TEBOHO MAKHABANE: Retirement funds can help drive job creation and sustainable development

Impact investing has traditionally been associated with unlisted investments where private equity, infrastructure and other alternative assets dominate. In these areas, businesses often have more flexibility to drive deep, measurable impact on social issues — particularly to address the urgent need for job creation.

We have an opportunity to use the capital available responsibly, not only from a risk perspective but also moving the needle in important sectors for the country.

However, this trend has largely bypassed the listed investment portfolios. Public markets — such as those represented on the JSE — are often viewed as solely focusing on financial returns, with sustainability integration seen as an add-on, rather than a core driver of impact.

This presents an opportunity for investment funds to target listed companies that pursue impact alongside financial returns. For this to work, fund managers need to be deliberate in their assessment of these businesses, recognising that true impact investing doesn’t detract from proper valuation but adds an additional layer of long-term value creation.

The most important role players in this shift are pension funds. With their vast pools of capital, retirement funds have the potential to drive socioeconomic development by pushing for investments that deliver both financial returns and meaningful impact. However, many pension funds remain hesitant to embrace impact investing, often due to concerns about potential trade-offs between financial performance and impact.

Overcoming this reluctance is crucial if we are to unlock local capital for Africa’s sustainable development. By fully integrating impact into their investment strategies, pension funds can fulfil their fiduciary duties while contributing to the local development that is so vital for the future of our continent.

Focus on the bottom line — and grassroots impact

In today’s investment landscape, where sustainability and financial performance are almost equally scrutinised, there’s a critical case to be made for principle-led investing. When you invest with impact it helps protect the planet, while you earn returns that support reaching not only your financial objectives but also your sustainability goals.

The allure of these funds lies in diversification across industries and asset classes, as well as local and international markets. And it is crucial to clarify that impact investing does not ask fund managers to neglect financial performance. On the contrary, it encourages a balanced focus on both financial outcomes and measurable impact. By making this shift we can align investment portfolios with the broader goals of sustainable development, creating lasting value for investors and society alike.

African Development Bank reveals that financing remains a challenge for Africa, which needs $118.2bn-$145.5bn a year to implement the continent’s climate action commitments and nationally determined contributions. Despite the compelling opportunities presented by impact investing to meet these needs, investors face significant challenges in fully embracing this approach. However, these obstacles are not insurmountable.

Asset managers’ role in unlocking local capital 

Asset managers now pursue impact investing primarily through unlisted investments. However, since most assets are still concentrated in listed exchanges, asset managers play a critical role in shifting capital towards these impactful opportunities. By bridging the gap between retirement funds and these investments, they help align long-term financial growth with positive social and environmental outcomes.

We know African companies are adopting purpose-driven environmental, social and governance (ESG) strategies. Local retirement funds have an opportunity — and responsibility — to support this shift and drive sustainable development in their home countries.

For example, The Sanlam Living Planet Fund, in partnership with the World Wide Fund for Nature (WWF), shows this synergy in action; it continues to garner long-term competitive financial returns, while achieving 50% lower carbon emissions than the benchmark.

Cerin Maduray, finance sector specialist at the WWF, said : “Our approach proves that pragmatic and prudent responsible investing can provide real long-term competitive financial returns. In fact, integrating ESG principles can enhance both long-term financial performance and environmental and social outcomes.”

Apart from allowing investors to invest alongside the WWF, the fund should tackle the threats driving climate change while protecting and restoring wildlife and natural habitats.

• Social impact. The integration of ESG factors extends beyond environmental considerations to include social aspects (particularly job creation), ensuring a holistic approach to sustainable investing.
• Environmental efficiency. The fund’s carbon emissions are 50% lower than those of the benchmark, and its resource usage is significantly reduced.
• Environmental impact measurement and analysis. The fund tracks its carbon emissions as well as other data points around water, waste and pollution.

Overcoming barriers to impact investing, aligning with the UN sustainable development goals and partnering with experienced asset managers allows retirement funds to play a transformative role in addressing national challenges.

From climate resilience to job creation, the potential for positive impact is immense, and retirement funds can lead the way in unlocking this capital for a more sustainable future.

• Makhabane is head of ESG and impact at Sanlam Investments.