Kigoda Consulting

SRI in Africa: challenges and opportunities

1 October 2012

On 28 September, Emerging Markets ESG published an interview with Kigoda Consulting Managing Director Mike Davies on the challenges and opportunities for sustainable and responsible investing (SRI) in Africa. The interview was one of a weekly series entitled “Five Questions about SRI“, which is intended to provide insights and raise awareness about SRI in emerging markets.

Key points included:

• While traditional, mainstream investment should take a long-term view, SRI absolutely requires a long-term commitment to the actual outcome (ie the outcome that includes extra-financial factors) of investments rather than only the financial outcomes. Active engagement is another key characteristic of many SRI approaches.
• The 54 countries in Africa each present very different challenges and opportunities for companies with regards to environmental, social or governance (ESG) factors. However, it is important to note that, in the majority of cases, these issues can be managed. Companies that undertake proper due diligence, engage with stakeholders and adopt a sensitive approach towards local communities and the wider environment in which they operate will significantly reduce potential negative impacts and, as a result, their risk exposure. They will also be better placed to maximize potential opportunities that arise.
• The weak disclosure of extra-financial information by companies presents a challenge to investors wanting to analyse ESG issues. In general, disclosure tends to be better in terms of corporate governance than on social or environmental issues. But the accuracy, completeness and comparability of data remains a challenge across all themes.
• Given the relatively high returns available, and the paucity of attractive returns across the developed world at present, investor interest will continue to grow for all asset classes across Africa. The growth of Africa investment will also be supported by the shift in the perceptions of the risks and opportunities that the various countries present to investors. Ongoing support from institutions such as the IFC and regulatory changes such as South Africa’s revised Regulation 28, which requires funds to give appropriate consideration to material long-term factors, including ESG, will provide impetus to SRI.

The full interview is available here: Five Questions about SRI – Weekly Expert Interview with Mike Davies

• Africa
• Environment
• ESG
• Reg 28
• Social
• SRI