Why sustainability matters to your fund

Sustainability is a buzzword across many sectors today – from farming to fashion. Around the world, there’s growing agreement that we need to change how we live and do business – for the sake of the planet and future generations.

So, how does this affect your fund’s investment strategy? In three main ways: risk, opportunity and impact.

In for the long haul

The purpose of a retirement fund is to grow members’ savings steadily over time, so they can receive a regular income and retire with dignity.

Because retirement funds invest for the long term, trustees can’t only focus on short-term returns. They must also consider long-term risks that could reduce the fund’s value.

Climate change, water shortages, poor labour practices and inequality all affect the broader economy. If your fund invests in companies that pollute, underpay workers or ignore human rights, those investments may lose value or face legal, reputational or financial consequences. This means lower returns – and smaller pensions for members. For example, if a fund invests in companies that are highly exposed to climate risk – such as those with a high carbon footprint or unsustainable land use – those assets may lose value as new environmental laws are introduced.

Regulation 28 of the Pension Funds Act already requires trustees to consider environmental, social and governance (ESG) factors when deciding how to invest members’ money. The aim is to encourage responsible, long-term decision-making.

Spot the opportunity

As the world shifts towards more sustainable ways of doing business, new investment opportunities are emerging. In South Africa, where we are slowly moving away from coal, there are growing opportunities to invest in renewable energy – including solar and wind farms, or even green hydrogen (a clean fuel made using renewable electricity and water).

These kinds of investments also help diversify the fund’s investment portfolio – meaning they spread the risk by adding different types of investments. Diversification is a smart way to protect members’ savings over time.

Be a catalyst for change

Retirement funds can help lead the shift to a more sustainable economy by embedding ESG principles into their investment policy. With their large pool of capital – the Government Employees Pension Fund alone manages more than R1.8 trillion – retirement funds have the power to influence how and where capital flows. By prioritising investments that make a positive impact – such as companies addressing food insecurity or education inequality – funds can help drive long-term change. Trustees can also hold companies accountable by voting at shareholder meetings and insisting on more ethical and responsible business practices.

“Pension fund boards, for example, can influence what types of investments are selected,” says Liezel Alsemgeest, acting director at the University of the Free State’s School of Financial Planning Law, in the JSE Magazine. “If the investment policy is designed to favour investments that promote climate change action, trustees can play a powerful role.”

In an ideal world, retirement funds aim to invest in assets that provide good returns and contribute to a more sustainable future. That world starts with the decisions trustees make today.

What can trustees do?

1. Invite an expert to brief the board on South Africa’s specific ESG challenges and how your fund can play a part in addressing them.
2. Ask your asset consultant about new opportunities linked to sustainability – from renewable energy and green job creation to community upliftment in mining areas.
3. When reviewing investments, ask: “Will this help or harm the world our members will retire into?”