Sustainable investment taking root in AfricaSeptember 2011
Sustainable investment has found a ‘strong niche foothold’ in sub-Saharan Africa and is expected to grow significantly over the next five years.
This is the optimistic conclusion of a report from the International Finance Corporation (IFC), the World Bank’s private-sector arm, which says growth is being fuelled by South Africa, the region’s largest investment market.
The IFC, however, remains cautious about the problems that the region must overcome in order to maintain its expansion as an SRI base.
The report said: “Although sub-Saharan Africa is fast becoming attractive to global investors, the region also faces major challenges, including conflict, health pandemics, water scarcity and the impact of climate change.”
At present, corporate governance, political risks and reporting are the most important considerations driving SRI in the area.
The IFC makes several recommendations as part of its effort to expand SRI in countries south of the Sahara, especially South Africa, Kenya and Nigeria.
Most importantly, it notes that the appetite for investment based on good environmental, social and governance (ESG) performance is strong, but that insufficient data and the lack of awareness on how to evaluate CSR are obstructing its development.
The IFC points to the need for companies and stock exchanges to improve reporting standards, therefore, and suggests they emulate South African examples.
It says greater integration among companies is needed to develop standardized metrics, share CSR knowledge and collectively make the sustainable investment case.
Separately, South African institutional investors have introduced a draft Code for Responsible Investing. Under the code, South Africa will become the second country, after the UK, to introduce standards on ESG issues, disclosure and responsible ownership for investors to endorse.
The Committee on Responsible Investing by Institutional Investors, a coalition of public-sector pension funds, asset managers and the Johannesburg Stock Exchange, has released the draft for public consultation until October.
John Oliphant, head of investment at the Government Employees Pension Fund, said: “Responsible investing and corporate governance guidelines in South Africa are largely voluntary.
“The code aims to put in place the checks and balances needed to make this voluntary framework successful.”
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