South Africa’s R5.8 trillion in retirement funds holds the potential to drive essential social change — but only if invested with a focus on sustainability, writes Teboho Makhabane, head of ESG and impact at Sanlam Investments.
Traditionally, impact investing has been closely tied to unlisted assets, such as private equity, infrastructure, and other alternatives, where companies can more freely implement solutions for environmental and social challenges. However, this focus has often excluded listed investments, which are commonly perceived as driven purely by financial returns, with sustainability treated as an afterthought.
This misconception presents a clear opportunity for retirement funds. By targeting listed companies that prioritise both profit and positive impact, asset managers can unlock significant potential in public markets. This requires a more intentional approach in evaluating businesses — recognising that impact investing doesn't compromise financial growth but adds a long-term value dimension.
Some fund managers may worry that incorporating impact might dilute financial performance, but the opposite is often true. In markets like South Africa, where addressing social and environmental issues is tied to long-term economic growth, aligning financial returns with impact can deliver dual benefits.
The key drivers of this transformation are pension funds. By leveraging their capital for investments that generate both financial returns and tangible socio-economic outcomes, pension funds can play a pivotal role in sustainable development. However, many remain hesitant due to perceived trade-offs between financial returns and impact.
To unlock local capital for Africa's sustainable development, pension funds must overcome these concerns and integrate impact fully into their strategies. In doing so, they can meet their fiduciary duties while driving the local development essential for the continent's future.
A balanced focus on financial and social returns
In today's investment landscape, sustainability is as crucial as financial performance. Impact investing not only secures long-term returns but also helps investors meet broader sustainability objectives. For example, the Sanlam Living Planet Fund, in partnership with WWF, achieves competitive returns while maintaining 50% lower carbon emissions than its benchmark.
Cerin Maduray, Finance Sector Specialist at WWF, affirms, "Responsible investing enhances both long-term financial performance and environmental and social outcomes."
Key highlights of the Sanlam Living Planet Fund
Social Impact: The fund goes beyond environmental factors to include social considerations, ensuring a holistic approach to sustainable investing.
Environmental efficiency: It maintains 50% lower carbon emissions than its benchmark.
Impact measurement: Tracks carbon emissions, water use, waste, and pollution.
It’s clear that impact investing doesn't require sacrificing financial performance. Instead, it encourages a balanced approach that aligns investments with long-term sustainable development goals, generating lasting value for investors and society alike.
Overcoming barriers to impact investing
While impact investing presents tremendous opportunities, significant challenges remain. The African Development Bank estimates Africa needs $118.2 billion to $145.5 billion annually to meet its climate goals. Sanlam’s ESG Barometer highlights several barriers:
- Data and Measurement: Inconsistent and unreliable ESG data complicates impact measurement. Solutions include better ESG tracking systems and collaboration with data providers.
- Expertise Gap: Many organisations lack impact investing expertise. Addressing this requires staff training and partnerships with experienced impact managers.
- Operational Alignment: Incorporating impact into existing operations is complex. Starting with small projects and scaling up gradually can ease the transition.
- Investment Opportunities: Finding large-scale impact investments can be challenging. Funds can collaborate with asset managers to create tailored products and diversify across asset classes.
Empowering local capital for Africa’s sustainable future
Asset managers are vital in driving the shift from traditional investing to a purpose-driven approach that incorporates ESG factors. While unlisted investments have dominated impact investing, listed markets hold untapped potential. Asset managers must bridge this gap to align financial growth with positive social and environmental outcomes.
By embracing purpose-driven ESG strategies, African retirement funds can unlock capital for transformative change, from climate resilience to job creation. The time to act is now.
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