Pension Insight: Corporate governance in CPS — the new paradigm of sustainability

The contributory pension scheme (CPS) has flourished in Nigeria in the last 20 years largely due to responsible corporate practices, engagement, and long-term value creation. Pension fund operators must continue to adopt sustainability-focused governance to thrive in the Nigerian pension industry. These were the submissions of the acting director-general of the National Pension Commission (PenCom), Ms. Omolola Oloworaran, during the 2024 annual corporate governance conference organised by the Society for Corporate Governance Nigeria (SCGN) held in Lagos recently.

In an address, titled, ‘Corporate Survival and Sustainability: The New Face of Governance,’ Ms. Oloworaran shared insights on the evolving landscape of corporate governance in the Nigerian pension industry. She was represented at the conference by the commission secretary/legal adviser, Muhammad Sani Muhammad.

CORPORATE GOVERNANCE IN PENSION INDUSTRY

The acting PenCom DG began by contextualising how corporate governance has moved beyond a narrow focus on profitability to encompass environmental, social, and governance (ESG) criteria. This evolution has significant implications for the Nigerian pension industry, which has grown rapidly since the CPS was introduced in 2004.

As of August 2024, pension assets have surged to N21.25 trillion, establishing pension funds as influential players in the Nigerian capital market, particularly through their investments in fixed-income securities and equities.

The NGX Pension Broad Index, launched in collaboration with PenCom in 2023, embodies this shift. Designed to encourage diversification, the index seeks to measure the performance of pension fund equity portfolios more comprehensively, moving away from heavy concentrations in banking, consumer goods, and industrial goods. This initiative signals a broader objective: to position pension funds as active stewards of corporate governance, shaping Nigeria’s business landscape through responsible investment.

Ms. Oloworaran said that pension fund administrators (PFAs) must advocate for sound corporate governance in their companies. “Pension funds must take up their role as custodians of governance,” she stated, stressing that pension fund managers carry the responsibility of influencing companies towards ethical, transparent, and sustainable practices.

Active stewardship means more than attending annual shareholder meetings; it requires engaging with corporate boards, voting on critical issues, submitting shareholder proposals, and promoting ESG standards. By integrating these stewardship responsibilities within their investment strategies, PFAs can actively shape corporate governance, pushing for practices that ensure companies are resilient and aligned with long-term value creation.

THE ROLE OF ESG IN PENSION GOVERNANCE

Ms. Oloworaran highlighted that ESG considerations are now fundamental to corporate governance, influencing decision-making and guiding investments. ESG frameworks provide a structured approach to assessing a company’s financial health and sustainability, encouraging pension funds to prioritise organisations committed to responsible business practices. This shift aligns with global trends, where pension funds are increasingly scrutinising how companies manage environmental risks, treat employees, engage with communities, and protect shareholders’ interests.

By emphasising ESG factors, Nigerian pension funds can reduce long-term risks, enhance reputational standing, and ensure financial performance. As the PenCom Acting DG explained, “ESG isn’t just a trend; it’s an imperative for pension funds committed to securing value for retirees and supporting a sustainable economy.”

SUSTAINABLE INVESTMENT PRACTICES

Incorporating sustainability is about creating a pension industry capable of withstanding economic, social, and environmental shocks. Ms. Oloworaran advocates for diversified investments, particularly in renewable energy and innovative tech sectors, to support both fund stability and national economic growth. To uphold strong governance, PFAs are urged to proactively meet evolving regulatory standards, seeing compliance as a strategic necessity rather than a formality. Active engagement with stakeholders — employees, communities, and regulators — is deemed essential for transparency, trust, and accountability.

In order to consolidate governance efforts in the pension industry, Oloworaran proposed several key initiatives: development of a Stewardship Code to serve as a guideline for PFAs on actively engaging with investee companies, advocating for governance standards aligned with long-term value creation; establishment of a Pension Leadership Council, which will provide a platform for pension funds to consolidate their influence, engage with regulators, and offer oversight on governance matters within investee companies; and implementation of the Nigerian Sustainable Pension Principles to guide PFAs in incorporating ESG criteria into risk management and investment decisions, ensuring that pension funds contribute to sustainable economic growth.

In summary, Oloworaran’s presentation illuminated a path towards a more responsible and sustainable Nigerian pension industry, one that leverages ESG principles, engages stakeholders, and leads by example in a rapidly evolving market.