Desmond Barry, Founder and Consultant at ESG Lead
The PRI report, Responsible Investment in South Africa 2026: Realities, Gaps and the Road Ahead, has just been published, based largely on a survey of retirement funds. It finds that there is still a disjuncture between aspiration and practice in this area:
“The survey finds strong RI identity, genuine developmental orientation and a clear appetite for support. The gap is operational. It sits in the space between having a policy and living it, between instructing a manager to consider ESG and being able to verify that they do, between placing ESG on the board agenda and making governance decisions that change investment practice.”
The report makes important recommendations requiring serious attention if this gap is to be bridged. This article overlaps with it in several respects, but its main thrust is different and complementary, arguing that effective sustainable investing requires fiduciaries to adopt a systematic and integrated way of thinking.
The case for an integrated architecture is a case for better fiduciary decision-making. Beneficiary outcomes provide the starting point. Fiduciary responsibility supplies the discipline. The real-world context identifies material risks and opportunities. Strategy determines the response. Investment, stewardship, collaborative and market-building pathways are then considered before decisions are reached.
A proliferating and fragmented field
Sustainable investing has grown into a sprawling field. ESG integration, stewardship, impact investing, infrastructure, reporting frameworks, investment products and technical approaches are often encountered in isolation. This makes it difficult to see the field as a coherent whole, set priorities and pursue goals consistently.
For fiduciary investors overseeing long-term retirement savings, this complexity presents particular difficulties. Trustees and other decision-makers must place beneficiaries’ interests at the forefront. Sustainable investment should therefore be approached not as a collection of worthwhile activities, but as part of a disciplined process directed towards optimising long-term beneficiary outcomes.
What is needed is coherent, purposeful and properly sequenced decision-making in which beneficiary outcomes remain the central point of reference.
Beneficiary outcomes as the anchor
Broadly understood, sustainable investing refers to investing for the long term in a way that seeks to preserve the planet’s resources for future generations and promote positive outcomes for society and the environment.
Within a fiduciary context the approach centres on financial materiality for the beneficiary. Sustainability considerations come into focus where they affect the economic, environmental and institutional conditions upon which long-term returns and beneficiary outcomes depend.
This starting point matters because ESG scores, exclusions, integration processes, net-zero commitments and reporting frameworks can develop a momentum of their own. They may all have a role, but do not by themselves establish whether a fund is addressing the risks and opportunities that matter most. ESG can become an objective in itself producing considerable activity without commensurate benefit for beneficiaries.
Looking beyond company-level ESG
ESG analysis is often understood as an aid to risk management at company level. A complete approach must also consider system-level risks, which can be more serious over the long term.
Economic stagnation, infrastructure failure, climate change, institutional weakness and social instability can affect many companies and asset classes, or the whole economy, simultaneously. These risks cannot always be managed adequately through diversification, security selection or conventional portfolio controls.
A portfolio may score well against company-level ESG measures while remaining exposed to deteriorating macro constraints or failures. ESG integration alone may therefore leave important sources of long-term portfolio risk largely untouched.
Fiduciaries must remain focused on financial materiality, but this includes the real-world conditions upon which long-term returns depend. The response may include investment strategy, stewardship, collaboration and, where appropriate, policy engagement. System-level risks will most often require collective responses.
Strategy before product
A sustainable investment strategy must be rooted in fiduciary purpose and system-level conditions. Sustainability is unlikely to have much effect if it is simply layered onto an existing investment strategy at a later stage. By defining financial materiality narrowly significant long-term risks and reasonable means of addressing them may remain unexplored.
Investment products, themes and techniques should be selected because they serve a strategy derived from fiduciary objectives and an understanding of the broader investment environment. They should not define the strategy.
This avoids adopting fashionable products or frameworks without establishing their contribution to beneficiary outcomes, or assuming that a product labelled sustainable necessarily provides meaningful additional exposure or impact.
Exploring the full range of pathways
A narrow financial approach can cause potentially attractive opportunities to be rejected prematurely. A conventional standalone transaction may appear unsuitable, yet different structuring, risk-sharing arrangements, pooled vehicles or participation by development finance institutions could produce an acceptable risk-return proposition.
Failure to explore these mechanisms may exclude viable transition, infrastructure or developmental investments. Infrastructure is particularly important because of its multiplier effect, although a realistic assessment must be made of obstacles including weak governance, institutional incapacity, poor project preparation and corruption.
Not every private-equity investment, infrastructure vehicle or small impact project will be appropriate. Where risk mitigation requires investment at scale, large and well-structured vehicles will contribute more than a proliferation of complex instruments or isolated projects.
Investment and market-building
Markets for sustainable investment remain constrained, and the supply of suitable bankable projects is inadequate and so fiduciaries may conclude that there is little in which they can invest.
For large, long-term institutional investors, however, the response should not end with selecting from existing products. Collaboration with asset managers, other funds, government and development finance institutions may help create pooled vehicles, improve project preparation, establish risk-sharing arrangements and increase the supply of investable opportunities.
Sustainable investment can therefore involve both investment and market-building pathways.
From aspiration to implementation
The final difficulty lies in translating broad commitments into implementation, a focus of the above PRI report. Sustainability policies are often expressed at a high level but are not consistently carried over into investment policies, strategic asset allocation, mandates, manager selection, stewardship priorities, decision-making procedures and reporting requirements. Responsibilities may be unclear, timeframes open-ended and guidance to service providers insufficiently specific.
A disciplined and sequenced overall framework connects fiduciary purpose to strategy, portfolio decisions and implementation. Failure to make these connections can lead to missed opportunities, poorly directed activity and suboptimal long-term outcomes for the beneficiaries whom fiduciary duties exist to protect.
ENDS
