Last week, the National Task Force for Impact Investing hosted the SA Impact Investment Forum in Johannesburg.
The newly established National Task for Impact Investment is administered by the Bertha Centre at the UCT Graduate School of Business, which has been at the centre of innovative financing in South Africa.
This month, South Africa became the first African country to join the Global Steering Group (“GSG”) for Impact Investing. The GSG is a global body promoting impact investment, which is broadly defined as investing with a pursuit of social and environmental returns in addition to financial returns.
There is significant momentum for impact investing in South Africa, thanks to many years of efforts made by investors, academia, and intermediaries.
What would it take to take impact investing to the next level? I have four key takeaways from the SA Impact Investment Forum.
1. Private sector as the lever
Only a week before the forum, the new Minister of Finance, Tito Mboweni, spoke about the challenges South Africa is facing. Even though President Cyril Ramaphosa has committed to revitalize the economy, the outlook is grim. The expected growth rate this year is 0.7%, half of what was forecasted. The Treasury also estimates the budget deficit to increase to 4% of GDP.
Former Standard Bank CEO Jacko Maree spoke during the forum’s key note address about the private sector investment as the “only lever…to keep the flywheel turning.” He was speaking about the overall economy in South Africa, but it is also applicable in the impact investing space.
Under these challenging circumstances, there was a sense from the panellists and the audience that impact investing can play a significant role in trying to achieve the National Development Plan (“NDP”), which is largely aligned with the UN Sustainable Development Goals (“SDGs”).
We need to mobilize the private sector capital swiftly to eliminate poverty and reduce inequality by 2030.
2. The role of “gate keepers”
During a panel titled The power of long term savings to sustain a flailing economy, there was a discussion around the key role that investment consultants and trustees of pension funds play in the investment decision making process. This is not a uniquely South African issue. It’s been discussed globally that there is a lack of understand by investment advisers on alternative ways of investing.
The Government Employees Pension Fund (“GEPF”), through the Public Investment Corporation (“PIC”), has about 5% of its R1.6 trillion assets invested in what they call “developmental” asset classes. Linda Mateza, Head: Investment & Actuarial at the GEPF shared three challenges from an asset owner perspective in engaging with impact investing. They are: 1) lack of investment opportunities; 2) it is a much more difficult asset class; and 3) capacity related to being able to evaluate opportunities.
Information gap and misconception about impact investing being risky play a role. We need more data and case studies of South African examples such as TUHF and SA Taxi that were showcased in the forum.
3. Investable opportunities
One of the challenges facing investors who deploy capital in private equity/debt is lack of investable opportunities. On the flip side of this challenge is the enterprises not being able to access funding. Bridging this gap requires efforts from both sides and collaboration is key.
Mabatho Seeiso, a pension fund trustee, encouraged the audience to stop waiting and start collaborating. She also spoke about the importance of listening to the pension fund members. In her passionate talk, she spoke about the concerns that many South African pensioners have, which is bigger than the pension benefits that they receive: “when I retire, what is the quality of life I’m going to have?”
While pension funds need to take a careful approach to balance risk and return, impact investing in South Africa offers a unique value proposition. Assets managed in pension funds could make a positive difference to the pension holders’ lives and those of their communities during their life time.
4. Mainstreaming the “movement”
The data shared by Donna Nemer from the Johannesburg Stock Exchange (“JSE”) on the investors’ interest in the environmental, social and governance (ESG) approach to investing was encouraging. ESG investing, while it is different from impact investing, is often an important entry into responsible investing.
Globally, impact investing is often characterized as a “movement.” Judging by the crowd at the SA Impact Investment Forum, South Africa’s impact investment movement is spreading rapidly. It includes not just those who have already been “converted” but those who are new and should be part of it for impact investing to take off.
It was refreshing to see new faces in the audience from large corporates, financial institutions, amongst the usual suspects. This is not to undermine the power of those who have been working tirelessly in impact investing. But at the end of the day we need asset holders and asset managers to be able to deploy capital to impact investing.
There is still a lot of work to be done collectively to getting impact investing to a “tipping point” as Wendy Lucas-Bull, Chairperson of Absa Group and a member of the National Task Team for Impact Investing, said during her closing remark. But the prospects look much brighter than ever before.