The Rise of Ethical Investing in Africa
While ethical investing was once perceived as a fringe investment strategy, it has steadily been gaining traction in recent years, with 78 per cent of asset owners incorporating environmental, social, and governance (ESG) criteria into their investment processes by 2019. The ESG movement incorporates criteria that cover environmental factors (e.g., climate change alleviation, waste management, energy efficiency), social concerns (e.g., labour conditions, stakeholder diversity, human rights) and governance qualities (e.g., diversity of the board, transparency, narrowing pay gaps).
The COVID-19 pandemic presented a pivotal moment, with record amounts of money pouring into funds that aim to promote sustainability and social goods. 2020 saw ESG funds taking in US$51.1 billion of new money from investors. This means that over a quarter of assets under management are currently being invested around the world according to ESG criteria.
Regarding ESG integration, the African private equity sector has largely been ahead of the curve compared to other markets. The African Private Equity and Venture Capital Association (AVCA) Sustainability Study demonstrated that, as early as 2017, 80% of investee companies in the continent had ESG considerations in their process from the investment’s inception. In 2011 South Africa was the second country (after the United Kingdom) to formally encourage institutional investors to integrate ESG factors into their investment strategies through launching the Code for Responsible Investing in South Africa.
Photo courtesy of geralt.