The Scottish Widows Fund recently announced that it will dump £440m of company holdings that fail its Environmental, Social, and Governance (ESG) tests. Being one of the most far-reaching exclusions policies adopted by a major UK pensions provider to date, it’s important to take note of this action. And as pension funds and asset managers across the world face increasing pressure to protect client portfolios from the risks of climate change, others will follow.

Read also South Africa. Sustainability should be paramount in pension fund investment

Even as ESG becomes an imperative, however, fund managers will still be expected to provide solid returns to investors. That may become increasingly difficult, especially as some commentators suggest that ESG investing risks becoming another stock bubble.

Read also Is There a Place for ETFs in Retirement Plans?

Even if that turns out to be true, however, there are still real opportunities in the ESG arena, especially for funds willing to look at the Private Equity space and to Africa in particular.

Read also Kenya. Selling pension to millennials changing jobs

High compliance standards

Given the kind of Africa-centric stories that typically reach Western audiences, that might seem like a surprising statement. How can countries grappling with corruption and wide-scale poverty offer solid ESG opportunities? Surely the best ESG opportunities are to be found in developed markets where more widespread access to technology and societal pressure have led to companies embracing it is a philosophy? In actual fact, the situation is somewhat more complex.

According to the 2019 Morningstar Sustainability Atlas, for example, companies in South Africa have levels of ESG compliance on par with those in Italy, Belgium, and Australia. Africa’s most developed economy fares particularly well when it comes to carbon risk, carrying levels on par with those of Switzerland, the Netherlands, Denmark, Sweden, Belgium, France, and the US. While ratings will vary across African countries, many South African companies operate across the continent, indicating a widespread willingness to embrace ESG principles.

Read more @Global Banking and Finance