R45 billion jackpot for sustainable development in SA!

I had a most interesting networking opportunity with Elias Masilela, the CEO of the Public Investment Corporation, at the World Climate Summit in Durban on Saturday afternoon, 3 December. Business Report journalist, Nompumelelo Magwaza, joined us so look out for a story in tomorrow's paper!

Ms Masilela, a trained economist, said that this is the first time that the South African government's PIC engages with COP, because it now has a mandate to invest directly into the green economy from a portion of SA's Government Employee Pension Funds, worth R900 billion in total. 

The PIC generally maintains a 10-year view on its investment outlook. But because this is a new project, the PIC will start with a 3-4 year investment view into the green economy (the ideal outlook is a generation). 

As the only asset manager in the country with a long-term view and dual mandate (sustainable bottom-line ito investment performance and contribution to economic development), the PIC has four pillars to focus its developmental programme investment programme:

1.       Invest in green space (new) 
       and other pillars that have always been in place -

2.       Social infrastructure

3.       Economic infrastructure

4.       Promotion of SMMEs.

Of the R900 billion assets under management, Mr Masilela says 5% (about R45 billion) will be dedicated to these 4 pillars, with a special focus on economic infrastructure & green economy.

Another extension worth taking note of, is that - for the first time in 100 years (as the PIC turned 100 this year), it is allowed to invest directly offshore: 10% of these assets under management will be invested offshore (half of that 10% will be invested on the African continent, the other half invested in the rest of the world).

Because the PIC foresees deep impact resulting from its investments on the Continent, these 4 pillars will be applied to projects across Africa. The likelihood is that the PIC will prioritise Anglophone countries, because of legislative likenesses to South Africa (aka ease of doing business), as well as opportunistic exposure due to already existing relationships in Portuguese-speaking nations on the Continent.

Speaking of the investment class, Mr Masilela said that because the Continent is thin in the listed market, there will be a broader focus on private equity, developmental funding and property.

The PIC's objectives with the development programme on the Continent revolves around:

-          Help grow the African market;

-          Invest in such a way as to increase the efficiencies of the African economies;

-         Increase productivities of these economies.

Two key outcomes expected of this programme:

-          Increase labour absorption to fight poverty;

-          Increase Africa's competitiveness in the global environment.

Interesting to know: the South African government applies a sustainability matrix to all companies it sub-contracts to, in order to judge their performance. While not a public document, and run from government's Corporate Governance Office, the Matrix forces a sense of consistency in evaluating companies, discipline in dealing with companies scientifically.

Talking of carbon disclosure, Mr Masilela is of the firm opinion that - in South Africa (as anywhere else) - business is driven more efficiently by incentives, rather than penalties.

He says, “If Government hits business hard, they’ll only hit them once as they’ll learn quickly to find a way out.” The issue of carbon tax is much debated in SA, especially since our Southern Hemisphere cousin, Australia, introduced a new carbon tax system.

The PIC would rather devise carbon reporting from the point of view of incentive rather than penalty, for instance if a big emitter is incentivised to design cleaner technologies, they receive a tax break; if they do not comply within a reasonable timeframe, that is when the penalty sets in.

Mr Masilela's economics background paints him a firm advocate of free market stimulation to overhaul poverty. "The trickle-down effect in economics of taxing and creating a structure where wealth creation will create jobs is the way to go," says Mr Masilela. "Instead of hand-outs, rather create an environment where jobs are created among PDIs [previously disadvantaged individuals]."

"The role of capital is extremely important in the sustainability space," he continues. "Because capital directly enables the financial sector to invest in its own activities and, indirectly, when they invest in the real economy. 

"If the financial sector provides capital to the economy without demanding particular behaviours from the recipients of capital, then the recipients will behave unsustainably. That's why it is vital to dentify minimum standards and impose them in the way capital is lent out – by the financial sector."

In her opening remarks at the World Climate Summit yesterday, UNFCCC Executive Secretary Christiana Figueres challenged business to do more. In his opening statement at the UNEPFI / Nedbank Lending for a Low Carbon Economy event on Friday, Minister Trevor Manuel challenged banks to do more. 

It would seem banks and finance bodies need to agree on some form of regulatory incentive scheme and renewable energy funding codes to get this ball rolling - and fast, in the right lane.

Mr Masilela would like to see collaboration amongst pension funds in Africa – funds which have a long-term outlook, are patient and have huge reserves. On the Continent, the DBSA (Development Bank of Southern Africa), private sector entities, the World Bank, IFC (Internationla Finance Corporation), Chinese Investment Corporation and others have a combined forcec and capital backing that could effectively solve Africa's climate conundrum. PASSWORD: COLLABORATE.