Is my pension fund legally obligated to consider ESG risk?

If you are a South African pension fund, the answer is Yes.

Regulation 28 of the South African Pension Funds Act No. 24 of 1956, which came into effect in July 2011, states that a pension fund’s fiduciary duty “supports the adoption of a responsible investment approach to deploying capital into markets that will earn adequate risk adjusted returns”.

It also states that prudent investing should consider factors which may materially affect sustainable long-term performance of a fund’s assets “including factors of an environmental, social and governance character”.

The FSCA issued Guidance Notice 1 of 2019 “Sustainability of investments and assets in the context of a retirement fund’s investment policy statement” (The FSCA Guidance Notice). The Notice provides guidance to boards of funds on how the fund must comply with Regulation 28. In particular, how a fund’s investment philosophy and objectives, as reflected in its investment policy statement, seek to ensure the sustainability of its investments and assets.

The FSCA supports the Code for Responsible Investing in South Africa (CRISA) as a means of giving effect to Regulation 28.

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