Impact investors channel over $400 billion into Africa

The 2017 African Investing for Impact Barometer (AIFIB) shows that investing for positive social and environmental impact or good governance is becoming the norm rather than the exception on the continent, with $428.29 billion in financial assets having been directed to this end in southern, East and West Africa in the past year.

“In 2017 we saw an increase of 23% in southern Africa and 18% in East Africa in the investment for impact (IFI) market compared to the previous year,” says the Graduate School of Business’s (GSB) Associate Professor Stephanie Giamporcaro, director of the AIFIB publication. “Over $400 billion in financial assets have been directed to investing for impact in southern Africa, East Africa and West Africa.”

“Over $400 billion in financial assets have been directed to investing for impact in southern Africa, East Africa and West Africa.”

Southern Africa leads with $399.45 billion of assets being reported to implement at least one impact for investment strategy. East Africa is second with $18.24 billion of overall assets that deploy at least one impact for investment strategy and West Africa features last with $10.6 billion.

Growing assets

“Assets in this market are growing at a steady pace,” says Giamporcaro. “This suggests that the industry is aligning to calls from the likes of the CEO of Black Rock, the biggest asset management company in the world, for business to become a positive force aligned to the betterment of society.”

Now in its fifth year, the AIFIB publication reveals that more than half of the funds examined in sub-Saharan Africa are invested in one or more investment for impact strategies.

The publication is an annual study produced by the Bertha Centre for Social Innovation and Entrepreneurship and is based at the GSB. It provides a snapshot of the growing impact for investment market in Africa.

The Barometer is compiled from publicly available information sourced from fund manager disclosures on their websites, reports and fund fact sheets as at 31 July 2017.

While investment increased in southern and East Africa, there was a drop of 16% in West Africa, which Giamporcaro says can partially be attributed to the fluctuation of the local currencies compared to the US dollar.

The AIFIB scores investments according to five different investment strategies: environment, social and governance (ESG) integration; investor engagement; screening (positive and negative); sustainability; and impact investing as implemented by professional fund managers.

Giamporcaro says there has been a marked increase in investments in the ESG category (the systematic integration of ESG factors into investment analysis, valuation and decision-making), making it the leading investment strategy in all regions.

In East and West Africa, ESG integration attracted $15.8 billion and $7.6 billion in assets respectively. South Africa has $360.4 billion assets allocated to ESG integration.

Investor engagement

A growing area of investment is investor engagement, which saw $361 billion in assets invested on the African continent in 2017. Investor engagement strategies seek to influence companies’ behaviour through active investment practices like proxy voting, board participation and engagement. This investment strategy increased from 40.4% to 70% in southern Africa.

“This spectacular progression is attributed to South African fund managers declaring investor engagement to be implemented beyond the listed equity asset class,” says Xolisa Dhlamini, a PhD student and lead researcher for the Barometer.

“There are a lot of very interesting initiatives regarding investor engagement, notably in South Africa in terms of reporting and disclosure.”

Screening, which is the term used to describe investments related to religious and ethical investment practices – like Islamic finance, for instance – is the third most significant investment strategy on the continent with over $192 billion in assets across all the three regions.

This area grew particularly in East Africa due to the development in Islamic finance, from 31% to 59% of all the impact for investment assets in the country.

Impact investment the norm

Giamporcaro says that impact investment in Africa is becoming the norm rather than the exception, but that it still has a significant way to go when compared with the rest of the world.

“In the coming years, more African countries will require billions annually to deliver on the Sustainable Development Goals (SDG) and the UN Agenda.

“This should hopefully result in more capital being geared towards impact investment and sustainability-themed investment if both the private and the public investment sector deliver on their promises.”

She concludes: “The big question however remains: Can these investment decisions change the lives of those who live in Africa for the better? The Barometer shows us that more work needs to be done to conclusively demonstrate this.”