My fund is a smaller/retail/umbrella fund with a passive mandate how can I integrate ESG

South Africa has a highly fragmented pension fund sector and more than 3,000 funds have an AUM of less than R1billion (approx. USD 80m). This causes pension schemes to be comparatively small on average and to suffer from the governance and capacity constraints that many small schemes in other markets face.  

However this does not prevent the implementation of Responsible Investment strategies. Smaller schemes will need to look carefully at priorities, ensure that their service providers offer ESG-aligned products, and may also want to consider collaborative engagement as one of their strategies. 

It is important to ensure that asset managers have ESG capabilities, so that this option can be offered to members. This can be achieved by including ESG requirements in contractual agreements with managers.  

Collaboration with other investors can help small funds implement responsible investment activities, such as engaging investee companies to improve their behaviour. This is because collaboration reduces costs and man-hours while increasing the ability to influence investee companies. 

Case studies providing examples of RI and ESG integration strategies by smaller funds

A PRI report, Implementation of the PRI by small and resource constrained investors (2011) presented case studies that demonstrate how small and resource-constrained asset owner and investment manager signatories are implementing the Principles for Responsible Investment.

PRI defines small funds as those with US$ 2 billion or less in assets under management. A selection of the case studies is summarised below.

Ethos is an investment service provider created by two Swiss pension funds in 1997 to promote ESG issues in investment activities. Ethos now has 113 institutional investor members. In addition to organising engagements for the Ethos Engagement Pool (EEP), Ethos Services provides asset management and proxy voting services.

The pool represents 100 billion Swiss Francs (US$ 100 billion), about 20 per cent of total Swiss pension fund assets. Two-thirds of the members are private pension funds, while one-third are public pension funds. The majority of EEP members are small and do not have the resources to employ in-house engagement practitioners.

EEP allows pension funds to join forces and strengthen their engagement with investee companies while sharing engagement costs. EEP members have different amounts invested in Swiss equities. To ensure equal contributions, members pay 0.4 basis points of their Swiss equity ownership into the pool, with 2,500 Swiss Francs the minimum fee.

Engagements undertaken by Ethos on behalf of EEP members focus on the 100 largest Swiss listed companies. EEP members and Ethos meet annually to discuss the group’s strategy and decide which companies and engagement issues to focus on. At this meeting, members also make decisions on budget needs and allocation, and debate the progress of ongoing engagements. Rather than reacting to individual company incidents, engagements focus on larger, more systemic issues. Engagements are undertaken only if EEP is able to define an indicator of progress. All engagement themes are linked to a specific indicator in order to measure the impact of engagement efforts as they progress.

Key takeaways

When looking at the successes and challenges of Ethos and the EEP, here are some lessons on setting up a similar engagement platform:

  • Be proactive when selecting engagement themes and work on a targeted universe of companies, rather than being ad hoc and reactive. If there is too much ‘naming and shaming’ of one company, it will not be sustainable.
  • Be patient. Engagements can take a long time to achieve any progress. The EEP has worked on some themes for more than six years.
  • Size should not stop you from engaging and working with companies to improve their practices and disclosure.

Just Share is an example of collaborative engagement in South Africa

The PRI Clearing House is PRI’s platform for collaborative engagement

StatewideSuper is a small Australian superannuation fund (AUM: US$2.2 billion) with a large portion of its assets invested in pooled trusts and other collective investment vehicles. To ensure StatewideSuper could implement its ESG investment policy, it was important for the fund to select a majority of investment managers that are able and willing to integrate ESG issues into their investment process where applicable.

A part of this process was communicating ESG expectations to the investment consultancy that assists StatewideSuper with the search and selection of investment managers. StatewideSuper’s investment consultant contract came up for renewal, providing an opportunity for the fund to hire a consultancy that it could work with to include ESG issues in manager searches. This resulted in the following:

  • StatewideSuper’s investment consultants now include ESG criteria in all manager RFPs issued on its behalf.
  • The manager selection process culminated in engaging two PRI signatories to manage some of StatewideSuper’s Australian equities (although this was not a prerequisite).
  • The investment management agreements (IMAs) for the newly appointed managers include ESG clauses as follows:

    Consideration of Trustee’s ESG (environmental, social and governance) policy.
    The Trustee has adopted an ESG Investment Policy. A copy of this policy will be supplied to the manager on commencement of this Agreement and upon the Trustee amending the policy as it may do from time to time. The Manager must have regard to, and use its best endeavours to act consistently with, the Trustee’s ESG Investment Policy and the United Nations Principles for Responsible Investment (“UN PRI”) of which the Trustee is a signatory.

    ESG Reports
    The Trustee expects the Manager to assist it to meet its obligations under the UN PRI, which may include the provision of periodic reporting, research or information.”


The IMA also includes specific requirements for annual reporting on proxy voting.

Key takeaways

The following are key lessons learned from StatewideSuper’s experience:

  • Work with investment consultants to develop the services you need. Find key people within the firm that have an interest in what you want to do, relevant responsibilities, and a willingness to collaborate.
  • Perseverance is needed. Processes like this take time. Do not reinvent. Wherever possible, use existing guidelines and learn from peers.
  • AUM and staff size did not make a difference in the process outlined above. The process was run by one part-time employee who spends two days a week on responsible investment activities and one ESG consultant that works for StatewideSuper a few hours per month.


See further in section 5 of the tool for checklists and sample clauses for incorporation into Asset Manager Mandates.

Reporting is a task that many smaller pension funds may perceive as too time-consuming and a challenge to get started. However according to the Nathan Cummings Foundation (NCF) (USD 415m AUM), reporting does not need to be a cumbersome task.

The NCF used minimal resources to write its first standalone report on its active ownership activities, entitled “Changing Corporate Behavior through Shareholder Activism”.

Only two NCF staff members were involved in writing and editing the report: the Foundations’ President and its Director of Shareholder Activities. To fit the report in to the daily work routine, the writing was spread over a one-year period, with large chunks written one or two days at a time. The Foundation chose to make its own copies of the report and did not spend any additional money on printing.

It did, however, spend US$ 200 on proofreading and US$ 1,500 on graphic design. One person was able to give the final sign-off on the report, making the review process faster than for bigger, more complex organisations. Further, compliance sign-off was not needed.

Key takeaways

The Nathan Cummings Foundation’s experience shows that:

  • Small and resource-constrained funds should not feel intimidated by this process. In small organisations, work is concentrated in people and work areas. This is an advantage.
  • Identify your key audience before you start writing a report. This will help you decide on a structure and will help focus the narrative.
  • Existing work can be used when possible to reduce the overall effort required.
  • The internal review process and working through edits of reports can take a long time. Your timeline needs to leave plenty of room for this.

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