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ESG integration is high on agenda for SA fund managers, finds report

Anna Lyudvig
April 13, 2022, 4:45 p.m.

Word count: 724

ESG integration is the leading investing for impact (IFI) strategy in Southern Africa and East Africa, attracting more than $320bn and $6.7bn in assets, respectively, according to the sixth edition of the African Investing for Impact Barometer (AIFIB).

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ESG integration is the leading investing for impact (IFI) strategy in Southern Africa and East Africa, attracting more than $320bn and $6.7bn in assets, respectively, according to the sixth edition of the African Investing for Impact Barometer (AIFIB).

According to the findings, sustainability-themed investment is the leading strategy in West Africa, attracting $3.7bn in assets.

The countries which show the highest amount of assets invested according to one or more IFI strategies are South Africa (with an outsized $600bn) followed by Nigeria and Kenya.

The report from RisCura and the University of Cape Town’s Graduate School of Business (UCT GSB) covers approximately $650bn in assets dedicated to one or more IFI strategies.

It demonstrates that Africa is not a laggard when compared globally, offering investors vibrant investment opportunities.

The AIFIB surveyed 2640 funds from 382 fund managers in sub-Saharan Africa and scored them based on their implementation of IFI strategies, namely, ESG integration, investor engagement, screening, sustainability-themed investment and impact investing.

The report’s director of publication, Associate Professor, Stephanie Giamporcaro, said notably that there has been progress in the strategies, particularly in ESG integration, since the barometer first launched in 2013 — hiring ESG professionals and disclosing more precisely how ESG is integrated into investment processes and how investors engage on environmental and social issues, and not only on the governance aspects.

The research findings show that the investing for impact strategy that is most widely implemented is ESG Integration — $336.1bn in assets under management follow this strategy.

The second and third-highest amounts of assets amongst the IFI strategies are Screening ($231.3bn) and Investor Engagement ($145bn).

Overall, Impact investing ($60.6bn) and Sustainability-themed investment ($52.1bn) continue to attract the least amount of assets relative to other IFI strategies despite showing the most potential for demonstrable impact.

These strategies remain niche compared to the other IFI strategies but there is a notable jump in reported impact investing assets.

“The growth of Impact investing and Sustainability-themed investment strategies is heavily dependent on decisions taken by market makers such as financial regulatory bodies and also political forces. In Southern Africa, there is growth, for example, in sustainable infrastructure funds that is linked to the renewed appetite for infrastructure investment. In Kenya, some interesting innovative products have recently been created. These are called diaspora funds and are accessible to the local and overseas retail market,” said Giamporcaro.

Lead researcher Xolisa Dhlamini agreed, saying that the barometer provides data that can push positive change in the impact investing industry.

“The barometer is a powerful tool to identify excellence and developmental areas amongst fund managers in the investing for impact market. We have observed an improvement in transparency regarding IFI processes and policies by fund managers. Some are seeing opportunities to innovate in offering customised ratings and ESG services to institutional investors to advance IFI implementation in the industry,” said Dhlamini.

However, both agree there is still some way to go (and probably a paradigm shift needed) for investment professionals implementing these strategies to demonstrate and measure the true impact these strategies have on society and the environment.

“If we look at Investor engagement, it is one process to show that companies are being asked questions on climate change, but it is another to demonstrate how that engagement is contributing to change the disclosure behaviour of an entire sector and then how that disclosure has contributed to lower the total emissions of that sector,” said Giamporcaro.

The barometer’s scoring approach thus provides useful indicators for firms implementing these IFI strategies on what it will take to become leaders in impact. 

Important amongst these indicators is the ability of these firms to measure and demonstrate the true societal and environmental impact of implementing these IFI strategies.

RisCura’s head of responsible investing, Adam Bennot, said: “For long-term investors investing on the African continent, sustainability has become top of mind. How we invest has a real impact on our environment and society, and achieving the required returns over the long-term will require a sustainable and inclusive economy.”

“This is why we at RisCura are proud to partner with the UCT Graduate School of Business to launch the sixth edition of African Investing for Impact Barometer. The larger the amount of assets investing for impact means more assets investing in our real economy to enable inclusive economic growth, drive real change and deliver sustainable long-term returns for investors,” he said.

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