The issues among those that fall under the ESG ambit are everyone’s concern, and this cannot be ignored, especially if we are to work towards building a better South Africa for all who live in it.
The Covid-19 pandemic has easily outstripped the previous global economic crises in its impact on the global economy, and on the livelihoods of millions of people worldwide. South Africa has its own set of fiscal and monetary issues which have confounded the impact of the crisis. A paradigm shift in the way we think, save and invest is needed if we are going to recover and build a sustainable and inclusive economy. If we don’t act, then what we see today, or worse, might be a snapshot of our future and the environment we retire to.
Alternative thinking (and action) required from pension funds
For long-term investors, of which pension funds are the quintessential example, sustainability is an important concern. Without a thriving, sustainable and inclusive economy, investors and asset owners will be hard-pressed to achieve their required returns over the long-term.
Investing for impact means investing in our real economy where capital is desperately needed to enable economic growth and to drive change at a grassroots level.
In past decades, simply by investing in traditional South African asset classes, there was no compelling reason for pension funds to look further afield, however, it’s time to think out of the box and to consider alternative investment strategies. Investors are also increasingly interested in the effects of their investments on people and the planet.
Impact investing has transformed from a mere concept a decade ago
It is now a formalised investment strategy and mandate throughout the investment industry. According to the Global Impact Investing Network (GIIN), impact investing has a current estimated market size of USD 715 billion. Impact investments are made with the intention to generate positive, measurable social and environmental impact alongside financial return.
An impact investing strategy offers a potentially powerful lever for retirement funds to diversify, spread their risk, and enhance returns all in a way that positively contributes to our struggling South African economy. It allows us to utilise the full mandate of Regulation 28, which allows up to 15% of assets under management to be allocated to unlisted “alternative” vehicles. Not only will mobilising just a small portion of institutional capital in South Africa have a ground-breaking effect on driving the UN’s Sustainable Development Goals (“SDGs”) and South Africa’s National Development Plan (“NDP”), but it will catalyse the impact investment industry in South Africa.
Successful impact investing has the potential to re-ignite the economy
Investing for developmental impact can drive sustainable returns and can help tackle the imbalances that characterise South Africa and can pave the way to change our story for the better. Despite South Africa’s economic hardship, inequality issues and very real unemployment and debt statistics, investing in the right assets can make a difference in the real economy and provide upliftment for all South Africans both in the short- and the long-term.
– Malcolm Fair