Unpacking the Intricate Relationship Between Corporate Governance and Pension Funds

Explore the critical relationship between corporate governance and pension funds, with insights from Prof Mervyn King SC, who emphasises the need for ethical leadership, integrated thinking, and long-term value creation in pension fund management.

In the complex financial ecosystem of modern economies, few relationships are as significant—and as under-explored—as that between corporate governance and pension funds. With trillions of rands under management in South Africa alone, pension funds are not merely passive investors; they are powerful stewards of capital with the capacity to influence corporate behaviour, drive long-term value creation, and ensure sustainable outcomes for future retirees.

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Prof Mervyn King will deliver a keynote address at the upcoming Pan African Summit on Pension Funds Governance and Awards 2025

At the heart of this dynamic lies a profound obligation: pension funds must act in the best interests of their beneficiaries. But in a rapidly shifting governance landscape, what does this fiduciary duty entail? And how do the principles of good governance help pension funds navigate the growing expectations for ethical investing, environmental accountability, and social impact?

According to Prof Mervyn King SC, Chair of the Integrated Reporting Council of South Africa and Emeritus Chair of the King Committee on Corporate Governance, the answer lies in redefining value itself. “Pension funds can no longer focus solely on financial returns in the short term,” he says. “Value today must be seen through a multi-capital lens—financial, human, intellectual, social, and natural capital all matter.”

Prof King, widely regarded as the architect of modern corporate governance in South Africa through his stewardship of the King Reports, underscores the critical role pension funds play in holding companies accountable for integrated thinking. “Pension funds are not just investors; they are custodians of the future. Their investment decisions shape the kind of companies we build, the communities we live in, and the planet we leave behind.”

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This perspective has gained traction globally. Increasingly, pension funds are embracing environmental, social, and governance (ESG) criteria as part of their investment strategies. But governance—the "G" in ESG—remains the cornerstone. Strong governance ensures that companies are well-managed, transparent, and accountable to all stakeholders, including long-term institutional investors like pension funds.

The interdependence between governance and pension performance is clear. Poor governance in companies can result in scandals, value destruction, and reputational harm—consequences that directly affect the returns and stability of pension portfolios. Conversely, well-governed firms tend to outperform over time, making governance a risk management imperative for fund trustees.

Yet, governance is not just the responsibility of the investee company. Pension funds themselves must uphold the highest governance standards, particularly as they navigate new regulatory environments and shifting member expectations. In South Africa, the Financial Sector Conduct Authority (FSCA) has increasingly emphasized the duty of boards of trustees to integrate sustainability considerations into their investment policies.

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“The governance of the pension fund itself is crucial,” notes Prof King. “Transparency, ethical leadership, and accountability must begin at home. Fund trustees must understand that their role is not just to tick compliance boxes, but to lead with integrity and make decisions that balance performance with purpose.”

In this evolving context, integrated reporting—an approach Prof King has championed globally—offers a valuable framework. By focusing on how an organization creates value over time and across multiple capitals, integrated reporting helps pension funds assess and communicate both financial and non-financial risks and opportunities.

“Integrated thinking leads to better decision-making,” Prof King explains. “It allows pension funds to understand the full impact of their investments, not just on their financial statements, but on society and the environment as a whole.”

As pension funds confront the dual pressures of delivering returns and contributing to sustainable development, the link between good governance and good outcomes has never been clearer. Their power to influence markets and corporate behaviour gives them a unique responsibility—and opportunity—to lead.

“Governance is not an abstract principle,” Prof King concludes. “It is a practical, moral, and strategic imperative. And pension funds, as guardians of intergenerational wealth, must be at the forefront of this governance revolution.”