LA ÚLTIMA CRISIS LA CRISIS DE OCCIDENTE

As mentioned in the introductory section of this chapter, pension fund investments and its role in national economic planning has become crucial consequent to the global economic and financial crisis, and the growing recognition by investors and society at large, of the economic, social, and environmental challenges facing individual countries.

The social malaise created by the economic crisis of 2007/2008, and worsened by new realisation of a deeper crisis in 2011, has renewed calls for an all inclusive approach to development.

and sustainable development is not possible without redistribution of income. A theory largely predicated on the assumption that there was a less developed entrepreneurial class and suspicion that foreign capitalists would accumulate wealth and not uses it for the benefit of the country41. However, as a result of numerous shortcomings inherent in this theory, it has been established that economic development cannot be left to the state alone; it has to involve the participation of society and business (Simutanyi 2006. 2). According to Shunmugam (2010, 2), „it is quite important that the development state ensures that there is appropriate regulatory actions to prevent greed- driven individual and institutional participants from building up collective irrationality in markets‟.

With the realisation that the Bretton wood‟s prescribed „liberalised economy model‟ for most developing countries, in the form of a structural adjusted programme (SAP) had failed to solve the economic problems of most African countries (in some cases, SAP has been established to have contributed to the economic woes of these countries in the 80‟‟s and early 90‟s), a bigger role for the state in the economy has begun to gain traction ,albeit in the form of a state directed economic development42.

The issue is no longer that economies grow or need to grow, but how they grow. In this sense, financial tools such as institutional investments have the power to affect social, economic and environmental outcomes (Giamporcaro, 2010).

The case for a direct impact investment is made for developing countries such as South Africa as they face more pressing social priorities such as unemployment, social transformation and infrastructure development43.

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This is the crux of the developmental state theory of development.

42 _{A development that was once frowned upon by the western world and the Bretton wood}

institutions (IMF and the World BANK), but has now apparently been adopted by these countries and institutions in the aftermath of a global financial and economic crisis that continues to send

shockwaves to the markets, and which was partly due to insufficient or lack of government oversight.

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According to Whaites (2008, 3),’the private sector is the engine of economic growth. Domestic and foreign private enterprise and capital have a crucial role to play in ensuring a sustainable economic development in South Africa.

Economic development in South Africa will not be sustainable and meaningful without the inclusion of the mass of the population. Economic policy even if market oriented, should aim at redistribution of wealth (Simutanyi 2006, 5). Sadly though, it has been observed that these development goals in most of the developing nations often are prioritised at the expense of environmental issues. Giamporcaro suggests that environmental concerns are not mutually exclusive, as the long term investment performance is highly dependent on the activities of today‟s behaviours and its impact on sustainable development. “The long-term interest of fund members or beneficiaries will not be best served if the value of benefits paid out in future is eroded by the resultant impact of climate change and environmental footprint” (ibid, 11). According to Alonso et al (2009, 6), pension fund investments in economic development projects can take two forms:

Indirect Investments: pension funds invest in fixed income instruments or equities of companies linked to the construction or management of infrastructure projects. Indirect investments of this nature provide the asset portfolio with some particular characteristics of risks and profitability that are specific to this sector; meanwhile the acquired assets can belong to listed or unlisted companies. With regard to listed companies, economic and market crisis can have important effects on pension funds, reducing their value and associated benefits as witnessed in the recent global financial and economic crisis. And as for unlisted companies, the valuation of their assets is much more complicated and therefore participation of rating agencies is necessary.

Direct investments – As pension funds seek new categories of assets that would diversify their asset portfolio in order to limit their exposure to market volatility, they are beginning to focus on the direct investment in infrastructure projects. Through project finance or a public-private partnership model, the pension funds acquire assets linked to the return provided by a specific infrastructure, which can more or less be insured by the state or international financial institutions. In turn, the direct

often times referred to as socially responsible investments Another more direct effect of infrastructure projects on the economy is how they affect families. The availability of certain facilities such as schools, hospitals, public sewage, access to drinking water, electricity telecommunications etc are elements that have a direct impact on the well being of households. These infrastructural projects are not only used as a means of production, but also have an important social function that translates into economic development.

The United Nations Environmental Program‟s Financial Initiative (UNEP-FI) and its Principles for Responsible Investment (PRI) initiative are the major promoters of pension funds adopting a more responsible investment practices and the integration of economic, social and governance(ESG) issues into the mainstream investment practices of pension funds. The PRI initiative was launched in 2006, and has a total of more than 700 signatories representing more than US$21trillion in combined assets. In becoming a signatory to the PRI, investors commit to acting in the best long-term interests of their beneficiaries, first in their fiduciary role, as ESG issues can affect performance of portfolios, and second, applying the principles better aligns investors with the broader objectives of society 44(Cranston 2009).

The next section looks at the social responsibility of pension funds investments, as this is increasingly becoming a key imperative of any type of capital outlays.