WATCH | Why we must balance social wellbeing against the imperatives of investment

In recent years a growing number of banks and investment firms globally have started to withdraw their support for businesses without plans to transition away from a reliance on non-renewable energy resources.

What is becoming increasingly apparent is that shareholder returns are no longer the only metric under consideration when shaping investment portfolios with environmental, social and governance (ESG) considerations gaining traction. Organisations have grown increasingly aware of their environmental and social responsibility.

However, while the influence of ESG in boardrooms is increasingly driving investment-based decisions, the question that needs to be asked is just how much weight ESG principles should carry.

A recent Business Day Dialogue, in association with the Konrad-Adenauer-Stiftung (KAS), debated the principles shaping investment attitudes that favour businesses with a commitment to environmental sustainability and social wellbeing, the knock-on effects for pension fund investments and how to balance the financial prosperity of pension funds in SA.

KAS, a German political party foundation that does diverse work globally, all underpinned by the principles of freedom, justice and solidarity, operates in more than 100 countries. KAS project manager Christoph Kleiber pointed out that ESG was becoming an increasingly important topic.

In the 1990s, SA was regarded as a global leader as far as corporate governance was concerned. This was primarily as a result of the publication of the King Report on Corporate Governance, published in 1994, which provided guidelines for the governance structures and operations of companies in SA.

Subsequent reports were issued in 2002 (King II), 2009 (King III) and 2016 (King IV). The reports are regarded as the most effective summary of the best international practices in corporate governance.

Pension funds adjudicator Muvhango Lukhaimane pointed out that pension funds in SA had traditionally been focused on governance but less so on environmental and social elements. From a governance perspective, their challenge is that trust in pension funds has been eroded amid accusations of mismanagement and corruption, with most still to incorporate social elements, she said.

Her office investigates complaints and issues determinations in terms of the Pension Funds Act. Its determinations are equivalent to civil judgments in courts of law.

The European Investment Bank was involved in ESG almost 20 years ago, noted Prof Ruth Taplin, editor of the Interdisciplinary Journal of Economics and Business Law. The journal is an open independent forum for expanding the boundaries of economics and business law, seeking solutions to global problems within the rule of law; while supporting academics, practising economists, business people and legal practitioners to find ethical solutions for solving economic, environmental and governance issues.

Explaining that green bonds had generated significant interest in Europe and the UK in recent years, she said asset managers now realised that they would not generate a return for shareholders if they continued to invest in fossil fuels, for example. “There is growing pressure on asset managers to make green investments,” she said.

Asset managers in SA can’t invest only in profitable companies but need to also ensure they are sustainable businesses that factor ESG into their operations, said Dr Neels Kilian, a member of the law faculty at North-West University. The sustainability report of a company needs to include all relevant information — and it’s a red flag if they don’t make full disclosure.

This article was paid for by the Konrad-Adenauer-Stiftung.