Sustainable investment practices are transforming private capital investments, demonstrating that returns and a positive impact can - and should - go hand in hand.
Benchmarking environmental, social and governance (ESG) best practices can influence investment performance and improvealignment of values. Exits through IPOs and secondary buyers also require demonstrating adherence to ESG standards.
Social Impact Investment Readiness strategies address both financial and systemic factors that can mitigate the risks that impact an
investment’s long-term potential, create resilient value and increase capital efficiencies. Particularly pertinent to the continent’s Entrepreneurship, which is not only ripe with opportunity but prone to
unpredictability – i.e., rapidly changing demographics and evolving policy environments - but also one of the most popular continents with a very young majority, it is imperative we develop
and build our society as well as economy.
Sustainable investing has reached a level of maturity where it is clear that, especially in the emerging markets, the debate is no longer about why investing sustainably is critical for business.
Instead, the focus is on how to successfully integrate these strategies into investments in order to maximise value and impact – not only for the holding period but for the lifespan of the business. In
a 2015 United Nations Principles of Responsible Investment survey, nearly 75% of LP respondents said they were making ESG factors part of manager selection and nearly 85%
of GP respondents said that taking ESG into account had helped pinpoint risks and opportunities for value creation - therefore if Entrepreneurs are to attract the RIGHT capital the
require they out to consider this as a core part of their development.
INTERESTING KEY FACTS:
- Younger investors and Entrepreneurs – millennials under the age of 35 – are leading the way in the demand for impact investing investments. More than any other age group, they are interested in
investing in companies that share similar values and are more likely to believe they can achieve competitive returns (59 percent).
• Millennials also place greater importance on the Social issues they consider important than on financial
returns (47 percent)
- At Franklin Templeton, they make a clear distinction that ESG is different from ethical investing or values-based investing. And, they do not think it should require a trade-off in terms
of performance. Instead, they believe ESG is about risk-based investing which evaluates, in equal measure, all potential risks and drivers of long-term return, and assesses whether those
risks are priced in.
• By one estimate, $21.4 trillion of global assets under management (AUM) in 2014 were reported as invested in a “sustainable” way—a significant increase from $13.3 trillion in AUM
reported in 2012.
KEY STRATEGIES ENTREPRENEURS NEED TO CONSIDER TO BE SOCIALLY INVESTMENT READY
Quantifying Impact : Focus on the beneficiaries and the larger stakeholder base but ultimately it needs to be drilled right down to a “per dollar invested / made / spent - leading to a specific social
Strategic Impact : Ought to relate to the business and doesn't have to be something separate from the underlying business activities. This demonstrates to investors that social impact is a core
part of the entrepreneurs focus and strategy rather than an add-on only to look good or to attract investment only.
Qualifying Impact : A Half-yearly or annual Impact report describing the social impact to reassure investors and stakeholders of their commitments and also to track the growth of impact over time.
THE URGENT NEED FOR SUSTAINABLE INVESTMENTS IN AFRICA
• The returns on higher education are growing globally and they are highest in Africa. The World Bank has invested more than US$1 billion in African higher education since 2000.
• In Sub-Saharan Africa, 20% of the World Bank’s overall education portfolio is devoted to higher education, amounting to US$600 million.
• Investments in higher education would pay off. Returns to investments in higher education in Africa were 21%, which was the highest in the world, according to Claudia Costin, a senior
director at the World Bank.
• The global health sector, especially in developing markets, is facing critical workforce shortages. To address this challenge, GE Healthcare announced in 2015 a $100 million
commitment to healthcare education over the next three years in its 84-country Eastern and African Growth Markets (EAGM) region.
By Sean Drake
Sean Drake is an entrepreneur and founder at The Wealth Project Holdings PLC