Category Archives: ESG

Strengthening Private Investment in Africa

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Norton Rose Fulbright law firm was the scene last Tuesday for the Africa Alternative Investment Intensive. The forum was part of a series of conferences on the African investment landscape organized by Africonomie.

Investors such as Abraaj, Capri Africa, and Sarona Asset Management were represented. In addition, several important players in the African financial ecosystem were in attendance. These include PWC’s Mauritius office, IGD Leaders and PAN Diaspora Capital Management.

The AAII was a gathering of practitioners bringing their real world experience. It was an opportunity to share ideas and insights aimed at fostering a healthier African investment climate. Here are some of the topics:

 

Attracting American Capital to Africa

Obi McKenzie of Black Rock had constructive recommendations for fund managers. A fund’s track record is a big selling point. New funds without much of a record are encouraged to pursue funds of funds. A useful sources of leads is the National Association of Investment Companies.

Encouraging US pension fund managers to consider African investments

Donna Sims Wilson, president of the National Association of Securities Professionals gave a presentation on the NASP Africa Initiative. It is a USAID funded initiative known as Mobilizing Institutional Investors to Develop Africa’s Infrastructure, or MiDA. The goal is to expose US public pension plan sponsors to co-invest with African fund managers in Africa’s infrastructure.

Risk mitigation

Several times during the conference presenters pointed out various risks that must be managed either with insurance products or deal structuring. Currency risk was a topic of particular concern. Risk management in African investments will be address in more detail shortly in a subsequent post.

Startups & smaller deals

This is a segment of the market that the financial community has not really addressed. There were audience questions during the day about funding the “missing middle” deals of roughly $500k to $1 million. A panel on Smart Capital and the future Innovative Technologies in Africa identified several themes such as mobile technology.

Impact investing and ESG issues

Panels on ESG related risks and delivering sustainable energy addressed social an developmental impacts of investing. The very definition of ESG and how it is measured were among the topics discussed.

Last week’s Africa Alternative Investment Intensive continues the conversation and sets the stage for the next AAII gathering next month in London.

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DEVELOPMENT OF AN IMPACT INVESTING INDUSTRY

These are issues that I believe impact investment professionals will grapple with for the foreseeable future:

Impact Measurement. There is still no clear consensus on how to measure the social impact of impact investments. A number of methodologies have been developed, each seeking to create a standard that can be used across a wide range of investments.

  • IRIS is a catalog of impact metrics managed by the Global Impact Investor Network. IRIS is intended to provide a common language for measuring social, environmental and finance performance.
  • GIIRS ratings, developed by B Analytics uses the B Impact Assessment to rate the impact of a given investment or portfolio. The GIIRS rating includes an Overall Impact Business Model Rating, Overall Operations Rating and a Fund Manager Assessment.
  • The UN Global Compact measures companies’ performance in meeting universally recognized standards of human rights, labor, the environment, and anti-corruption. The Global Compact also encourages alignment with the UN Sustainable Development Goals.

In addition, several organizations have their own impact measurement methods tailored to suit their specific circumstances. Impact investors and social enterprises will need people who can sort through these methodologies, and understand how to apply them to their organizations.

Mainstreaming” of Impact Investments. When will impact investing become the norm? Will companies ever report social results alongside financial results as a matter of course?

Based on my experience at the IBL workshop, much of impact investing mirrors the startup world, involving relatively young and small companies whose value proposition includes some form of groundbreaking innovation. One sign of mainstreaming will be when we see larger, institution-sized impact investments. In addition, one wonders if we will see established, Fortune 500 companies reporting social impact results. These are companies that have tremendous influence on the global economy, the global workforce, and on communities and municipalities. They usually discuss their interactions with stakeholders in their annual reports, but that is not the same as an objective measurement of impact. How will impact influence executive compensation? Firm value? Corporate governance? Professional recruitment? These questions are being asked and discussed but the answers are still some distance away.

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