Impact investing is sometimes associated with philanthropy and the perception that positive social or environmental outcomes come at the expense of financial returns. Yet, as private markets have evolved, so too has our understanding of how these outcomes can support long-term value creation. For retirement funds, this offers an opportunity to consider how sustainability can help identify sources of growth and better understand investment risks.
Investing has traditionally been a two-dimensional exercise: risk and return. Sustainability adds a third dimension, what an investment does to the world around it and what that world will do to the investment in turn. These are not separate questions. The environmental and social conditions an asset operates in ultimately shapes its cash flows, its cost of capital and its exit value. A pension fund has the opportunity to deliver on its mandate to members while helping to build a more resilient South Africa.
By backing assets that strengthen infrastructure, improve access to essential services and support long-term social stability, pension capital can help shape the environment into which members will one day retire.
The most obvious financial case for sustainability is resilience. Commodity-driven windfalls come and go, a war can spike coal and oil prices, portfolios chase the surge and the correction follow. Investments built on durable social demand behave differently. People will always need housing, energy, education, water and connectivity. Assets that meet those needs, structured properly, produce returns that hold their shape through the cycle. Sustainability is not about sacrificing performance for principle; it is about flattening volatility by anchoring returns to demand that does not disappear.
South Africa offers the proof. Renewable energy, built substantially through private capital, has demonstrated that a national infrastructure gap can be closed at scale while delivering stable returns. Affordable housing and student accommodation are following the same path. In our Summerstrand village student accommodation for instance, the development nearly tripled capacity in roughly a year of construction and opened close to fully let. That is not a concessionary outcome. That is what happens when capital meets genuine, measurable demand. And the effects compound, formal housing reduces illness and absenteeism, supports academic outcomes and draws further investment into the surrounding community.
Part of the confusion in this debate is language, so it is worth being precise. ESG is the inward-looking lens: identifying, assessing and managing the environmental, social and governance risks that could damage a business from project delays caused by unrest to future carbon pricing. Impact is the outward-looking lens: the measurable difference a business makes beyond its own walls. The two rotate into each other.
Today’s ignored externality becomes tomorrow’s risk, whether through regulation, a shrinking pool of willing capital, or a community that withdraws a company’s social licence to operate.
This is why ESG should never be treated as merely a compliance exercise. It is due diligence with better pillars. When we assess a business, we bring in tax, legal, technical and environmental specialists precisely because narrow analysis misses both risks and opportunities. One affordable housing project we examined delivered its greenest surprise in the construction method itself: lighter materials, lower transport costs, less cement, better insulation, a smaller carbon footprint and a better cost profile. The efficiencies and benefits only appear once you look for them.
Private markets are structurally suited to this work. We hold assets for over 5 years and often far longer, some open-ended funds hold for twenty. We sit alongside management as active owners, developing plans for material risks together and handing over businesses in better condition than we found them. The better the business performs, the greater the impact it delivers, because we tie the impact thesis to the operations of the business itself. While we monitor performance quarterly, our focus remains on creating value over the long term. Public and private markets both have an important role in retirement fund portfolios, with scope for greater private market allocations to complement listed investments. Across both, trustees can encourage meaningful engagement with managers on how transition costs, social risks and emissions are reflected in investment decisions. Active ownership and ongoing dialogue can help businesses improve their practices and support lasting change.
The final objection is measurement: impact is too fuzzy to quantify, so best not to try. This is not entirely accurate. We measure outputs, jobs created, units built, emissions avoided, learners housed etc. It will never be perfect. Neither is value-at-risk and no one suggests abandoning risk measurement. In a country with one of the world’s highest unemployment rates, every job created carries powerful additionality.
Context determines scale, for instance upgrading a road in a region of perfect highways achieves little in terms of impact; connecting a rural village to a hospital changes lives.
Impact is easy to sell. The discipline lies in delivering it through rigorous diligence, active ownership, honest measurement and a genuinely long-term view. Trustees do not need to become experts. But they do need to be part of the conversation, because the returns their members retire on and the country they retire into, are being built by the same capital.
