AI), machine learning and cloud computing. An industry-leader such as the Japanese Government Pension Investment Fund had initiated a research partnership to study the impact of AI on asset management to assess the potential enhancement of dynamic-factor analysis and scenario-based risk management at lower costs to the asset owner. The innovation in this case, is not purely the technology, but the ability to digitise policies, processes and procedures which are able to navigate organisational bureaucracy to increase efficiencies. While the intention is not to remove the human component of asset management but to integrate these into AI processes, the result was that a contractual policy was developed to link management fees with active return.

Responsible investment predicates the need to eliminate ‘information asymmetry’ from investments for improving anti-fraud and anti-corruption efforts. The challenge from an investment monitoring perspective at the asset owner, is the ability to trust and to verify information across the value chain of its investments.

Blockchain and artificial intelligence applications hold promise in positively impacting investment screening and monitoring by providing a tamper-proof record or e-mandate of transactions to highlight risk and liability more accurately.

These positive impacts include risk mitigation through the screening of investments for high-risk politically exposed people and using smart contracts to execute responsible investment mandates with transparency along the value chain. Ultimately this would result in higher levels of environmental, social and governance performance of pension funds, while lowering inherent risk of fraud and maladministration.

Knowledge is evolving and a distinctive core competency of the future would be the ability of pension funds to improve talent management and resource allocations to innovate and apply new technological models within their institutions to deliver responsible financial services for their members at lower costs and with higher financial and social dividends.

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