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Pensions for good

Thursday, April 26th 2012

Governments around the world are calling on private investors to help solve some of our most pressing social and environmental problems. With South Africa at a major junction in its history – where increasing the growth rate of the economy in an inclusive way is imperative – Government has released a new regulation to encourage institutional investors to invest responsibly and sustainably. Elena Mancebo Masa, head of research and evaluation at GreaterCapital, takes a closer look at this ground-breaking regulation.

Governments around the world are calling on private investors to put their money into investments that will help solve some of our most pressing social and environmental problems. The UK government has introduced social impact bonds, which are issued to private investors to raise capital to address a particular social problem. An example is a bond aimed at reducing the rate of re-offending at one of the UK’s prisons. It uses a “pay-for-success” model, whereby if the project is able to reduce long term re-offending by more than 7.5%, investors who purchased bonds will receive a financial return on their investment.

South Africa is at a major junction in its history where increasing the growth rate of the economy in an inclusive way is imperative. Government has therefore released a ground-breaking regulation to encourage institutional investors to invest responsibly and benefit the country’s social and economic growth. The Code for Responsible Investment in South Africa (CRISA) and Regulation 28 make South Africa only the second country, after the UK, to formally persuade retirement funds to take environmental, social and governance (ESG) factors seriously.

The regulation also opens the door for better portfolio diversification by increasing the limit that pension funds can invest into private equity and debt. It is often in the unlisted space where social and business innovations meet. Gap housing models for young professionals, affordable finance and mentorship for emerging contractors, mobile technology for preventative healthcare; these are a few examples of investment opportunities that can provide a risk-adjusted rate of return to investors looking into profitable ventures that are finding solutions to social problems.  

For pension funds, the regulation means that a new set of skills will be required to identify opportunities and integrate ESG into investment strategies. How could the HIV and AIDS pandemic affect my retirement annuity? Which businesses are having a broad-based positive impact on social transformation and equality? Ultimately, how can I ensure that my funds are Regulation 28 compliant? These are some examples of the kind of questions that investment practitioners are compelled to engage with.

The 2012 South African network for Impact Investing (SAII) conference in Johannesburg on 7 and 8 May will bring legal experts, industry representatives and investment innovators together to flesh out the implications of Regulation 28 and highlight some of the practical ways for investors to comply and broaden their investment horizon.