Impact investing refers to investments that are made to achieve positive financial returns combined with measurable, positive environmental and social impact. The impact investment sector is currently estimated to be worth US$1.164 trillion globally. Of that, Sub-Saharan Africa lays claim to a relatively small US$65 billion, with South Africa accounting for 84% of all impact investment assets in the region.
It should be clear, then, that there’s substantial room for impact investment growth across the continent. But if we’re to offer any kind of roadmap for how that growth might be achieved, it’s important to understand what it actually means to be an impact investor in Africa.
Understanding where the need lies
While it’s important for any investor to understand where there is a developmental need to be met or a problem to be solved, it’s especially critical for those participating in the impact sector in the African context.
Impact investors looking to build a presence in the region must do extensive work to understand the region as a whole, alongside the individual markets they seek to operate in. Ideally, that means having an active on-the-ground presence, as well as making a conscious effort to hire relevant local expertise.
With those resources in place, it’s also important for investors to identify the problems that their investing expertise is best poised to solve. At Norsad Capital, for instance, our investments are aligned with the United Nations’ Sustainable Development Goals (SDGs) and focused on helping build sustainable livelihoods, financial inclusion, gender equality, and growth in climate and clean energy.
Meeting investor expectations
Increasingly, investors of all kinds expect investments to be made in accordance with environmental, social, and governance (ESG) guidelines.
Applying ESG best practices creates sustainable brands, increases productivity and enables companies to unlock further funding. It also creates expanded opportunities for impact investors as they’re ideally poised to deliver on those guidelines.
But to make the most of those opportunities, investors must work hard to ensure that they exceed ESG compliance standards. This intentional and focused approach is critical to being a successful impact investor.
Returns and measurability
Of course, impact investing is defined by more than the initial and ongoing work you put in. You also need to be able to demonstrate returns. Here, a sound investment must be based on sustainability, and measurability, supported by the transparent monitoring of benefits.
There are clear reasons for the need to generate returns. It’s what separates impact investors who have a growth imperative, from NGOs and charitable organisations that don't. Impact investors believe that it’s possible to change the world while making a profit. The investors backing them believe that too, making it incredibly important to invest in companies that at least show the potential to generate returns.
Measurability in impact investing is both more important and more difficult to achieve than in traditional forms of investment. Remember, impact investors don’t just have to demonstrate that they’re delivering financial returns for investors but also that they’re having an actual impact.
Specific approaches to measuring impact will differ depending on investors’ objectives, capacities, and goals. However, according to the Global Impact Investing Network (GIIN) there are general measurement best practices. These include: establishing and stating social and environmental objectives to relevant stakeholders; setting performance targets related to these objectives using standardised metrics wherever possible; monitoring and managing the performance of investees against these targets; and reporting on social and environmental performance to relevant stakeholders.
In the African impact investing landscape, it’s also important to apply the widely varying contexts in which investments are made to those measurement principles and to help external stakeholders understand why that’s so critical.
Ultimately, though, the real meaning of being an African impact investor can’t be boiled down to those minutiae. Instead, it’s about unleashing the immense potential on the continent.
It is, after all, home to a growing population (more than 60% of whom are under the age of 25) that is increasingly well-educated and connected. Impact investors see that potential and want to help unlock it for as many people as possible. And with the right approach, the bets they’re making could pay off big-time.
Keoleboge Malela is an ESG and Impact Manager at Norsad Capital, an impact investor and private credit provider offering tailor-made debt solutions to profitable growth-stage companies that deliver desirable social and environmental impact. With a track record spanning over 32 years, Norsad Capital has invested over USD $500 million in more than 150 companies across the continent.