Responsible investment's next challenge

Responsible investment in South Africa has reached an important point in its development. The principles are familiar, the policies are largely in place, and environmental, social and governance (ESG) considerations has entered investment mandates and boardroom discussions.

For many years, progress could be measured by adoption. Today, the more difficult question is whether investors can demonstrate how those commitments influence decisions, stewardship activities, and capital allocation in practice.

The recently published Responsible Investment in South Africa: Realities, Gaps and the Road Ahead report suggests the industry has reached the next stage of its evolution. Among surveyed respondents, 91% described themselves as responsible investors; 74% reported having a standalone responsible investment policy and 83% said ESG integration and active ownership were incorporated into manager mandates.

Who do we hold accountable?

While the report’s findings point to significant progress, they also reveal a persistent gap between commitment and implementation. Among respondents who answered questions relating to manager oversight, 43% had no independent mechanism for evaluating whether managers were delivering on ESG mandates. Only 35% required climate-related reporting from managers, and 58% did not report on ESG metrics to beneficiaries.

Delegation is an essential part of institutional investing, but accountability cannot be delegated. Asset owners may appoint specialist managers, but they remain responsible for understanding what they expect managers to do; how sustainability risks are assessed, how stewardship commitments are implemented, and how outcomes are evaluated.

That does not mean every sustainability objective can be reduced to a single metric. Investment outcomes are influenced by multiple factors, and causality is often difficult to establish. It does, however, require a clear chain of reasoning.

What material risk or opportunity was identified? How did it influence the investment assessment? What action was sought from a company or borrower? What changed as a result? Where outcomes are still emerging, what evidence would indicate progress?

These are not simply reporting questions but questions of investment discipline.

Developmental investment illustrates the challenge

The same tension emerges in the report's findings on developmental investment.

While two-thirds of respondents reported some form of developmental orientation, only 20% had an explicit developmental mandate. Good intentions therefore did not always translate into clear allocation targets or accountability mechanisms.

The report's roundtable discussions suggest that developmental intent alone is rarely sufficient to unlock capital. Participants pointed to sectors such as water infrastructure, logistics and social housing as examples where governance concerns, project structures and implementation challenges can undermine investor confidence.

South Africa's renewable energy programme demonstrates what is possible when those constraints are addressed. Institutional capital flowed because investors were presented with opportunities supported by clear procurement frameworks, transparent governance arrangements, and well-defined risk allocation.

Read: A partnership for long-term impact

The report describes the barrier in many sectors as one of institutional trust.

That observation extends beyond developmental investing. Investors cannot commit capital to opportunities they are unable to assess, monitor, or hold accountable. Trust underpins allocation decisions. Without it, neither investment nor the outcomes it is intended to support will materialise at scale.

The discipline of transparency

If trust is the foundation for capital allocation, transparency is how that trust is earned and maintained.

Investors should be able to clearly distinguish between intention, activity, and outcomes. They should explain where their influence is direct, where it is shared, and where the connection remains uncertain. They should be able to demonstrate how sustainability considerations influence investment decisions and stewardship activities and be transparent when evidence is incomplete or outcomes are still emerging.

This is where the report identifies a practical challenge for the industry. Better disclosure is necessary, but volume should not be confused with quality. More data will not close the implementation gap if it is disconnected from investment decisions or impossible for beneficiaries to interpret. Respondents identified reporting, data management, technology and skills development as important areas requiring further support.

No responsible investment resource considered in the survey scored higher than 6.7 out of 10 for usefulness among respondents familiar with it. Participants asked for more localised guidance, common templates, comparable data and tools suited to South African portfolios and the resource constraints of smaller funds.

Smaller funds may require standardised due diligence tools, shared infrastructure, stronger consultant capabilities and access to peer learning while larger asset managers may be able to maintain specialist teams, obtain independent datasets and undertake detailed manager assessments.

The approach may vary, but the underlying expectation should remain: a fund should clearly explain what responsible investment means for its portfolio, what it expects from its managers, and how it evaluates how these expectations are being met.

Beneficiary communication is part of that responsibility. If 58% of respondents report no ESG metrics to beneficiaries, then members have limited visibility into how their savings are being managed beyond conventional performance reporting. This does not mean overwhelming beneficiaries with technical information or indicators. It means connecting material sustainability issues to the financial interests and lived realities of the people whose capital is being invested.

South Africa has already established a strong foundation. The report reveals substantial commitment, meaningful capital, and examples of established practice. It also reveals uneven implementation, limited capacity, and significant gaps in how responsible investment is verified and communicated.

The industry’s next task is not simply to produce more policies or find more expansive language for its commitments. It is to establish a clearer connection between what investors say, what they do, and what can reasonably be shown to have changed as a result.