In 2010 then National Treasury director-general Lesetja Kganyago stood before the Public Investment Corporation’s (PIC’s) largest client, the Government Employees Pension Fund (GEPF), and delivered a challenge that now serves as a painful indictment of the PIC.
“It is not enough to invest responsibly”, he said. “We also have to take responsibility for the investment process, which means we have to boldly confront irresponsibility and short-termism. And this takes courage.” Kganyago commended the GEPF for signing up to the UN Principles of Responsible Investment and cited examples of exemplary shareholder activism to that point.
Fifteen years later, the PIC manages three times the assets it did then. It publishes environmental, social & governance (ESG) frameworks and quarterly proxy voting reports but demonstrates the very “complacency” Kganyago warned against.
The PIC is not merely a large asset manager. It is the most consequential institutional investor in the South African economy, managing more than R3-trillion on behalf of more than 1.2-million government employees — nurses, teachers, police officers, soldiers. At that scale, the PIC cannot simply pick good South African stocks and hedge against systemic risks. It is too large, concentrated and structurally embedded in the JSE.
In the language of investment theory, the PIC is a universal owner: an institution so interwoven with the economy it invests in that the health of that economy and the health of its portfolio are, over the long term, the same thing.
The GEPF’s own motto captures this with unintentional irony: “Tomorrow shouldn’t be a worry if today is done right.” The question worth asking is whether today is, in fact, being done right.
Gap between aspiration and action
The case for active ESG ownership is not merely ideological. A company that knows its largest shareholder will vote against its board, publicly challenge its emissions trajectory and link continued investment to a credible transition plan behaves differently from one that does not. This is the theory of change behind active ownership.
The PIC owns large stakes in South Africa’s highest carbon-emitting private companies, including Sasol (17.93%), Thungela (11.40%) and Exxaro (16.51%). This gives it unmatched leverage over the trajectories of these intense polluters — and makes the PIC’s present ESG approach difficult to defend.
The GEPF’s own motto captures this with unintentional irony: ‘Tomorrow shouldn’t be a worry if today is done right.’ The question worth asking is whether today is, in fact, being done right.
Its ESG policy describes a process built around reviewing disclosures, rating companies on compliance metrics, and engaging where concerns arise. Its proxy voting policy only covers the governance pillar, resulting in a systematic absence of engagement on environmental and social issues — even as the PIC acknowledges its role in pursuing sustainable investment practices.
The PIC considers only the single materiality of its investees — how ESG risks affect the portfolio — without integrating double materiality: the recognition that how its portfolio behaves affects the world and that the world will eventually return that damage to the portfolio. For an institution whose beneficiaries will retire into whatever South Africa becomes over the next 30 years, this is a failure to act as a long-term steward.
Its fossil fuel exposure makes this concrete. According to research by Urgewald, the GEPF portfolio managed by the PIC holds about $7.4bn in coal, oil and gas companies, making it the largest fossil fuel investor in South Africa. These holdings are active expressions of an investment philosophy that has not reckoned with transition risk: as South Africa’s trading partners adjust to policy changes, high-emission companies will face structural headwinds that erode the long-term value of pensioners’ assets.
Shareholder power going unused
The PIC is the largest third-party shareholder of Sasol — the JSE’s most emissions-intensive company — but has never voted against it on climate or sustainable business policy, has made no public demands for science-based transition targets and publishes voting records without rationale.
We know the PIC votes but cannot measure whether it leads to any tangible change. This is one example of many JSE companies that actively harm the environment and social fabric of the future PIC beneficiaries want to retire into.
Proxy voting and direct engagement are among the most powerful tools available to any large shareholder. The PIC needs determination, technical expertise and institutional independence to challenge management of companies in which the South African economy has a significant interest. That last requirement points to a deeper problem.
Why the institution struggles to lead
The recent departure of chief investment officer Kabelo Rikhotso signals that the legacy of governance controversy at the PIC remains. It has spent the past decade managing the fallout of failures exposed by the Mpati Commission of Inquiry (2019), which revealed an institution vulnerable to political interference, opaque in its unlisted investment decisions and insufficiently insulated from pressures that had nothing to do with the long-term interests of GEPF beneficiaries.
The Daybreak Foods Investment debacle illustrates what passive ownership looks like: a significant stake in a struggling company, held without active engagement that might have changed its trajectory, and without the transparency that would have allowed beneficiaries to understand what was being done in their name. It also illustrates where ESG fits in the PIC’s process — primarily as a risk management tool that can be overridden, rather than a forward-thinking integration at the idea generation or valuation stages.
An organisation still recovering from that era faces a structural challenge in doing what active ESG ownership requires: technically sophisticated, politically independent engagement with the CEOs of major South African companies on issues where the government’s own policy preferences may be in tension with the long-term interests of pensioners. Kganyago was right that this requires courage.
What better looks like
The PIC cannot fully or immediately divest from fossil fuels, its size makes that both impractical and counterproductive. Some genuine governance progress has been made since the Mpati era, and the tension between short-term financial returns and long-term impact is real. But complexity is not the same as impossibility.
The PIC should demand that its highest-emitting investees commit to science-based transition targets with interim milestones. It should be more transparent in its engagement with listed companies and amend its proxy voting policy to include environmental and social themes.
Above all, it needs a philosophical shift away from ESG as a risk management lens towards ESG as active value creation, steering capital towards the companies and sectors that will define the economy its beneficiaries retire into, not the ones that defined the economy of the last century.
Courage to lead
In 2010 Kganyago closed by noting that responsible investment is a collective undertaking requiring investors, development finance institutions, organised labour and the government to act together. That conversation has been happening for 15 years. The PIC has attended. What it has not yet done is lead.
South Africa’s nurses and teachers did not sign up to fund climate risk, governance failure or the quiet erosion of the economy their retirements depend on. They were promised that tomorrow shouldn’t be a worry. The PIC has the scale, the mandate and the shareholder power to make that promise mean something. The question is whether it has the courage.
Bovim is a sustainable investment analyst at Fossil Free South Africa.
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