IMPACT INVESTING: Editorials: Edition: July / September 2019

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Fair’s fair

Look to profit with purpose. Funds must help to prepare for

the sort of country in which they want members to retire.

With the launch of its education series for institutional investors, consultancy RisCura is performing a service for them and implicitly also for their clients in the formulation of mandates. The first in the series of seminars posed the question of whether investing for a better SA required prescription.

Certainly not. Were government to prescribe where retirement funds had to invest portions of their assets, there’s no saying where they might end up; for example, pouring into the black holes of badly-governed state enterprises at disastrous returns. By contrast, impact investment (II) is what it says it is; a deliberate means whereby investors act to improve the society in which they operate and earn at least market-competitive returns.

The one is not an alternative for the other, much as the seminar theme suggested that II could stave off the threat of prescription. They’re different animals.

Opening the seminar, DNA Economics head Elias Masilela put it this way: “Applied correctly, II has the potential to make a significant contribution to important outcomes and improve human conditions. The application framework required a strategy, origination and structuring, portfolio management, an exit and ultimately independent verification.”

Growing economic imbalances were a hotbed for instability that threatened future profits, he warned, and called for a “swift and innovative” response.

It’s only the speed that needs acceleration, for II isn’t exactly innovative. Around the world, it’s recognised and applied to good effects including financial. In SA too.

RisCura managing director Malcolm Fair cited local initiatives: Futuregrowth’s Infrastructure & Development Fund for top-quartile bond performance while developing infrastructure; Ashburton’s Jobs Fund for enhanced cash returns while creating jobs, and Mergence’s Infrastructure & Development Equity Fund for rolling outperformance (see graph).

Such issues as climate change, labour relations and executive remuneration carried investment risks that had to be managed, Fair argued.

Around the world, II has become the hot area for money managers looking to burnish their ethical credentials. The Financial Times reports: “The allocation of funds to projects that put societal and environmental outcomes on a par with financial returns has become one of the fastest-growing parts of the asset-management industry.”

But it’s not without problems. In a survey, institutional investors and consultants said that their top biggest challenge was finding unlisted companies that fulfil the idea of an appropriate mission and provide a suitable place to park funds. While large institutions could allocate capital to publicly-listed companies, it then became harder for them to show a direct link between money spent on buying these shares and any positive impact on the business.

Of course, one way is for the investors to hold the companies’ boards accountable for their social and environmental actions. An incentive is to get on with it is that, as a mountain of research is beginning to show, the younger generation of clients demands that their investments show positive impacts which alter the practice of capitalism from greed to good.

For making investment decisions, profit and purpose are one and the same. Enough then of slow adherence to the United Nations’ 17 social development goals which set an inclusive growth agenda for the years until 2030. Businesses and financial institutions such as retirement funds are seen to have a major role for the achievement of these goals, in SA as elsewhere.

SA funds might be paying members far into the future, Fair pointed out. Some of today’s younger members will be receiving payments in 2085 and even those close to retirement will still be receiving pensions in 2050.

Think of the environment into which they’ll retire if the goals aren’t achieved. Or better, think of it if they are.