BUSINESS LIVE / 21 MAY 2018 - - 05:54 / DEAN HAND
Studies show that putting money into projects with a social impact can also be profitable
Impact investing — that is, investment in companies and organisations with the intention of generating a beneficial social impact alongside a financial return — is of growing importance in SA because it helps to create jobs, build affordable housing, provide access to finance for small business, banks the unbanked and bolsters public transport.
Tangible results: Farming and agriprocessing are among investment opportunities that could drive economic growth and deliver job creation. More buy-in from the private sector is needed to mobilise funds. Picture: SUPPLIED
But how does it work? The key is access to investor capital and a willingness to make different capital allocation decisions. SA is blessed with a strong savings pool through its pension funds and investment schemes. Considering all registered local retail collective investment schemes as well as pension funds and institutional investment funds, asset holdings were calculated at R2.25-trillion as at end-December. With the right direction and impetus, such as the guiding principles set out in regulation 28 for pension fund trustees to align their investment mandates with the country’s development agenda, more of these funds can be invested with more impact.
Opportunities for investment that could drive economic growth and have the added impact of job creation include: agriculture and agriprocessing; manufacturing (food processing, textile and furniture manufacture) and tourism. SA also has challenges in health and education that hamper its success as a nation; further investment in these sectors could contribute to the country’s prosperity.
But the instinct to invest with impact is often relegated when pension fund trustees have to make difficult capital allocation decisions. Concerns such as performance trade-offs, intolerable risk and reduced liquidity are frequently raised as the reasons for favouring tested investment strategies with historical track records that provide comfort.
However, an increasing body of research both internationally and in SA indicates that these concerns seem to be without foundation.
The Global Impact Investing Network’s recent research on the performance of impact investing funds indicates that they perform favourably in comparison with their peers within a given asset class.
Similarly, longitudinal studies of socially responsible investing funds indicate that performance is not compromised in comparison with similar funds that do not use a socially responsible investing lens.
Trustees then need to listen to pension fund members who ask: "When I retire, will I have money to spend? Will I have running water, decent transport and a clinic to attend when I am ill? Has the growth of my pension fund been at the expense of the world I want to retire to?"
Investing for impact strategies offer this opportunity. Encouragingly, the recently launched fifth edition of the annual African Investing for Impact Barometer indicates that there are a growing number of investment funds that are using these strategies, with 761 in SA alone. Nearly $400bn of assets in Southern Africa are allocated to one or more strategies that can broadly be called impact investing, be that an environmental, social and governance overlay, investor engagement, screening strategies or sustainably-themed investments.
The idea of investing for impact should be more broadly welcomed in the South African context, which carries a significant legacy of pressing social and economic challenges.
Like many countries in the developing world, SA encounters multiple challenges, but three are predominant: inequality, unemployment and poverty. Mainstream traditional investors have a unique opportunity to respond to this triple constraint, at the very least to manage systemic risk of not doing so.
SA’s colonial history systematically separated black people from the resources they needed for advancement. Most specifically, the ability to acquire or own valuable tangible assets such as land, property and equity. Social exclusion under apartheid still has a lingering impact today. We are one of the most consistently unequal countries in the world, with a Gini coefficient of 0.66. Some 26.7% of the workforce is unemployed. Black people between the ages of 18 and 34 are worst affected, with 38.6% of this age group unemployed.
About 55.5% of South Africans live below the poverty line. The prospect of economic growth much greater than 1% seems improbable when it is estimated that 3% growth is needed to sustain job creation.
The country’s National Development Plan sets out an articulate vision to aim for by 2030, with key priorities including increasing employment through faster economic growth, improving the quality of education, skills development and innovation and building the capability of state departments to deliver on their developmental and transformative commitments. Despite a bold National Development Plan, delivery has not met the needs of the previously marginalised communities.
Therefore new ways of investing SA’s savings need to be found to support sustainable market-based solutions for these challenges. It seems that to reduce poverty, unemployment and inequality of black South Africans, a multipronged approach is required: from an articulate plan to specific policy interventions, economic investment and, importantly, impact investing.
SA’s investment community needs to take up this investing challenge.
Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER