Targeted investment key to development

Impact investment will be a game changer in service delivery and economic development in SA

Corporate social responsibility (CSR) programmes and black economic empowerment tend to dominate coverage of capital deployed with a developmental purpose in SA, but impact investing is a term that is infrequently used and perhaps not fully understood.

Part of the reason is that while impact investing as an ethos has been around for decades in other territories, it is only late last year that the newly constituted local cross-sectoral Impact Investing SA (IISA) signed up to become a member of the Global Steering Group for Impact Investing (GSG). SA is the first African country to join more than 20 nations which aim to bolster flows of capital into such intentionally themed projects.

IISA set up a task force in May 2018 with the objective of setting up an ecosystem where more capital can be deployed into impact investment projects that seek to produce positive financial, environmental and social returns.

As yet, however, there is no centralised policymaking body for impact investment in SA. Heather Jackson, head of impact investing at Ashburton Investments and IISA task force member, says the goal is to reach a tipping point of 10% of invested assets backing impact investment strategies.

Compared with the quantum of More of the country’s financial resources set to be channelled towards service delivery capital going towards CSR projects — which by their nature do not produce financial returns and should not be expected to do so — Jackson says the savings pool in the financial services sector and pension fund industry can radically alter the prospects for social and environmental improvement if that intentionality can be demonstrably coupled with financial returns.

While IISA already has considerable buy-in from the office of the president, asset managers, investors, advisers and industry bodies, Jackson says the delineation of strategies and accurate measurement of impact combined with viable financial returns can provide the carrot that lures more assets away from traditional asset strategies.

Companies which can typically be funded at scale to bring about positive benefits in affordable housing; agricultural reform; health care; education and infrastructure may well be those that cannot attract funding from the conventional players. These are the disintermediators that provide solutions banks or other funders may be unwilling to back.

Successfully linking capital with commercially viable business models will tackle perceptions of elevated risk in impact investment projects, she says, and serve to open the floodgates.

“One thing we have implemented over the years is to utilise a guarantee mechanism — obtain grant funding for a guarantee to build into a fund to provide comfort to investors if they’re not familiar with the companies.”

Even so, Jackson says a little stick may also be needed. In the same way that Board Notice 52 for hedge funds was legislated to create transparency and openness in that sector, Jackson thinks some legislative compulsion listing impact investment as a mandatory component of fiduciary responsibility might be what’s required to compel all industry players to get involved, without having to resort to the prescribed assets argument.

Isaac Ramputa, another task force member, CEO of the Financial Sector Charter Council and former chair of the Asisa Foundation, says while SA has been slow to adopt the impact investing term, that is changing, and more industry bodies are backing the concept.

“The task force, which consists of 16 high-level professionals, is working to raise its profile and address the gaps in the market,” he says.

According to Ramputa, SA will host a pan-african GSG summit in 2020, expected to attract over 1,000 people from 50 countries. He says part of the task force’s goal is to explain the difference between investment that aims to mitigate risk and that which truly addresses socioeconomic and environmental problems.

“The SA impact investing market has been sized in two research studies. The Global Impact Investing Network (GIIN) estimates that to date $30bn has been spent, with $4.9bn from nondevelopment finance institution investors and $24.2bn from development finance institution investors. This has been across financial services; manufacturing; energy; housing; infrastruc-

What it means:

Heather Jackson: Asset and fund managers need to invest in companies that have a developmental, socially and environmentally beneficial mandate