What are examples of E, S and G factors that influence Pension Investments

Although environmental, social and governance issues are often grouped under three separate headings, in reality they are closely connected and interdependent. Good governance provides the basis for managing environmental and social issues; and environmental problems can lead to social issues, and vice versa.  

There is no universal standard list of ESG issues that must be considered in RI. Different investors may prioritise different issues in their RI policies and may use different criteria and methodologies for incorporating ESG factors into the investment process.

The examples provided below are indicative and do not constitute an exhaustive list. 

See further Section ESG Topics of this tool for more details on ESG trends and topics globally and in South Africa.

 

Example of global environmental factors and their impacts may, for example include resource availability, disruption or damage to supply chains, or damage to property and assets as a result of severe weather (droughts, floods, storms, change of sea and water levels) deforestation, waste and pollution, etc.

They may also relate to transition risks that stem from the much wider set of changes in policy, law, markets, technology, investor sentiment and prices due to the transition towards a low-carbon economy. 

Transition risks may therefore materialise in the repricing of carbon-intensive assets and reallocation of capital, adversely affecting asset owners and managers, including pension funds.

Social factors and their impacts relate to working conditions, including child labour; local communities; conflicts; health and safety issues (e.g. mining accidents, HIV/Aids); employee relations and diversity, discrimination in respect of employment and occupation, violations to freedom of association and the effective recognition of the right to collective bargaining, industrial actions (strikes), public health and pandemics, etc.

Governance factors and their impacts relate to executive pay, the respect of the rule of law, bribery and corruption, political lobbying and donations, board diversity and structure, tax strategy, cybersecurity, accounting frauds, etc.

Typical issues relating to listed equity companies include: board structure, size, diversity, skills and independence, executive pay, shareholder rights, stakeholder interaction, disclosure of information, business ethics, bribery and corruption, internal controls and risk management, and, in general, issues dealing with the relationship between a company’s management, its board, its shareholders and its other stakeholders.

In addition, governance issues regarding issuers can relate to anti-money laundering (AML) and combating the financing of terrorism (CFT) concerns.

graphic showing factors influencing environmental social governance for investment funds

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