Forty-three percent of South African asset owners surveyed have no independent mechanism for checking whether their investment managers are delivering on their ESG mandates.
That is despite 91% of respondents describing their organisations as responsible investors. Most also have formal responsible investment (RI) policies and have incorporated ESG language into their mandates to asset managers.
The findings come from the Responsible Investment in South Africa report, published in August by the Principles for Responsible Investment (PRI) and Krutham.
RI encompasses approaches including ESG integration, screening, thematic and impact investing, and active ownership. ESG integration means incorporating material environmental, social, and governance factors into investment analysis and portfolio construction alongside – rather than instead of – traditional financial analysis.
For South African investors, those factors include issues such as energy instability, governance at state-owned enterprises, social unrest, and infrastructure constraints. These can affect the financial performance and long-term sustainability of investments, while infrastructure gaps can also create opportunities for long-term, return-generating investment.
Regulation 28 of the Pension Funds Act also requires retirement funds to consider factors that may materially affect the sustainable long-term performance of their assets, including ESG factors.
The survey attracted 109 responses, mainly from principal officers, trustees, and others with fiduciary responsibility, with about two-thirds managing retirement savings. The researchers caution that the sample is self-selecting and therefore reflects the more engaged end of the South African asset-owner community.
Even within this group, only 35% require climate-risk reporting from their managers, 58% do not report ESG metrics to beneficiaries, and fewer than 5% hold a dedicated ESG, RI, or sustainability role.
South Africa’s RI ecosystem has “two problems, not one: conviction and capacity”. Most respondents have the conviction. The missing pieces include shared definitions, evaluation mechanisms, board expertise, manager accountability frameworks, and practical tools for turning policy into verifiable practice.
From policy to proof
Of the 46 respondents who answered the relevant question, 74% had a standalone RI policy and a further 13% had incorporated RI considerations into their investment policy statement.
But 43% had no independent mechanism for evaluating whether managers were delivering on their ESG mandates.
The difference is particularly marked by fund size. Among funds managing R50 billion or more, 62% used an independent evaluation mechanism, compared with 31% of funds below R50bn.
Twenty-five respondents said they leave ESG implementation to the manager’s discretion. The report also found that manager self-reporting is the most common method of evaluating ESG delivery.
Ninety-one percent of respondents expressed some degree of satisfaction with their managers’ RI approach, despite 43% having no independent evaluation mechanism.
Financial Sector Conduct Authority Commissioner Unathi Kamlana describes this as a “persistent gap between stated intent and operational practice”, particularly in asset manager oversight, consistent data and metrics, and measurable outcomes.
Capacity is part of the problem
Only five respondents reported a dedicated ESG, RI, or sustainability role. Most funds have absorbed RI into existing investment or finance functions, with only 16% of 93 respondents reporting a dedicated, independently accountable function.
External consultants are an important source of ESG expertise, particularly for smaller and mid-sized funds. The report identifies consultant dependency as a structural barrier where funds lack the internal knowledge to assess the advice they receive.
There is also no shared South African definition of ESG. The report found that responsible investment, ESG integration, and developmental investment are sometimes used interchangeably, making it harder to establish whether funds using similar terminology are applying comparable approaches.
Training is another gap. Although 77% of respondents had received some form of ESG-related fiduciary training or legal guidance, only 21% had received comprehensive training that equips trustees and principal officers to interrogate ESG claims and understand the risks relevant to their portfolios.
Nearly R5 trillion in retirement assets
The implementation question sits within a substantial institutional investment market.
South Africa’s retirement fund sector manages nearly R5 trillion in assets, equivalent to 63.7% of GDP, placing the country 16th among 22 major pension markets globally.
The PRI’s Nathan Fabian says South Africa has long been recognised as a leader in responsible investment in Africa and among emerging markets and was one of the earliest adopters of the UN-supported PRI.
Responsible investment is now “widely recognised as a core component of fiduciary duty”, he says, with investors increasingly expected to move beyond policies and commitments towards measurable outcomes.
South Africa’s approach remains more principles-based than some international regimes. The European Union’s Sustainable Finance Disclosure Regulation imposes mandatory sustainability disclosure requirements at entity and product level, while the United Kingdom’s Stewardship Code operates on an apply-or-explain basis with more extensive reporting requirements.
South Africa is moving towards greater prescription, including work by the FSCA on sustainability-related disclosure frameworks and ISSB-aligned reporting.
A distinctly South African investment context
The risks being considered are also local.
The report identifies poverty, inequality, unemployment, governance, economic transformation, and the energy transition among the issues relevant to South African investors. The country’s electricity system remains heavily dependent on coal, while infrastructure shortages in housing, water, energy, and transport create both investment risks and potential long-term opportunities.
There is also a developmental dimension. Sixty-six percent of respondents have some form of development mandate, although only 20% have an explicit one.
The report describes South Africa’s retirement funds as occupying an unusual position: they are expected to generate risk-adjusted returns for beneficiaries while also providing long-term capital for infrastructure and economic development.
From commitment to accountability
The report’s recommendations focus on the infrastructure around RI.
They include clearer minimum ESG governance standards, a shared South African ESG terminology framework, practical tools for smaller funds, stronger ESG competency among consultants, and greater board expertise.
For asset owners, the recommendations include defining what ESG means for the fund rather than leaving the interpretation to the manager, incorporating independent verification into mandates, strengthening board capability, and improving beneficiary reporting.
Fifty-eight percent of respondents do not report ESG metrics to beneficiaries.
The survey also found that only 22 of 97 respondents cited evidence that RI improves risk-adjusted returns as a reason for adopting an RI approach. Fiduciary duty and long-term ESG risk management ranked considerably higher, at 39 and 35 respondents respectively.
For an industry managing almost R5 trillion in retirement assets, the next question is increasingly practical: what does an RI commitment mean in investment decisions, how is a manager’s delivery tested, and what evidence reaches the board and the beneficiary?
