Research Report - August 2020 Researching Capital Markets ... · PDF file Researching Capital...

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Transcript of Research Report - August 2020 Researching Capital Markets ... · PDF file Researching Capital...

  • Research Report - August 2020

    funded by

    Investing for Impact

    Pension funds’ portfolio strategies 2020

    Researching Capital Markets and Financial Services

  • www.intellidex.co.za ©copyright Intellidex (Pty) Ltd2

    Acknowledgements

    This report was funded by Ashburton Investments which we gratefully acknowledge. We would also like to thank executives at Batseta and ASISA for their invaluable guidance and feedback during the design phase of this research.

    Thanks in particular to Allan Greenblo, publisher of Today’s Trustee for encouraging respondents, and Anne-Marie D’Alton, CEO of Batseta, for calling for members to complete the survey.

    © 2020 This report is copyrighted by Intellidex

    Disclaimer This report is based on information believed to be reliable, but Intellidex makes no guarantees as to its accuracy. Intellidex cannot be held responsible for the consequences of relying on any content in this report.

    Project director: Dr Stuart Theobald, CFA Project consultant: Dr Graunt Kruger Analysts and researchers: Heidi Dietzsch, Tim Sithole, Ernest Nkomotje Report editor: Colin Anthony Design and Layout: Elli Del Grosso, eCreative Designs

    © Intellidex (Pty) Ltd. All rights reserved Building 3, First floor Inanda Greens Office Park, 54 Wierda Rd W, Wierda Valley, Johannesburg, 2196 www.intellidex.co.za Email: [email protected] Tel: +27 10 072 0472

  • www.intellidex.co.za ©copyright Intellidex (Pty) Ltd3

    Table of Contents | Acknowledgements ....................................................................................................................................... 2

    Preface ...................................................................................................................................................................... 4

    | Objectives........................................................................................................................................................ 4

    | Methodology .................................................................................................................................................. 5

    | Key findings ..................................................................................................................................................... 5

    | Recommendations ......................................................................................................................................... 6

    1: Introduction: Review of key issues in sustainable investments ...................................................................... 7

    | Background and context ............................................................................................................................... 7

    | What is sustainable investment? ................................................................................................................... 8

    | Global growth of sustainable investments .................................................................................................. 9

    | The debate over sustainable and responsible investments ....................................................................11

    | Current regulatory framework for sustainable investment in South Africa ............................................12

    | Regulation 28 and the spectrum of capital................................................................................................13

    | International regulatory review ...................................................................................................................14

    2: Survey of South African pension funds ...........................................................................................................17

    | About the respondents ................................................................................................................................17 - Main function of survey respondents .....................................................................................................17 - Members and member types .................................................................................................................17 - Fund types represented by the respondents........................................................................................18 - Split between umbrella and ordinary funds ..........................................................................................18 - Split between defined benefit and defined contribution respondents .............................................18 - Number of funds in portfolio ..................................................................................................................19

    | Survey results ................................................................................................................................................20 - Investment objectives ..............................................................................................................................20 - Important issues for investment manager and asset owner engagement ........................................21 - Sources of expertise in portfolio construction ......................................................................................21 - Voting on shareholder resolutions .........................................................................................................22 - Factors affecting shareholder voting .....................................................................................................23 - The role of sustainable investments in the next five years ..................................................................24 - Factors enabling ESG integration in investment decisions .................................................................25 - Challenges affecting interest in undertaking sustainable investments ..............................................26 - Incorporation of sustainability strategies into investment policy statements ...................................28 - Changes in portfolio exposures over five years ....................................................................................30 - Changes in investment policy or disclosures ........................................................................................31 - Respondents’ recommendations for changes to Regulations 28 .......................................................32 - Changes in investment decisions based on sustainability criteria......................................................32 - Factors that most influence sustainable investments ..........................................................................33 - ESG Priorities ............................................................................................................................................34 - Policies influencing investment approaches .........................................................................................35 - Publication of investment policy statements ........................................................................................36 - Sustainability and asset classes ..............................................................................................................37 - Opinions on the role of ESG investing in South Africa ........................................................................37

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    Preface

    Objectives Conventionally, only two things matter in investing: risk and return. But a growing number of investors are also concerned about the sustainability of their investments, which is increasingly assessed from environmental, social and governance perspectives. Various concepts have been developed to reflect these considerations such as “sustainable investing”, “socially responsible investment” and “impact investing”. While the details of these additional concerns differ depending on the framework being used, the general concern is that an investor should also be concerned with the impact of the investment and not just its financial returns. In this report we have grouped these different terms and concepts under the term “investing for impact”.

    In this report we aim to bring to light the attitudes of South African institutional investors, particularly pension funds, to investing for impact. The key part of the report is the output of a survey we undertook of some of the largest pension funds in the market, but we contextualise the research goals and results within wider debates regarding investing and how social impact should be considered.

    This presupposes that investing for impact is desirable. Not all investors, including some we surveyed in this study, agree. Many argue that their sole responsibility to their clients is to maximise returns while managing risk. We are sympathetic to their concerns but also recognise that financial markets are fundamentally a social institution, created to serve society broadly. The public interest has an important role to play in setting out what kind of investor behaviour is desirable. The goals that financial markets are put to are not value neutral. As the anti-apartheid disinvestment campaign proved, investors’ decisions can have important moral dimensions.

    For long-term investors, of which pension funds are the quintessential example, sustainability is an important concern. A corporate sector that consumes resources to deliver only short-term profits does not serve investors who have a multi-decade investment horizon and are also concerned about the livel