Sustainable Finance Practices In South African Retirement Funds (2020)
From January to August 2020, South Africa’s Financial Sector Conduct Authority (FSCA) and IFC collaborated to survey how well South Africa’s retirement industry is positioned to unlock significant investment opportunities in the new global trend towards green and climate finance – which represents around $588 billion in investment needs in South Africa alone up to 2030, according to IFC research.
The survey, SUSTAINABLE FINANCE PRACTICES IN SOUTH AFRICAN RETIREMENT FUNDS, also captured progress by South African retirement funds in adopting responsible investing practices in line with Regulation 28 of the Pension Funds Act, 1956 (‘PFA’), and Guidance Notice 1 of 2019.
Despite the challenges of COVID-19, 140 funds responded to the survey, representing roughly 74% of the total assets under management and 28% of total retirement funds in the South African retirement industry. The results signal a pivotal moment for South Africa’s retirement funds to take a leading role on sustainable finance in South Africa.
The report is an initiative of IFC’s Green Bond Market Development Program in partnership with the Swiss State Secretariat for Economic Affairs (SECO) and Swedish International Development Cooperation Agency (Sida).
Banking Association South Africa (BASA) – Sustainable Finance Principles
BASA has established a Sustainable Finance Committee to promote understanding and best practice nationally within the sector. Amongst other initiatives, the Sustainable Finance Committee has developed Principles for managing Environmental and Social Risk. The Principles recognise the role that financial institutions can play in the protection, promotion and fulfilment of social, economic and environmental rights in South Africa by conducting and reporting on their operations, business, lending and investing practices in a sustainable manner. As responsible corporate citizens, BASA members commit themselves to these Principles.
ESG considerations in Regulation 28 of the South African Pension Funds Act
The Code for Responsible Investing in South Africa (CRISA)
Launched in July 2011, the Code for Responsible Investing in South Africa (CRISA) consists of 5 principles that provide guidance on how the institutional investor should execute investment analysis and investment activities with a view to promoting sound governance. The effective date for reporting on the application of the code was 1 February 2012. Principle 1 requires institutional investors to develop policies on how they incorporate sustainability considerations, including environmental, social and governance (ESG) aspects, into investment analysis and activities. Institutional investors should ensure that this policy is implemented and establish processes to monitor compliance with the policy. Through the Code, South Africa became the second country after the UK to formally encourage institutional investors to integrate into their investment decisions sustainability issues such as environmental, social and governance (ESG). The Code is endorsed by the Institute of Directors in Southern Africa, Batseta, the Association for Savings and Investment South Africa, the Financial Services Board and the Johannesburg Stock Exchange.
Sustainable Returns for Pensions and Society
Johannesburg Stock Exchange – JSE Responsible Investing Series
The JSE was the first emerging market stock exchange to form a Socially Responsible Investment Index (SRI Index) in 2004. In June 2015, JSE partnered with FTSE Russell, the global index provider, to progress the JSE’s work in promoting corporate sustainability practices over the last decade. The JSE has adopted the FTSE ESG Ratings process to create the following two indices, launched on 12 October 2015:
- The FTSE/JSE Responsible Investment Index: A market-cap weighted index calculated on an end of day basis – benchmark; Comprises all eligible companies who achieve a FTSE ESG rating of 2.0 or above.
- The FTSE/JSE Responsible Investment Top 30 Index: An equally weighted index calculated on a real time basis – tradable; Comprises the Top 30 companies ranked by FTSE ESG Rating.