But while many investment companies pay lip service to the practice, there are only a handful of industry leaders that are able to demonstrate that they do it consistently well, the researchers found.
The report, now in its third year, is issued annually by the Bertha Centre for Social Innovation and Entrepreneurship, a specialised unit at the GSB, and seeks to shine much-needed light on the practice of Investing for Impact (IFI) in Africa and to put the continent on the map as a global contender in this investment space. This year, the research was supported by the Government of Flanders.
The GSB 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 IFI strategy employed in Africa, with US$490 billion under investment, representing 68% of IFI assets invested. In second spot was investor engagement, where an investor uses its shareholder or bondholder status to promote positive societal and environmental change within the invested company’s behaviour, at US$474 billion (66%). Screening, a category that includes religious and ethical investment practices such as Islamic finance, was in third place at US$148 billion (21%).
Impact investing and thematic investing, which involve investing directly in companies promoting sustainability and social development themes such as renewable energies, education or health, remained the two least used IFI strategies in Africa. They represent respectively 2% and 4% of the total IFI assets invested.
To further assist with the understanding of the market, the 2015 study introduced a new tool to identify which professional investors are IFI leaders by country and by type of strategy. The tool classified 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,” explained Xolisa Dhlamini, Bertha scholar at the GSB and lead researcher on the study. “When we looked at this we could 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.”