Impact Policy Tracker Policy

Regulation 28 of the Pension Funds Act



Regulation 28, enacted under South Africa’s Pension Funds Act, requires pension fund trustees to consider environmental, social, and governance (ESG) factors as part of their fiduciary duty. By embedding ESG considerations into the principle of prudent investing, the regulation makes sustainability a legal obligation rather than a voluntary practice. It requires all pension funds to develop a formal Investment Policy Statement (IPS) and mandates that boards of trustees assess ESG risks and opportunities before and during the life of an investment, thereby promoting responsible, long-term, and beneficiary-aligned asset management.

Specifically, Regulation 28(2)(b) obliges funds to maintain an IPS, while Regulation 28(2)(c)(ix) states that trustees must consider any factor that may materially affect the sustainable, long-term performance of an asset - including, but not limited to, those of an environmental, social, and governance nature.

Highlights

  • Further Expanded by Guidance and Amendments: In June 2019, the Financial Sector Conduct Authority (FSCA) issued Guidance Notice 1 to support the implementation of Regulation 28, setting clear expectations for integrating ESG factors into investment policy statements, active ownership practices, and public disclosures. Funds are required to publish their investment policy statement and report annually on ESG integration. In 2022, amendments to Regulation 28 introduced a dedicated allocation for infrastructure investments -up to 45%- to encourage investment in assets that support economic development and ESG objectives.

Government’s Role:
Market Regulator


Country:
South Africa

Policy Type:
Clarifying Investors’ Fiduciary Duties

Year: 2011

Responsible Institution:
National Treasury and Financial Sector Conduct Authority (FSCA)

Clarifying Investors’ Fiduciary Duties

What Can Governments Do to Clarify Investors’ Duties to Integrate Sustainability Considerations?

Fiduciary duty refers to the obligation of investors to act in the best interests of their beneficiaries, traditionally understood through the principles of loyalty and prudence. In recent years, the interpretation of this duty has evolved to reflect the growing recognition that Environmental, Social, and Governance (ESG) factorscan pose material risks and opportunities to long-term value creation. As a result, integrating financially material ESG considerations into investment decision-making is increasingly seen not as optional, but as a core component of fiduciary responsibility.

Under this expanded interpretation, fiduciaries are expected to integrate financially material ESG considerations into their investment decisions, engage in active ownership by promoting high ESG standards in their investee entities, and bolster the financial system’s stability and resilience. They must also disclose their investment approach, detailing how they incorporate beneficiaries’ preferences and assess the associated risks and opportunities.

In this context, governments have a critical role to play, since the definition of investors’ duties has profound implications across the entire investment chain. Through regulatory frameworks, governments can clarify that fiduciary duty encompasses the consideration of climate and social-related risks, and establish mandatory disclosure requirements to ensure consistent and transparent ESG practices across the financial sector. While voluntary or 'comply or explain' approaches represent progress, systemic change requires moving towards legally binding obligations. This means not only enabling investors to pursue sustainability objectives without conflicting with their fiduciary responsibilities, but also actively requiring them to do so in order to support a more resilient and accountable financial system.

For more information on the modern concept of fiduciary duty -and how the integration of ESG factors has been clarified or mandated in different countries- visit A Legal Framework for Impact (2021) and PRI’s report Fiduciary Duty in the 21st Century (2019)