Tawanda Musarurwa

In many areas across Zimbabwe, the cost of a 20-litre bucket of maize – a popular staple food in the country – has risen to around US$10 this year, from around US$5 last year.

It’s a salient, but acutely felt effect of the El Niño-induced drought that Zimbabwe and several other Sub-Saharan countries are experiencing.

The occurrence of such droughts has been exacerbated by climate change.

The latest drought resulted in considerable crop failure and depletion of water resources and pastures.
According to the country’s Second Round of Crops, Livestock and Fisheries Assessment and the Rapid Village-based Food Assessment, which were both held in April this year, 7,7 million Zimbabweans (approximately 51 percent of the population) would require food assistance between May 2024 and March 2025 because of the drought.

In terms of a rural-urban dichotomy, the surveys indicated that of the 7,7 million people, six million people are based in the rural areas and 1,7 million people in urban areas.

Although the food shortages and resultant spike in the prices of maize and other foodstuffs affects most Zimbabweans, pensioners are particularly struck, given the low pension payouts they receive.

The elderly need social protection and financial security.

All things being equal, the country’s pensions system should meet these requirements.

The local pensions industry regulator has a mandate to protect the interests of pensioners, through effective regulation and supervision of the sector.

Earlier in June, Insurance and Pensions Commission (IPEC) Commissioner Dr Grace Muradzikwa lamented the low pension payouts.

“At the moment, on average our pensioners are receiving US$17 a month…We are working very hard to make sure that we see an improvement in the average level of pension benefits,” she told the regulator’s annual general meeting.

While the average level of monthly pension benefits tends to fluctuate in line with developments in the broader economy, US$17 can barely put food on the table for a pensioner for an entire month.

Zimbabwe’s pension funds have long invested in critical sectors of the economy, but not necessarily in the climate-conscious way one might hope.

According to IPEC, many of these funds are tied up in traditional economic sectors because of their historical importance to the economy.

But, some of these sectors – such as mining and manufacturing – have been heavy contributors to climate change.

For instance, pension funds have largely invested in property and on the local stock markets – the Zimbabwe Stock Exchange (ZSE) and the Victoria Falls Stock Exchange (VFEX).

According to IPEC’s Pensions First Quarter 2024 Report, the pensions sector’s asset composition is as follows: investment property (41 percent), quoted equities (31 percent), prescribed assets (10 percent), ‘others’ (8 percent), money market and cash at bank (5 percent), contribution arrears (3 percent), unquoted equities (2 percent).

Actuarial scientist Ms Nyaradzai Tasaranarwo said climate change can negatively impact pensions and retirement savings.

“The failure to achieve the Paris Agreement goals may lead to significant losses for pension funds that are heavily invested in carbon-intensive industries.

“An increased number and magnitude of extreme events may cause changes to the physical landscape, which could also lead to assets being devalued or destroyed.

“This may directly impact asset classes such as property, infrastructure or agricultural commodities, as well as the value of a company’s equity and bonds if they own assets that are affected or if physical events impact their business model.”

With local pension funds heavily invested in quoted equities, but also in the money markets, in the long run, climate change impact can result in gradual asset repricing of equities and bonds, especially for higher exposure industries such as mining and energy sectors, for example.

Local pension funds and both current and future pensioners by extension are on shaky ground financially, should climate risks become too severe.

For instance, pension investments in coal mines or oil companies could lose out as the world shifts to sustainable energy.

But, there is a way forward for Zimbabwe’s pension system to pivot toward greener pastures – literally.

There are clear paths forward for these entities to play a key role in the fight against climate change while ensuring long-term financial returns.

Bright opportunities
Zimbabwe is sitting on an untapped goldmine – its endless supply of sunshine.

The country has the potential to become a solar powerhouse, generating clean energy that could power the economy and reduce dependence on coal.

Indicative of this potential, the United Nations – in partnership with the Government – launched the ‘Catalysing Investments into Renewable Energy for the Acceleration of the Attainment of the SDGs in Zimbabwe’ project earlier in March.

The project launched with an initial investment of US$45 million, contributed by partners including Old Mutual and the SDGs Fund – Multi-Partner Trust Fund (US$10 million), seeks to drive sustainable development, enhance energy access and mitigate climate change in Zimbabwe.

Local pension funds can participate in this initiative.

There are also other projects that pension funds can invest in to spearhead the country’s transition to solar, including some that have been given prescribed asset (PA) status.

For instance, the National Social Security Authority (NSSA) and Old Mutual Investment Group Zimbabwe are investing in the expansion of independent power producer Centragrid Private Limited’s solar farm in Nyabira, from 2,5 megawatts (MW) to 25MW.

