Listed markets will deliver significant impact as Africa awaits a five-fold capital windfall, says Old Mutual Investment Group
Asset managers will have to focus on both listed and private market opportunities in the impact investment space for Africa to fully benefit from the predicted five-fold increase in capital flows to the continent over the next few years.
“This increase in capital flows to Africa in coming years will have a catalytic effect on the trajectory of Africa’s growth path,” said Trevor Manuel, Chairperson of Old Mutual Limited, adding that the youth dimension of the continent represented the strongest opportunity anywhere in the world right now. He was commenting during day two of the 2021 GSG Global Impact Summit, held last week.
Participants in the global summit are tasked with changing the environmental and social ‘status quo’ by considering how to mobilise more capital to achieve the United Nations’ Sustainable Development Goals (SDGs) and climate targets; how to embrace emerging economies as engines of impact; how to integrate environmental and social concerns in all solutions; and how to push for impact transparency.
“At our 2017 Chicago summit we set 2020 as the tipping point for the world of impact; and indeed, by that time it was a mainstream subject of conversation in investment, in business and within governments,” said Sir Ronald Cohen, chair of the GSG, during his opening remarks to proceedings. He singled out evolving consumer value systems, technology and the force of transparency on impact to carry the world past the tipping point, towards meeting its future climate and development goals.
Old Mutual Investment Group (OMIG), a platinum sponsor of the event, believes that Africa can make progress on employment, equality, healthcare, inclusivity and a range of other public service measures through the purpose-driven deployment of capital for impact investment.
There is growing confidence that asset managers, through their ongoing engagement with management at both portfolio and target listed investments, can influence positive environmental, social and governance (ESG) outcomes from the ground level of the economy. The discussion around impact investing, however, has largely been limited to private markets historically, but this is starting to shift to include listed markets, where opportunities to create impact are rising, according to Head of Institutional Client Management at Old Mutual Investment Group, Sne Dlamini, who facilitated a panel discussion at the Summit on ‘Risk, return and impact from listed markets’. “When it comes to impact investing, public and private markets can no longer be seen as mutually exclusive,” she said.
This is opportune, given the flood of capital in search of sustainable opportunities. Manuel pointed out that growing pressure to realise the implementation of SDGs could unlock upwards of US$1.1 trillion in worldwide investments until 2030. And although most of this capital will find its way into private market opportunities, there is growing opportunity in listed markets for the allocation of capital to drive change.
“The days of focusing on return and risk in isolation are slowly coming to an end; we see investors shifting to an investment optimisation paradigm of maximising returns, minimising risk and maximising impact,” said Dlamini. She pointed out that there was over US$240 billion in listed equities across Africa, and that some 84% of global pension assets were in listed markets too.
There are a number of ways for asset managers to make an impact through the listed markets, but according to OMIG, chief among these is through the setting of clear and standardised benchmarking, as well as through engagement or stewardship of their investments.
“Because of the way listed markets operate, benchmarking is important. A relatively easy way to look at the impact investing discussion from a listed market perspective is to consider the impact across a particular metric of a fund versus a benchmark,” explains Jon Duncan, Head of Responsible Investment at Old Mutual Investment Group. “An example of this could be the weighted average carbon intensity of a fund relative to a benchmark,” he adds.
It is also impossible to ignore the contribution that asset managers make to the impact dynamic through their stewardship of both portfolio and target companies. Their continuous steer towards building ESG into corporate practices through systematic engagement plays out over many years and is seen as influential in changing operational practices at firms with poor environmental and social practices.
Similarly, Acting Chief Executive Officer at the Public Investment Corporation (PIC), Sholto Dolamo, adds that the advocacy of institutional investors is also a crucial component in encouraging the right behaviour from companies, and ultimately driving change. “Specifically, conversations with companies to ensure a collective drive towards a more inclusive economy is a crucial tool that institutional investors can use to drive intentional impact outcomes,” says Dolamo.
“The thing that excites me about investment opportunities on the African continent, is our ability to leapfrog ‘old industries’ and direct capital in such a way that the impact is multiplied,” said Jon Duncan, Head of Responsible Investment at OMIG. Duncan used Africa’s telecommunications sector as an example, mentioning that many countries on the continent simply ‘skipped’ the costly fixed line infrastructure stage and went directly to mobile networks. The hope is that similar leaps will be made into areas such as renewable energy.
Duncan said that unlisted or private markets would continue to attract funding, but hoped that such investments would drive the next generation of listings on public exchanges, thereby contributing to a rich, vibrant listed market in Africa. “My personal wish is that impactful listed market opportunities become embedded in the lived experience of the average retail investor,” he said. Under this scenario, retail investors could sleep easy knowing that they were part of the solution to long-term sustainable impact investing outcomes.
“We remain of the view that the African Continental Free Trade Agreement, which has been operational for the last two years, will unlock many opportunities for linking across borders and for scaling up opportunities. Looking ahead, the greatest opportunities for impact investments will arise from new investments into urbanisation, including the provision of health services such as water, energy and broadband,” said Manuel.
He said that Old Mutual remained focused on social, inclusive and low carbon investments on the continent, having successfully invested over US$10 billion in clients’ capital in such opportunities. Manuel called for allocators of capital to collaborate, coordinate and mobilise to avail of the countless opportunities in Africa.
“There is no doubt that more and more capital is being drawn into the impact space,” said Tebogo Naledi, Managing Director of Old Mutual Investment Group, during a conversation about the just transition to a greener economy, held on day three of the GSG Global Impact Summit.
When asked about the five to 10-year outlook for impact investing, Naledi predicted a big shift of impact-seeking capital into public markets, where the bulk of global capital sits. This trend will be driven by regulatory change in the pension funds space, and by the pension funds’ desires to reflect their members’ evolving values and risk appetite.
Allocators of capital will play a significant role in the impact space. Naledi offered three considerations that would weigh on impact investment decision making over the next decade: “First, asset managers are tilting their portfolios towards deliberate holdings in companies with lower carbon footprints, particularly relative to market benchmarks. Second, there will be an ongoing shift of capital towards sustainable investment opportunities, especially in the renewables sector. And third, the practice of engaging with portfolio companies on their ESG and climate plans will become much more mainstream,” he concluded.