Africa can provide investors with vibrant investment markets that are focused on ESG and impact and European pension funds committed to sustainable finance should therefore connect with the African investment industry and financial markets more.
That was the conclusion from the 6th edition of the African Investing for Impact Barometer (AIFIB) published by RisCura, a global investment firm, in partnership with the University of Cape Town.
The report covers around $650bn in assets dedicated to one or more investing for impact strategies (IFI) and showcases the most comprehensive and up-to-date research of these strategies in Southern, West and East Africa.
Over 382 fund managers from 2,640 funds were polled and graded on how well they implemented their IFI strategies, which included ESG integration, investor interaction, screening, sustainability-themed investment and impact investing.
The Financial Conduct Authority (FCA) is pushing for more ESG disclosure and effect measurement. But the research found that many investors are confused about how to accept this sustainable finance paradigm shift, what to report and how to disclose it in this new global investing period. Many pension scheme trustees still lack the expertise and authority needed to make effective ESG and impact investing decisions according to the research.
Additionally, fund managers’ need for and deployment of ESG skills has increased. According to the report, another trend to keep an eye on is the rise of local ESG data providers, as well as the growing presence of multinational firms providing ESG ratings and data services to institutional investors to aid IFI growth.
While the African IFI market actors have made progress, there is still much more to be done according to the research. The grading approach of the barometer thus gives important indicators for organisations executing these IFI initiatives on what it will take to become impact leaders. The ability of these companies to assess and demonstrate the genuine societal and environmental impact of executing these IFI plans is one of the most important of these indicators.
UCT director of publication associate professor Stephanie Giamporcaro says: “This report proves, without question, what we have known for some time — that Africa is no laggard on the global market and can offer investors vibrant investment markets with strong, and meaningful, ESG and impact focus. European pension funds committed to sustainable finance could connect further with what is going on in the African investment industry and financial markets. Europe is facing a wave of regulation (such as green taxonomy and Sustainable Finance Directive Regulation) leading to an increasing number of investors to disclose what they do regarding ESG and to become more sophisticated in measuring the impact of their investment strategies on carbon emissions, for example.”
Giamporcaro adds: “The Africa Impact Barometer contributes to this global effort by looking at what lies under the ESG and impact bonnet. It will give trustees a checklist — a barometer – with which to measure and effectively challenge their advisors or asset managers. In a market rife with greenwashing, this report debunks the words and ‘myths’ and will help investors ensure they have the right processes, with the right governance and reassurance, to take them on their journey and that their providers are doing what they say they’re doing. It will also give them an indication of the key people operating in the space — the high impact leaders in the field.”
AIFIB researcher Xolisa Dhlamini says: “The barometer is a powerful tool to identify excellence and developmental areas amongst fund managers in the investing for impact market. Going forward, fund managers will be expected to disclose more precisely how ESG is integrated into investment processes and how they engage investees regarding ESG issues.”
Dhlamini added: “It continues to be challenging to ascertain the exact impact of IFI strategies due to the differing stage of disclosure and measurement by fund managers. However, our analysis shows that ESG integration is the leading IFI strategy in Southern Africa and East Africa attracting more than $320bn and $6.7bn in capital respectively, with South Africa still the country with the largest amount of capital ($600bn) dedicated to one or more IFI strategies; followed by Nigeria and Kenya.
“Sustainability-themed investment is the leading strategy in West Africa attracting $3.7bn in capital. ESG Integration and Screening attract the most amount of capital overall with ESG integration attracting $336.1bn, and Screening attracting $231.3bn.”
RisCura head of responsible investing Adam Bennot says: “We are proud to be part of such an important piece of research which will be a driver for change and development in the industry.”
