Naleni Govender, Managing Director at Enko Capital South Africa, Saad Sheikh, Partner & Co Head Private Debt, and Rachel Cochran, Chief Sustainability Officer at Enko Capital Management

The African continent provides a compelling and unique investment proposition for South African investors looking to diversify outside their own captive markets. With Regulation 28 permitting up to 45% offshore exposure (including Africa), opportunities for allocating capital beyond South Africa have increased significantly. This regulation opens exciting opportunities to explore some of Africa’s most dynamic and growing sectors including conventional and climate infrastructure, energy, and technology, all of which offer attractive growth and value prospects.

Developed market pension funds continue to allocate capital into alternatives across emerging markets, including Africa and this trend continues globally (see Figure 1 below).

Figure 1: Foreign direct investment into Africa since 2013

So, what is the appeal of investing in Africa outside South Africa? It is the opportunity for asset owners to invest in uncorrelated alpha generation to listed markets and create demonstrable impact. Risks in Africa are real: liquidity, governance, political and currency pitfalls are all valid arguments for discussion when considering investment on the continent whether through the listed or unlisted markets. The key to getting it right is finding an asset manager with an investment team which can showcase global experience in conjunction with diverse and broad African industry networks; ensuring a deep understanding of each investment destination and portfolio company.

One significant competitive advantage for investors in Africa is the ability to measure and demonstrate positive developmental impact, not just in qualitative terms, but quantitatively as well. On a continent where economic development is so critical, demonstrating how asset owners’ capital is driving meaningful change is crucial. Investment mandates rooted in quality job creation, education, gender empowerment, growing sustainable businesses and creation of social inclusion opportunities for the underserved can help drive GDP growth across the continent.  In today’s world, where the effects of climate change are increasingly visible and present, supporting a just transition towards a low carbon economy by investing in businesses in Africa that integrate climate risk and mitigation and adaptation strategies into their business systems, processes and infrastructure is also critical for future-proofing investments.  Implementation of such strategies requires a deep understanding of the African market and a strong grasp over macro factors that differ vastly from region to region. Finding the right portfolio companies, whether in private debt or private equity is key to generating both financial returns and measurable positive developmental impact. In fact, the strategies that drive positive developmental impact and sustainable investment practices can be viewed as two sides of the same coin, both essential for fostering long-term growth in Africa.

The debate on ESG (Environmental, Social, and Governance) and its integration into investment strategies is well-documented and has become increasingly critical in today’s financial landscape. Terms like ‘social return on investing’, ‘sustainable capitalism’, ‘ESG investing’ and ‘sustainable investing’ have become commonplace in society’s vocabulary and can often be used interchangeably with the broader umbrella term ‘sustainability’, highlighting the growing recognition of the value these principles can create for long term growth. Despite the latest trends, ESG and sustainability can be misunderstood. Being aware of risks around greenwashing is imperative for building trust with investors, building this capability internally and showcasing it through its reporting structures.

Asset owners should take a proactive and robust approach to managing ESG across their investment portfolios – sustainability is not just about ticking boxes but ensuring risk management is embedded deeply within an investment strategy and the companies invested in. A well-functioning company with robust governance structures, transparency, and accountability is far more likely to deliver sustainable financial returns.

For asset owners, understanding ESG risks is no longer optional – it is essential for future-proofing investments and delivering value. Thriving businesses must factor in these risks to secure their long-term success. Recent studies, like one from Bain & Company (2023), demonstrate that ‘beyond benefiting the planet and society, sustainability measures correlate with financial performance…. encouraging revenue growth and improved EBITDA margins’.  Key takeaways from the study showed that companies with the most satisfied employees grew faster and were more profitable; improved diversity, equity and inclusion representation on executive teams created positive financial results; and that engaging with supply chains on ESG matters can differentiate a product in the marketplace.  Measuring sustainability and impact is applicable across asset classes, as shown in Figure 2 below, and covers all aspects of E, S and G holistically and not just a niche building block within an investment portfolio targeting specific areas.

Figure 2:  Evolution of ESG  considerations across asset classes

In a rapidly evolving investment landscape, the African continent can offer South African investors a compelling opportunity to not only diversify their portfolios but also contribute to meaningful development. By focusing on positive developmental impact and integrating active ownership through ESG principles, investors can unlock the full potential of their capital whilst supporting sustainable growth across the region. While ESG globally may have been subject to politicisation and pushback – often misunderstood or deliberately misrepresented – it is important to cut through the noise.

ENDS