SOUTH AFRICAN INVESTMENT MANAGERS: THE LIABILITY RISK IS CLOSER THAN YOU THINK

For a long time, South African investment managers operated in what felt like a  predictable legal landscape. Stick to the mandate, get the disclosures right, deliver  defensible performance, and the risk stayed largely in check. That sense of stability is  starting to crack, and it is happening faster than many expected. 

A clear shift is underway. Investment managers are no longer judged only on what they  invest in, but on how they explain, support, and stand behind those decisions. The real  exposure is moving beyond performance and mandate compliance into the territory of disclosure, governance, and credibility, where what you say about an investment can  carry just as much risk as the investment itself. 

The regulatory pressure is building locally 

This is not just a global trend, it is happening here. The FSCA’s Sustainable Finance  Update Report 2026 signals a clear move toward tighter oversight of sustainability related claims, stronger disclosure standards, and a broader focus on the integrity of  financial products. It also explicitly raises concerns around greenwashing, inconsistent  ESG data, and misleading or unsubstantiated claims across the financial sector. 

Critically, this applies directly to asset managers and investment products marketed to  South African investors. 

The FSCA is already testing how asset managers apply the Green Finance Taxonomy in  practice and is developing guidance on how sustainability-related claims must be made  to retail clients. At the same time, it is working toward climate-related disclosure  expectations aligned with international standards. Taken together, this combination of  taxonomy, disclosure, and conduct oversight creates a far tighter framework than most  managers are accustomed to. 

The risk is not where most managers think it is 

Most investment managers continue to focus their legal risk lens on mandate  compliance and performance, but that is no longer sufficient. 

The real exposure increasingly sits in the gap between how a product is described and  what can actually be substantiated. A fund may be presented as sustainable, impact driven, or ESG-integrated, but if those descriptions are not supported by a clear  methodology, consistent application, and reliable underlying data, they become  vulnerable to scrutiny. The issue is not always dishonesty. More often, it is overstatement,  ambiguity, or weak substantiation. 

This is where risk begins to build. Once a claim influences how investors understand a  product, it moves beyond branding and becomes a conduct issue. A sustainability label 

that cannot be clearly explained or consistently applied can quickly become the basis for  regulatory concern. 

Greenwashing is the entry point, not the end risk 

There remains a tendency to view greenwashing as a communications issue; however,  that perspective is shifting, and doing so with increasing urgency. 

In the South African context, it is rapidly becoming a conduct issue with real regulatory  consequences. The FSCA has made it clear that poor-quality, inconsistent, or misleading  sustainability information can undermine market integrity and investor protection. That  framing is important, because once the issue is positioned in those terms, the risk moves  well beyond reputational discomfort. 

A weak or exaggerated ESG claim may undermine investor trust, attract regulatory  attention, and create the conditions for disputes or complaints. These risks do not arise  only in cases of outright misrepresentation. They emerge in the grey areas, where  language is broad, internal evidence is thin, and external messaging says more than the  investment process can comfortably support. 

The accountability chain is tightening 

Investment managers occupy a uniquely exposed position in the financial system. They  interpret ESG data, construct portfolios, make allocation decisions, and communicate  those decisions to clients and the market. That places them at the centre of the credibility  of sustainability-related investing. 

As the FSCA moves toward more structured disclosure expectations, the gap between  what is said and what can be proven becomes increasingly significant. Managers will  need to demonstrate that their internal processes, product design, investment  methodology, and external communications align in a coherent and defensible way. For  many firms, that is precisely where the vulnerability lies, not necessarily in bad faith, but  in weak alignment between governance, data, and messaging. 

This is not a future risk - it is already forming 

One of the biggest mistakes firms can make is to treat this as a problem for later. It is not  a distant issue waiting for a future regulatory overhaul. The building blocks are already in  place. The FSCA is focusing on disclosure and conduct, testing taxonomy-aligned  classification, and working to improve the credibility, consistency, and comparability of  sustainability-related information in the market. 

That is how enforcement environments develop. They do not begin with a single dramatic  rule change. They begin with clearer expectations, sharper scrutiny, and a narrowing  tolerance for imprecision. Once that happens, firms that relied on broad language or loosely defined ESG positioning often discover that their exposure has been building for  some time. 

The real question for investment managers 

The question is no longer whether ESG or sustainability claims can be made. The  question is whether they can be defended. 

Can the firm explain, in concrete terms, how ESG factors are integrated into decision making? Can it substantiate those claims with reliable information? Can it demonstrate  consistency across mandates, disclosures, client reporting, and marketing material? If  the answer is uncertain, the exposure is already there. 

Final thought 

South African investment managers are entering a more demanding legal environment,  one in which precision, evidence, and alignment matter. 

Firms that adapt early will recognise that ESG and disclosure are no longer simply  strategic or branding issues. They are legal and regulatory issues with real consequences. 

Those that fail to adjust may find that the real liability risk was never hidden in the portfolio  itself, but in the confidence with which it was described. 

At Gittins Attorneys, we advise on navigating regulatory changes, and evolving conduct  standards in South Africa’s developing financial landscape.

Adam - (Attachment) South African Investment Managers - The Liability is Closer than You T.

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