NSSA deputy director of marketing and communications Mr Tendai Mutseyekwa said the Authority has a deliberate strategy to invest in sustainable projects.

“NSSA’s investment philosophy is anchored on four pillars namely income, growth, impact and sustainability.

“Under the impact pillar, NSSA has a deliberate strategy to invest in projects that deliver measurable positive economic and social impact within a fiduciary and market-return context.

“Within this investment strategy, the Authority invests in renewable energy, agriculture and road infrastructure through equity and debt instruments such as green bonds.”

A shift toward solar would not only curb emissions but also provide long-term financial returns in a world increasingly hostile to carbon-heavy assets.

Reaping what you sow
Local pension funds can invest in climate-proofing initiatives in the agriculture sector that can lessen the direct impact of climate change on pensioners.

According to the Zimbabwe National Statistics Agency, agriculture contributed 12 percent to the country’s gross domestic product in 2022.

The sector is however largely rain-fed and is, therefore, highly sensitive to climate change effects.

With Zimbabwe largely an agriculture-based economy – with most of its industrial output back-linking to the sector – investments in climate-smart agriculture have massive potential.

As the country grapples with erratic weather patterns and drought, pension funds could invest in water-efficient irrigation systems, drought-resistant crops and sustainable farming practices, for example.

This would not only enhance food security but also hedge against the risks posed by climate change to the agricultural sector.

Pension funds can invest in various agriculture-focused prescribed assets, for example, Harvest Capital’s US$100 million issuance or commercial agriculture special purpose vehicle, Sahwira Agriculture (Pvt) Limited.

Green financing
The country’s pension funds have another tool at their disposal – green bonds.

These environmentally friendly bonds have the potential to be a win-win for the planet and investors alike insofar as they finance projects that aim to reduce emissions, from renewable energy to sustainable transport.

Globally, the green bond market has exploded, and Zimbabwe’s pension funds could tap into this growth to secure returns while contributing to climate goals.

Locally, the ZSE has announced plans to launch the Bond Market Association of Zimbabwe to promote sustainable and green finance within the country’s fixed space.

“Sustainable and green financing will be key to revitalising Zimbabwe’s fixed income framework,” said the ZSE.

Green energy entrepreneur Dr Nozipo Maraire said there are huge opportunities in the green economy.

“There is now a whole economy around climate and it is big business. There are countries that cannot generate carbon credits; Zimbabwe is the 12th largest generator of carbon credits in the world, and that is a big industry for Zimbabwe,” she said.

“The investment opportunities are in biodiversity, carbon capture, renewable energy, and climate adaptation and resilience.”

Green bonds-driven projects and investments can yield significant financial returns for the pension funds, which can boost pension payouts in the long run.

Investing with a conscience
Another step in the right direction would be for local pension funds to adopt Environmental, Social, and Governance (ESG) principles.

This strategy requires funds to look beyond just financial returns and assess the environmental and social impacts of their investments.

Organisation for Economic Co-operation and Development (OECD) Directorate of Financial and Enterprise Affairs head of insurance and pensions Mr Pablo Antolin said ESG investing should be supported by proper market structures and regulation.

“Yes, of course, retirement savings should be used to invest in support of the economy, investing in sustainable and ESG investment opportunities.

“But, only if there are appropriate market structures and financing instruments; suitable investment opportunities, and safeguards so providers act in the best interest of members,” he told the OECD-International Organisation of Pension Supervisors (IOPS) Global Forum on Pensions in Victoria Falls last October.

IPEC and the Zimbabwe Association of Pension Funds are already exploring the inclusion of ESG standards across the board, which could push pension funds to drop carbon-heavy investments in favour of more sustainable options.

In 2022, Zimbabwe committed to be an early adopter of the IFRS standard on sustainability disclosures – IFRS S1 General Requirements for Disclosure of Sustainability-Related Financial Information.
IFRS S1 was published in June 2023.

It applies to annual reporting periods beginning on or after January 1, 2024.

Actuary Mr Gandy Gandidzanwa, however, says while ESG investing is important, final decisions on what pension funds should invest in should be made after proper due diligence.

“Prescription, in whatever form should never be advanced,” he said.

“Investors should be allowed to invest as they please with no, or only very minimal, prescription.”
Local pension funds are at a crossroads moment that will significantly impact pensioners’ economic security.

They can continue on the well-trodden path and face an uncertain future or pivot towards investments that align with the global shift to sustainability.

ORIGINALLY PUBLISHED IN THE SUNDAY MAIL – https://www.heraldonline.co.zw/pensioners-overlooked-victims-of-climate-change/