Huge amounts of private capital are available for social investment if entrepreneurs know how to access and use it properly, say the experts.
Research released by JP Morgan Global Research and the Rockefeller Foundation late last year concluded that invested capital of between $400-billion and $1-trillion could be made available for “impact investing” on a global scale in the next 10 years.
Impact investing has taken off in the United States, the United Kingdom and several other countries, and is gaining a foothold in South Africa, says Dean Hand, chief executive of GreaterGood South Africa. The term relates to investments that have an active social or environmental objective in addition to financial objectives.
Impact investments are distinguished from the better-known and more mature field of socially responsible investments, which tend to focus on minimising negative impacts rather than proactively creating positive social and environmental benefits.
The South African Network for Impact Investing was launched by GreaterGood and its non-profit strategic social enterprise, GreaterCapital, in 2008. The network stages an annual conference and regular workshops and has published a guide to finance for social entrepreneurs.
“Wealthy South Africans are among the most generous givers in the world,” Hand says. “There is also huge potential to fund socioeconomic development with the approximately R3-trillion in life and pension fund savings.”
The network aims to tap into these funds by advancing sound investment in profitable, sustainable, high-impact social and economic transformation initiatives, she says. “There is a significant shift away from traditional grant funding. Asset managers are under pressure to deliver sound returns in addition to nation-building.”
Heather Jackson, chairperson of responsible investing at the Association for Savings and Investment South Africa, worked with the national treasury to publish guidelines for pension funds that move beyond financial returns to social investments.
Recent adjustments to the Pensions Fund Act include environmental, social and governance considerations as factors that must be taken into account by fund managers. From early July they will also have to be disclosed in a fund’s investment mandate. “This reform of the regulatory pension fund environment will see a move away from rules-based investing to principles-based investing by funds, including sustainability and responsible investing,” Jackson says.
The JP Morgan study predicted that the impact investment market in sectors such as clean water, maternal health, primary education, micro-finance and affordable housing had the potential to generate profits of between $180-billion and $600-billion. “Increasingly, entrants to the impact investment market believe they need not sacrifice financial return in exchange for social impact. Indeed, many have a regulated fiduciary duty to generate risk-adjusted returns that compete with traditional investments,” the report said.
It argued that impact investments should be categorised as an emerging asset class that required a unique set of investment and risk management skills, as well as industry standards and ratings. “While certain types of impact investments can be within traditional investment classes (such as debt, equity, venture capital), some features dramatically differentiate them.
“We argue that an asset class is no longer defined simply by the nature of its underlying assets, but rather by how investment institutions organise themselves around it.”
This article was made possible with funding from the Open Society Foundation for South Africa’s media fellowship programme