Despite the data challenges, this research provides a surprisingly detailed look at the sustainable investment landscape in the region
The International Finance Corporation (IFC) estimates that 125 billion U.S. dollars of investment that integrates environmental, social and governance (ESG) factors in Sub-Saharan Africa (SSA) is set to grow significantly.
The IFC which released comprehensive study to date of Sustainable Investment (SI) in SSA based on research by SinCo and RisCura including over 160 interviews of investors and advisors says ESG-branded investment products represent less than 1 percent of assets under management (AuM) or 5.5 billion dollars.
“Sustainable Investment in SSA is one of a series of IFC reports that addresses information gaps in sustainable investment,” said Euan Marshall, Global Product Leader, Sustainable and Inclusive Investing of IFC.
“This report is part of IFC’s efforts to help mobilize more institutional capital into sustainable and inclusive equity funds and indices in frontier and emerging markets,” Marhall said in a statement released in Nairobi on Tuesday.
“Sustainability means living and working in ways that society, its members and economies are able to meet their needs and express their greatest potential indefinitely,” said Stella Kilonzo, the CEO of Kenya’s Capital Markets Authority.
Kilonzo said the report helps Africans in the major economies in South, West and East Africa to present the investment case for sustainable development.
“We expect the growth in capital markets in Kenya to increase our capital base in a sustainable way, by integrating ESG factors as investment decisions are made that affect the future of Kenya,” she said.
The report is based on research by SinCo and RisCura including over 160 interviews of investors and advisors.
The report analyzes the state and growth trajectory of sustainable investment, and the underlying drivers and barriers to its development, in South Africa, with additional focus on the major Sub-Saharan African markets of Nigeria and Kenya.
The findings point to significant growth in SI over the next five years, led by Private Equity (PE) funds, demand from asset owners, and new regulations that enable pension funds to both increase allocations to PE and/or enable ESG integration, notably in South Africa.
The largest institutional investment market on the continent is South Africa which accounts for 95 percent of Sustainable Investment in SSA.
The report makes five strategic recommendations to incentivize the investment value chain to integrate environmental, social and corporate governance (ESG) factors into investment decisions, promoting shared learnings from the dynamic local industry, building out a stronger investment case and tracking the growth of the SI theme.
Barriers were identified by investors including: low levels of awareness amongst pension fund trustees, the need for better standards/ reporting and research coverage beyond the large dual- listed companies in high-impact, high-visibility sectors, and increased expertise and services from asset consultants, analysts and advisors.
Jim O’Neill, Chairman of Goldman Sachs Asset Management, commented that “with economic opportunities and increasing investment in Africa.. [t]he concept of sustainable investing could also feature more prominently in African investment opportunities.”
Data gaps persist, making ESG analysis difficult. “Sometimes even the most basic investment data to help understand SI in the region is difficult to come by,” said Malcolm Fair, Director of RisCura.
“Despite the data challenges, this research provides a surprisingly detailed look at the sustainable investment landscape in the region.”
The Private Equity (PE) asset class is relatively more advanced in implementing ESG factors than general asset management, in large part due to their clients assets flowing from development financing institutions (DFIs), such as the IFC, African Development Bank, Proparco and CDC. DFIs have committed capital to Africa-focused Private Equity managers in the past decade, producing positive and uncorrelated investment returns. One-in-two PE funds have managed assets for DFIs in the past 3 years.
To build on the momentum identified in this report authored by Graham Sinclair, Principal at SinCo, the IFC is to host a series of investor workshops in Africa with investors and asset owners.
“The report’s findings show how far interest has grown in sustainable investment and how much further it can go,” said Rod Evison, Acting CEO of CDC Group, which has over 1.1 billion British Pounds committed to funds in PE in Africa.
From a small but established base, an African interpretation of Sustainable Investment is growing. More work is needed, at policy, practitioner and portfolio levels, to grow this investment theme.
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