Impact investing gaining ground in Africa, lags behind global best practice

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The idea of impact investing is gaining ground in Africa, with almost half of investment assets in South Africa, Kenya and Nigeria aimed at positive social, environmental and governance impact, according to research from the Bertha Centre for Social Innovation & Entrepreneurship, a specialised unit at the University of Cape Town (UCT) Graduate School of Business (GSB).

The Bertha Centre research – the 2015 African Investing for Impact Barometer – found 47 per cent of the US$721 billion of investment assets surveyed in South Africa, Kenya and Nigeria, the largest economies in South, East and West Africa respectively, were earmarked for positive impact, from Islamic finance to clean technology and building affordable housing.

However, professional investors still have a long way to go in terms of practice and disclosure, with the Bertha Centre saying though many investment companies pay lip service to best practices, only a handful of industry leaders are able to demonstrate that they do it consistently well.

The Bertha Centre issues the report annually, with the research for this third edition supported by the Government of Flanders.

“It is vital to quantify the African IFI market because it demonstrates to the rest of the world that investors operating in Africa are increasingly declaring their commitment to developing the continent in a sustainable manner,” said Dr Stephanie Giamporcaro, research director at the GSB and director of publication for the report.

“But measuring the size of the market only makes sense if, as researchers, we are able to also start to qualify and quantify the actual positive impact of these IFI strategies.”

The study segmented investments according to five internationally recognised investment strategies: ESG (Environmental, Social and Governance) integration, investor engagement, screening (positive and negative); thematic investment and impact investing.

ESG integration, which involves the integration of environmental, social and governance factors in investment decisions across asset classes, was the leading strategy employed in Africa, with US$490 billion under investment, representing 68 per cent of IFI assets invested.

Investor engagement was in second place with US$474 billion (66 per cent), while screening, a category that includes religious and ethical investment practices such as Islamic Finance, was in third place at US$148 billion (21 per cent).

“If investors operating in Africa are serious about being direct drivers of sustainable developmental change through more actively investing in innovative small- and medium-sized enterprises, this percentage ought to progress urgently in the future,” Giamporcaro said.

The study also introduced a new tool to identify which professional investors are IFI leaders by country and by type of strategy, which classifies investors as “cool”, “warm” or “hot”, depending on their level of impact and disclosure.

“The really ‘hot’ investors are those who are both active in the space and who report accurately on what they are doing,” said Xolisa Dhlamini, PhD Bertha Scholar at the GSB and lead researcher on the study.

“When looked at like this we can clearly see that hot investors were unfortunately still in the minority, which suggests that the impact that these investments are making is still not as powerful as it could be.”

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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