Sapna Shah, the Managing director of Global Impact Investing Network (GIIN) started his 2019 report by saying “I wouldn’t surprise you if I opened this letter with a brief statement on the devastation of climate change or the savagery of unequal access to the most basic of services and the tragic consequences that await us if we do not act now and act fast”. He was referring this comment to the global investors, who include fund managers, foundations, banks, development finance institutions, family offices, permanent investment companies, pension funds, and others. He goes on to say that these institutions share in the ambition for impact investing to combat these problems and that finance was a force for good. I am talking about the USD 502 billion in impact investment assets, estimated through the GIIN’s Sizing the Impact Investing Market report.
Impact investors have diverse asset allocations which they invest across geographies, sectors, and instruments. Investors allocate capital globally, with about half of total assets allocated to emerging markets and half to developed markets. These results are not surprising given that many of these investors are based in the developed markets. Furthermore, the target for investing with impact investing as the objective is market-rate returns for many of these investors, but there is still a large percent of them who are targeting returns below market rate and those targeting returns closer to capital preservation. I am of the view that impact investing is the capital we should be luring to Namibia for many of our capital development needs.
Essentially, impact investing is where investments are made with the intention of generating a social or environmental benefit alongside financial returns. Individual and institutional investors pursue impact investing primarily in private capital markets, including closed-end private equity or private debt funds.
Impact investing differs from socially responsible investing, which is the process of selecting or eliminating investments based on screening criteria. For example, an investor may want to avoid companies that have products that may be addictive or dangerous, such as tobacco or coal powered plants that cause air pollution. With impact investing, funds actively seek to invest in companies or projects with the potential to have a positive impact on social and/or environmental outcomes.
The industry is fairly young, but impact investing globally has shown impressive growth and obtained mainstream acceptance since it started about a decade ago. In Namibia it is still a new concept and a new road to navigate. In order to participate in it as we form a part of this global village, we would need clear implementation guidelines on how to address the lack of these basic services such as water and sanitation, whilst we satisfy the investment objectives of impact investing. One way of doing this is the implementation and streamlining of government policies, which we already have in place in order to provide the required energy, food and agriculture, healthcare, housing, ICT, Infrastructure and WASH (water, sanitation and hygiene). With a clear impact investing policy anchored around our national developmental policies, this will help to also accelerate the allocation of global investors’ capital in the country.
Namibia has a multitude of underserved sectors, such as water, energy, road infrastructure, health services and housing and many others where a social or environmental impact can be made, and which can potentially make it a favoured place for impact investing funds to deploy their capital. In the 2019 report of GIIN, we note that South Africa has been a notable recipient of such capital, but so has sub-Saharan Africa. So where is Namibia in this and should we not be exploring this industry too?
However, investors are hesitant to commit capital without sufficient information on impact investment funds, and the impact they are making. This is inherently difficult in Africa where the impact investing market is small compared to global capital markets.
Some investor concerns globally include the risk of ‘impact washing’ and ‘mission drift’. ‘Impact washing’ is where companies or funds market a social/environmental impact that doesn’t exist or is highly exaggerated. ‘Mission drift’ is when an organisation or company moves away from its social or environmental mission and starts focussing more on their financial returns.
Proposed solutions and industry guidelines, such as independent assessments or third-party verification of investments, are necessary to allow investors to make informed decisions, particularly where there may be a trade-off between impact and financial returns. Increased transparency and accountability can address investors’ concerns and establish the credibility of funds’ impacting investing actions.
Nearly universally, impact investors measure and manage their impact, typically using a mix of qualitative information, proprietary metrics, and metrics aligned to IRIS or other standard frameworks. Notably, more than 60% of investors specifically track their investment performance to the United Nations’ Sustainable Development Goal (SDGs), driven by a desire to integrate into a global development paradigm. These investors target a range of impact themes aligned to the SDGs.
While numerous stakeholders are working towards building a global consensus on how to measure, manage and report impact, there is still no standardisation that allows for comparability in impact measurement and reporting. Many in the industry have combined the various toolkits and frameworks to develop an approach tailored to their specific needs. This approach may likely still be useful for investors, as ultimately, investors want transparency on impact strategy and results and this is where our local investors, mainly pension funds also come in, in both their small and big ways.
– Loth Angula,