By Ron Robins
A new light in African ethical investing was shone on the plateau continent June 9, 2010. Called Africa SIF, [it] is designed to be a pan-African knowledge base, network and advocate for integrating ESG [environmental, social and governance] factors into investment in Africa.” Based in South Africa, this non-profit organization has the support and partnership of the West′s heavyweights of ethical and socially responsible investing (SRI). These include America′s Social Investment Forum (SIF), Britain′s U.K. Social Investment Forum (UKSIF), E.U′s Eurosif, and Canada′s Social Investment Organization (SIO).
African interest in ethical investing is evidenced by the launching in recent years of ethical-socially responsible investing (SRI) indexes and funds. These include the Johannesburg Stock Exchange′s (JSE) SRI index in South Africa, and Africa investor′s (Ai) SRI 50 and SRI 30 indexes. Egypt has the MENA ESG index while Mauritius has the Africa Sustainability Fund and Ghana its ARK Mutual Fund.
These developments are great news for ethical and conventional investors who may like to invest in Africa.
For the past several decades, and with the arrival of the financial crises two years ago, ethical investing has been gaining ground globally. In the U.S. the SIF estimates that one in every nine dollars invested is through an ethical or ESG screen of some kind.
There are many styles of ethical investing and all with the same basic theme: applying personal values to investing decisions. Variations include socially responsible investing, responsible investing, sustainable investing, and impact investing.
Most long-term studies generally agree that there are no significant differences in investment returns between ethically oriented portfolios and conventional ones. Some studies show that you may do even better by applying personal values to investing.
In fact with the investment world demonstrating rising concerns over ethics, and, increasingly incorporating ESG factors into investment decisions, returns on ethical investments may outperform in the decades ahead. For comprehensive information on ethical investing visit my globally popular site http://investingforthesoul.com/. (I have been following ethical investing for forty years).
Ethical investing likely began to be introduced to Africans when western institutions, funds, and companies boycotted the South African apartheid regime in the 1970s and 1980s. A set of principles, the Sullivan Principles, created a code of conduct for companies operating in South Africa. It is probable that these ethical actions played a significant role in bringing down the apartheid regime and laying the foundation for South Africa′s comparative leadership in ethical investing.
Among emerging countries, South Africa has been a global pioneer in SRI and ethical investing. The JSE was the first stock exchange in the world to launch an SRI index. The Index provider FTSE together with the JSE also pioneered an Islamic index creating the FTSE/JSE Shariah All Share Index. The JSE further leads as one of the world′s first stock exchanges to be a signatory to the United Nations Principles of Responsible Investment (UNPRI).
However, ethical investing is still in its infancy in South Africa, comprising about one per cent of the value of all investment portfolios in the country—which total around R2.5 trillion (about $320 billion).
But as the founding of AfricaSIF indicates, ethical investing is beginning to blossom in the country. Another reason for optimism concerning ethical investing in South Africa is that ethics and social justice are ranked highly in the South African corporate community. Quoting a 2008 report by the University of Pretoria′s Centre for Business and Professional Ethics (CBPE), “â€¦ the majority of companies on the Johannesburg Securities Exchange are ethically conscious andâ€¦ report on the ethical climate within their organizationsâ€¦ [the report] focused on 55 Socially Responsible Investment (SRI) companies listed on the JSEâ€¦ “ Further, “â€¦ all companies in South Africa listed on the JSE are urged [actually required] to submit their annual and sustainability reports detailing their corporate governance practices such as compliance with ethical standards, codes, policies and practices.”
Thus among emerging countries South Africa leads in corporate social responsibility (CSR) reporting practices. In December 2009 a report, Corporate Sustainability Disclosure in Emerging Markets, authored by the Emerging Markets Disclosure Project (EMDP) of the SIF, remarked, “Companies from South Africa exhibited the best overall transparency practices, while firms from China, India, Indonesia, and Mexico, lagged.” South African companies led in another CSR reporting study by SIRAN in March 2009 too.
Africa has one billion people, thirty million square kilometres of land, is endowed with vast natural resources, and an economy likely at a take-off stage similar to Asia two decades ago. Between 2002 and 2007 pan African growth was over 5 per cent annually. Companies from China, India, and many other countries are investing heavily in Africa.
Foreign direct investment flowing into Africa, relative to GDP, is almost as large as that flowing into China according to the McKinsey Quarterly June 2010 report. The report adds, “â€¦ [T]he annual flow of foreign direct investment (FDI) into Africa in 2008 increased to $62 billion, from $9 billion in 2000.”
At this stage Africa potentially represents a great opportunity for investors of all shades. Key areas of interest to investors wanting to both profit and invest ethically include companies and projects related to climate-change issues, water purification and sanitation, and the agriculture and extractive industries.
With twenty stock exchanges and the increasing quality of CSR reporting, investing in Africa will become increasingly more comfortable for ethical investors.
Just as the world′s attention focused on FIFA′s World Cup in South Africa, there is global attention to a new economic dawn for all Africa. With the advent of AfricaSIF and the development of CSR throughout the continent, we will be increasingly able to apply our personal, ethical, or moral values to African investments. We can thereby achieve both profits and the personal satisfaction of helping the poorest continent on earth rise above its old darkness and transition to a sunnier future.
June 18, 2010