Environmental, social and governance (ESG) risks are increasingly being treated as material financial risks rather than standalone sustainability concerns, according to the 2026 Stewardship Report released by South African investment manager Alexforbes Investments. Drawing on engagements with 32 asset managers collectively overseeing approximately R8 trillion in assets under management, the report finds that issues such as water security, executive remuneration and governance are becoming central to investment analysis as investors seek to protect long-term portfolio performance in an increasingly volatile operating environment.
The findings reflect a broader evolution in responsible investing across African capital markets, where stewardship is moving beyond compliance-driven ESG reporting towards evaluating the operational and financial consequences of environmental degradation, governance failures and social instability. According to Alexforbes, stewardship discussions are becoming more sophisticated as investment managers increasingly assess how climate, governance and infrastructure risks influence enterprise value, business continuity and shareholder returns.
Corporate governance remains the most significant area of investor engagement, accounting for 21.43% of stewardship priorities identified by participating asset managers. Executive remuneration represents 16.33% of overall engagement priorities, followed by climate-related risks at 14.29% and water security at 13.27%. According to the report, governance continues to provide the foundation for effective stewardship, while environmental and social risks are becoming more financially material as climate impacts intensify and infrastructure challenges deepen across South Africa.
Within governance, executive remuneration emerged as the largest area of concern, representing 26% of governance-related issues raised by investors. Succession planning, board composition, capital allocation, business strategy, fiscal discipline and enterprise risk management also featured prominently. Rather than viewing governance as a regulatory obligation, institutional investors increasingly regard board effectiveness and executive accountability as indicators of a company’s capacity to manage long-term strategic risks.
The report identifies energy security as the dominant environmental investment concern, accounting for 31% of environmental risks cited by asset managers, followed by greenhouse gas emissions and the broader energy transition. However, water security occupies a disproportionately important position because of its direct implications for business continuity, infrastructure resilience and national economic stability.
According to the report, South Africa’s deteriorating municipal water infrastructure is transforming water from an environmental concern into a systemic investment risk. South Africa receives roughly half the global average annual rainfall, yet consumes more water per capita than many countries with significantly larger freshwater resources. Nearly 47.4% of treated drinking water is lost through leaks, theft and billing failures, meaning that approximately 2.08 billion cubic metres of treated water never reaches paying consumers. The report argues that such losses represent not only municipal service delivery failures but also material risks for companies dependent on reliable public infrastructure.
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The financial implications extend well beyond traditionally water-intensive industries such as mining and agriculture. According to Alexforbes, unreliable municipal water systems increasingly affect commercial property values, retail operations, healthcare facilities and financial institutions exposed to municipal lending. Even companies with independent water supplies remain vulnerable if surrounding municipal infrastructure fails, disrupting logistics, employee welfare and broader economic activity. The report notes that among assessed Johannesburg Stock Exchange-listed companies, 88% operate in water-scarce regions, 63% have already experienced water-related operational disruptions, and 99% remain exposed to future water-related risks.
The report further distinguishes between physical water scarcity and infrastructure failure as separate categories of investment exposure. While extractive industries remain vulnerable to drought and declining raw water availability, sectors including banking, healthcare and property face growing risks arising from ageing pipelines, failing pumping stations and inadequate wastewater treatment systems. This distinction reinforces the argument that infrastructure resilience has become an increasingly important factor in corporate risk assessment and investment decision-making.
Social risks are also becoming more complex. Gambling-related exposures account for the largest share of identified social risks, followed by cybersecurity, healthcare, labour shortages, food security, workplace safety and worker welfare. According to the report, investors increasingly recognise that these interconnected challenges influence productivity, operational resilience and long-term economic stability, particularly in emerging markets where demographic growth, digital transformation and infrastructure deficits intersect.
The report also suggests that stewardship practices among South African asset managers are becoming more rigorous. Alexforbes recorded 395 formal stewardship engagements during the reporting period, compared with 342 in the previous year, covering governance reviews, sustainability assessments, executive discussions and investment due diligence. Asset managers voted on more than 23,000 shareholder resolutions, with approximately 8% opposing management recommendations, primarily on executive remuneration and board composition. Alexforbes said it actively reviews these voting decisions to ensure they align with its stewardship expectations.
While one-third of stewardship engagements achieved their intended outcomes during the year, the majority remain ongoing. According to the report, this reflects the long-term nature of governance reform, climate adaptation and infrastructure resilience rather than limited progress. The report also notes that the quality of ESG reporting remains uneven across the investment industry, although engagement increasingly focuses on improving disclosure standards rather than excluding less mature managers.
For Africa, the findings underscore how responsible investment is evolving alongside the continent’s economic transition. Infrastructure reliability, governance quality and climate resilience are becoming increasingly important determinants of investment attractiveness as governments seek to mobilise private capital for sustainable development. Investors are progressively evaluating environmental and governance risks through the lens of financial performance, recognising that failing infrastructure, weak institutions and climate-related disruptions directly affect productivity, fiscal stability and economic competitiveness.
The report concludes that stewardship frameworks must reflect African realities rather than replicate international models without adaptation. According to Alexforbes, responsible investment strategies should balance global sustainability objectives with local development priorities, particularly in areas such as energy security, water resilience and infrastructure investment. As African capital markets mature and sustainability disclosure requirements become more widespread, the integration of ESG considerations into mainstream investment decisions is expected to play an increasingly important role in strengthening long-term economic resilience across the continent.
