Impact investing opportunity in South Africa is a term coined to describe investments that are made into companies, organisations, and funds with the intention to generate social and environmental impact, alongside with getting financial return. Its a new way of considering how investments can best be made to support both the communities we live in, the environment we will leave for our children and the financial returns which will ensure the investment approach is sustainable. Impact Investing in South Africa, as in the rest of Africa holds enormous promises for future generations.
The UN’s 17 Sustainable Development Goals (SDGs) came into force in 2016. Through them, governments, companies and civil society will aim to address some of the world’s biggest environmental and societal challenges, such as poverty, inequality and climate change. These SDGs (see Figure 1) will guide global policy and funding over the next 15 years.
The SDGs are ambitious and estimates of the cost of achieving them range from $5-7 trillion per year. These goals can only be achieved through partnerships between Governments, regulators, academia, philanthropists and the corporate world. Global asset managers – with over $80 trillion of assets under management – will have an increasingly important role to play if the SDGs are to be met.
Impact investing has several key characteristics.
- Seeking positive financial returns – a company should have clear financial return targets.
- Mission-led business objectives – a company’s strategy should clearly outline how its operating model is designed to achieve a specific positive societal and/or environmental impact. Pursuing environmental and social opportunities Mitigating environmental and societal risk Focusing on measurable high impact solutions Delivering financial returns
- Measurable outcomes – a company should aim to measure and disclose the positive contribution to the environment and society in relation to its stated goals.
One way to support the aims of the SDGs is through Impact Investing. This involves investing capital for a financial return into the equity of companies that have environmental or social objectives at the heart of their commercial strategies – mission-led businesses.
Socially responsible investing, ethical investing and development finance are not new concepts but have been associated with philanthropists or niche investment products. This report proposes a framework that will allow institutional equity investors to include Impact Investing at the heart of their process. We show how the SDGs can be incorporated in a framework to identify and measure positive societal and environmental impact. Institutional investors can help impact investing flourish by channelling capital into mission-led businesses. Investing for Impact will allow clients to build portfolios in keeping with their own societal and environmental values without sacrificing the potential for financial return.
Key Sectors for Impact Investment Opportunity in South Africa
The growing impact investment market provides capital to address some of the world’s most pressing challenges, in sectors such as conservation, microfinance, sustainable agriculture, renewable energy, and much more. This type of investing challenges the long-held views that social and environmental issues should be addressed only by philanthropic donations, and that market investment should focus exclusively on achieving financial returns.
While still in its early stages, impact investing is getting a lot of attention and has seen rampant growth over the years, which is expected to continue. Many think the millennial generation, who tend to be more socially and environmentally friendly than past generations, are to thank for this growing interest in impact investing. Now that the millennial generation is becoming the largest in history, this could lead to us seeming more and more funding into impact investing.
Here’s a look at exactly how to spot impact investing opportunities and how to get involved.
HOW TO SPOT IMPACT INVESTING
There are four core characteristics that define impact investing.
- Intentionality – this is an investor’s intention to have a positive social or environmental impact through investments, which is essential to impact investing.
- Investment With Return Expectations – impact investments are expected to generate a financial return on capital or, at minimum, a return of capital.
- Range of Return Expectations and Asset Classes – impact investments target financial returns that range from below market (sometimes called concessionary) to risk-adjusted market rate, and can be made across asset classes, including but not limited to cash equivalents, fixed income, venture capital, and private equity.
- Impact Measurement – a hallmark of impact investing is the commitment of the investor to measure and report the social and environmental performance and progress of underlying investments, ensuring transparency and accountability while informing the practice of impact investing and building the field.
WHY SHOULD YOU GET INVOLVED IN IMPACT INVESTING?
Impact investing challenges the long-held views that social and environmental issues should only be addressed by philanthropic donations, and that market investments should only focus exclusively on achieving financial returns.
Impact investing is now attracting a wide variety of investors, both individual and institutional, including: fund managers, finance institutions, private foundations, family offices, NGOs and more.
That’s because there are a diverse and viable amount of opportunities available these days for investors who are looking to get involved in impact investing. While some investors intentionally invest for below-market-rate returns, in line with their strategic objectives, others pursue market-competitive and market-beating returns.
Overall, many investors report that their portfolio performance from impact investing overwhelmingly meets or exceeds investor expectations for both social and environmental impact and financial return, in investments spanning emerging markets, developed markets, and the market as a whole.
HOW TO GET INVOLVED IN IMPACT INVESTING
Many impact investors choose to invest through funds whose social, environmental, and financial goals match their owns. Individuals can invest in companies that are making a difference in the social and environmental landscape, or there are also several opportunities open to individuals who want to get directly involved in impact investing. Additionally, on a larger scale, financial institutions including hedge funds and private equity funds do participate in impact investing.
Overall, impact investing allows you to invest with the dual goals of seeing a return and making a positive impact on the world, whether it’s social or environmental. While impact investing is still in its early stages, the growth potential of this sector is extremely high, and shows no signs of slowing down.
The Caban Group has compiled a significant infrastructure of service providers who support entrepreneurs with access to business finance, support with restructuring, access to grant funding and support in improving cashflow challenges. Our Corporate finance team in the UK supports the South African head office to ensure you have the best possible chance of securing the support your business requires. Contact the team at Caban through the contact form on the website or by emailing Info @ Caban.co.za