Speaker 0:
joining me Now at the Bait Winter Conference. Shafik Abrahams, chief executive and principal officer at the Eskom Pension and Provident Fund. Welcome back. So the e p. P f follows a four dimensional approach to investing. Perhaps you can take us through these four

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pensions as well as how you approach the investing decision.

Speaker 1:
Maybe I should start and give context to pension funds. Pension funds invest for long term in societies that generate returns. So, for example, if you invested in South Africa and South Africa has good economic growth stability, you likely to see greater returns in the assets in South Africa.

Speaker 1:
So as a pension fund, we look for what is the traditional dimensions. Basically, its return, the risk and cost, however we would like. We also extend that to look at is the positive impact of job creation, contribution to local procurement, good governance, et cetera, within the decision that moves beyond just risk management but also active

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ownership around where the company is going. And what does it mean for the long term success of that of that investment

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and then touching on to those four dimensions that you that you use to approach investing. How do they play out through your impact mandate, as well as delivering returns to the members that

Speaker 1:
you serve? Yes, you know, ultimately, our job is about paying pensions and being able to run a sustainable fund, which we do.

Speaker 1:
And so, yes, there are trade offs from time to time, both from where competes with the social or the impact objectives. Bottom line is that we need the investment financial returns within the

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budgets and as well as the impact. So we don't compromise the two. Ours is about getting the financial returns to be able to get us

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there. So how does the just transition then determine the sequence in which a pension fund capital is allocated?

Speaker 1:
So the just transition is two things. One we need to see over a period of time. The economy transition away from coal dependent electricity system to one that carbon more sensitive or carbon neutral. Ultimately, from a pension fund, it works in two ways. One

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we can invest in infrastructure to transition to carbon neutral or more environmentally sustainable energy solutions. And we like that because it gives us long dated cash flows. Inflation linked returns. But the same.

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It does create risk to people who are affected by the coal belt or within the coal value chain. And so we have to be able to be able to be sensitive in this transition that as you move to a carbon neutral electricity system,

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you also have to be able to manage the risk of jobs and risk killing in that process. And we believe, as you transition some of these industries, it presents opportunity for new investments and new industries and new cash flows into the future. And so we do think risk can be managed with opportunity as well.

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So it seems as though a very fine balance needs to be found between, say, Decommissioning the coal fired power stations predominantly with Mpumalanga and where a lot of livelihoods are dependent on the production of these coal fired power stations. How is South Africa's future energy mix going to look if we follow a Decommissioning schedule as outlined by?

Speaker 1:
So I think the Decommissioning process is announced by government and the respective authorities speaks about pace and scale, how we decommission in terms of our needs and our country's needs, and how do we scale up in terms of renewable energy and it must. It must speak to the society's requirements and electricity needs,

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and so one has to be pragmatic in that approach. But ultimately what you can't not lose sight of is to transition to carbon neutral electricity systems, and that's to ensure economic success for the country and its exports. And if we should delay and not meet that, ultimately I do think there is a price to be paid

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for the export of goods from South Africa.

Speaker 0:
Absolutely. I think that a lot of our more developed markets trading partners are moving in large strides towards decarbonising their economies. The EU has now implemented a carbon tax for imported goods. How would this affect our locally exported and locally extracted carbon products?

Speaker 1:
So exactly so so in the event that we fail to meet the decarbonisation

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programme, what it will mean is, as we export goods to foreign countries like the EU, they impose carbon adjustment, border taxes, our goods become more expensive in their economies and less competitive, and therefore you are likely to see a decline in exports, particularly critical exports such as motor vehicles where we export to the US and the EU, for example. And that's a critical

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area that needs to be transitioned or there are many other areas that need to be transitioned. But, like we said earlier, is that if we don't do it in time, your global competitors as a country decreases and there's less investment and opportunity for the

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country.

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In South Africa, we are an impact investing hungry country. What agenda does the E. P. P follow in driving impact and which asset losses would be most

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appropriate? So once again, we believe that a society as unstable affects the returns that you have, and I think we could see it in South Africa's landscape right now. And so we believe that impact

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through asset allocation such as private equity infrastructure and even something like venture capital, can stimulate economic activity. It can deliver the investment returns. It can create new businesses that can be listed for the future that we can continue to invest but also create much needed jobs, address the social issues through social infrastructure as well as economic infrastructure.

Speaker 1:
So the E. P. F has a quite a quite a long track record invested in these asset classes and so it's largely through private equity infrastructure and venture capital. To a lesser extent, we're still exploring the South African landscape on venture capital, but we have done venture capital abroad as well.

Speaker 0:
OK, so Shafiq, just some of your key take aways and possibly some of the, um, panel discussions that you're really looking forward to at this winter conference this year.

Speaker 1:
I think the key takeaway is how do we navigate the future that creates sustainability in terms of economic growth, job creation, societal impacts that we are looking for,

Speaker 1:
particularly because our members are living in South Africa, 60% of our assets in South Africa. And so the success of the country is directly related to the success of those assets. And yes, it is a long term game. But what's positive? I think there's a lot of innovation and enthusiasm

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to look after the industry in a way and grow the industry in a way that ensures South Africa is sustainable. And our members can benefit from from that trajectory as well.

Speaker 0:
On that positive note, Shafiq, thank you very much for sharing your insights. We appreciate your time.

Speaker 1:
Thank you.