Water security, governance weaknesses, and executive remuneration are increasingly being assessed by asset managers not as standalone environmental, social, and governance (ESG) issues, but as risks that could affect company performance, valuations, and long-term investment returns.
This is one of the key themes emerging from Alexforbes Investments’ 2026 Stewardship Report, which is based on engagements with 32 asset managers responsible for R8 trillion in assets under management. The report suggests stewardship is moving beyond broad ESG labels towards a more focused assessment of risks that could materially affect company performance, cash flows, and portfolio resilience.
Corporate governance remains the dominant area of stewardship engagement, accounting for 21.43% of managers’ stated priorities, followed by executive remuneration (16.33%), climate (14.29%), and water security (13.27%).
The report says governance continues to underpin effective stewardship, even as environmental and social issues become more prominent. It states that “governance remains the anchor, while climate, water, and wider social pressures are becoming more immediate and financially relevant”.
The report also provides a more detailed picture of what asset managers mean by governance risk. Executive remuneration accounts for 26% of governance concerns identified by managers, followed by succession planning (15%) and board composition (13%). Capital allocation, business strategy, fiscal discipline, reporting, regulatory issues, and risk management also feature prominently.
According to the report, asset managers assess ESG factors in terms of their potential influence on a company’s financial performance and use that analysis to guide investment decisions and risk management.
Beyond governance, the report identifies energy security as the dominant environmental risk, accounting for 31% of environmental concerns raised by asset managers, followed by emissions (19%) and the energy transition (13%). Water security accounts for 6.25% of environmental risks in that breakdown, although it receives greater prominence in the report because of its potential impact on business continuity and long-term investment performance.
Social risks are also evolving. Gambling is the most frequently identified social risk (24%), followed by cybersecurity and healthcare (12% each). Food security, worker welfare, labour shortages, workplace safety, affordable housing, and reputational risk also feature among managers’ concerns, reflecting what the report describes as a shift towards more complex, system-level risks affecting economic and societal stability.
Water emerges as a systemic investment risk
Water security is one of the report’s strongest themes, reflecting what Alexforbes describes as the growing financial consequences of South Africa’s deteriorating water infrastructure.
The report notes that South Africa receives roughly half the global average annual rainfall yet uses more water per person than many water-rich countries. It says 47.4% of treated drinking-quality water is lost through leaks, theft, and billing failure, up from 37% in 2014. Of the 4.39 billion cubic metres of treated water supplied nationally, about 2.08 billion cubic metres never reaches a paying customer. According to the report, this is no longer simply a municipal service-delivery issue but an operating risk for businesses and investors.
Rather than viewing water as a risk confined to mining, agriculture and other heavy users, the report argues that failing municipal infrastructure has implications across the economy. It says unreliable water services can affect property values, retail activity, banks with lending exposure to municipalities, and, ultimately, sovereign borrowing costs. A company may have a secure on-site water supply yet still suffer operational disruption if the municipality cannot deliver water reliably.
The report distinguishes between two different types of exposure. Mining and heavy industry face physical water-scarcity risks linked to raw water availability and drought, while sectors such as property, financial services, and healthcare are more exposed to infrastructure failures involving ageing pipes, failing pumps and under-capacity treatment works.
Among the JSE-listed companies included in the report’s water-risk assessment, 88% operate in water-scarce regions, 63% have already experienced water-related disruption, and 99% are considered susceptible to future water risk. The report concludes that, at this level of exposure, water should no longer be regarded as an isolated environmental issue but as a baseline investment condition for South African real assets and industrial companies.
The report also highlights a mismatch between exposure and preparedness. Sectors experiencing the most frequent water supply disruptions – including property, financial services, and healthcare – generally have the least-developed recycling and resilience measures. It argues that addressing these systemic risks will require greater collaboration with regulators and public authorities because individual companies have limited influence over failing municipal water infrastructure.
Stewardship becomes more focused
Alexforbes says the quality of stewardship discussions improved during the year.
According to the report, conversations that previously treated ESG as a compliance exercise became more substantive, with asset managers arriving better prepared to discuss climate and water risks, executive remuneration and board effectiveness. At the same time, it says the quality of ESG reporting remains uneven, with some managers demonstrating considerably greater rigour than others. Rather than excluding less mature managers, Alexforbes says its approach is to improve standards through clear expectations, constructive engagement, and ongoing support.
The report also argues that stewardship in South Africa must reflect local conditions. It says responsible investing frameworks developed largely in Europe need to be adapted to balance environmental objectives with South Africa’s energy, water, and infrastructure constraints through a just transition grounded in local realities.
Measuring outcomes
Alexforbes says it held 395 formal engagements with asset managers during the year, up from 342 previously. These included due diligence meetings, governance discussions, executive leadership engagements, and sustainability reviews.
Voting rights remain with the underlying asset managers appointed across Alexforbes’ portfolios. During the year, those managers voted on 23 227 shareholder resolutions, with about 8% of votes cast against management recommendations, predominantly on executive remuneration and board composition. Alexforbes says it monitors those voting decisions and challenges managers where explanations are inconsistent with its stewardship expectations.
The report says 33% of stewardship engagements achieved their objectives during the year, while 59% remain ongoing, reflecting the long-term nature of governance and climate-related engagement rather than a lack of progress.
Click here to download the full 2026 Stewardship Report.
