CASE STUDY STANLIB KHANYISA IMPACT FUND

Combining Sustainable Financial Returns With Positive Socioeconomic Growth

While additionality can be delivered by companies and their targeted investments, professional fund managers are also aiming to deliver positive social outcomes alongside acceptable returns to investors. We examine one fund launched during the pandemic. It provides an example of an investment strategy that goes beyond seeing ESG as a risk-based screening mechanism and positions it to drive additionality in social and environmental outcomes too. Key is assessing how it will measure success.

STANLIB Credit Alternatives, an investment team within STANLIB Asset Management, has developed the STANLIB Khanyisa Impact Investment Fund which seeks to combine sustainable financial returns with positive socioeconomic growth. Set to begin formal operations within the next few months, Khanyisa is a pooled proposition governed by ESG principles that cater to multiple beneficiaries who have a shared interest in the fund’s offerings.

Case Study

The Khanyisa Impact Investment Fund aims to act as a conduit to match capital available from capital allocators or investors with the demand that exists within certain socioeconomic development needs.

It has three investment focus areas:

- Infrastructure

- Financial inclusion

- Agriculture

SDGs TARGETED BY THE FUND

1. Infrastructure:

The fund aspires to developing sustainable communities by investing in renewable energy, affordable housing, education and health care.

- SDG 7 Affordable and clean energy

- SDG 9 Industry innovation and infrastructure

- SDG 11 Sustainable cities and communities

- SDG 12 Responsible consumption and production

- SDG 13 Climate action

2. Financial Inclusion:

The focus here is reducing economic barriers to entrepreneurship and increasing financial literacy and access to financial services.

- SDG 1 No poverty

- SDG 5 Gender equality

- SDG 8 Decent work and economic growth

- SDG 10 Reduced inequalities

3. Agriculture:

Supporting sustainable agricultural practices to enhance food security and access to wholesome nutrition.

- SDG 1 No poverty

- SDG 2 Zero hunger

- SDG 3 Good health and wellbeing

- SDG 9 Industry innovation and infrastructure

- SDG 12 Responsible consumption and production

- SDG 13 Climate action

Estimated Measurable Outcomes Of The Projects

Khanyisa targets multiple sectors through various investment themes. Targeted outputs will depend on how much capital Khanyisa is able to raise.

In terms of financial inclusion, measurable outputs would be:

- How many SMMEs can be funded

- How much capital Khanyisa has invested into the sector

- How many jobs have been preserved or onboarded by funding the SMMEs

- How many consumers have been granted access to finance that they wouldn’t ordinarily be able to access through traditional means OR: Has the fund been able to enable such consumers to be able to avoid predatory lending practices?

Stanlib Credit Alternatives recently funded a social housing development, Greenfields Estate in Randfontein. This is overseen by the developers, The Housing Hub, under property manager Zelri Properties and will shortly deliver just over 1,000 units.

CEO Steyn Fourie describes The Housing Hub as a social entrepreneurship organisation.

Khanyisa aims to replicate the business’ success in this field and deliver several multiples of this over the medium to long term.

Risks To Outcomes From The Projects

The financial risk attached to any investment Investment/credit risk – the risk of your borrower being able to repay investor capital and pay back returns. STANLIB mitigates these risks through a rigorous due diligence process, meeting investee management teams and assessing industry risk. Given the due diligence processes and several risk mitigants that STANLIB puts in place, the risk and severity of loss is typically low.

Impact-related risks centre on the targeted outputs How does the investee company stack up against targets? What areas of development do they need to pay attention to? STANLIB assesses their ability to measure and report on what they need to deliver from an impact perspective and will procure the services of a third-party impact specialist to independently monitor and measure the various initiatives and report back.

The risk of not achieving desired outcomes generally varies according to the maturity of the investee companies, their scale and the quality and keen interest of management.

Opportunities For Exposure

Lone instruments that are bespoke on a bilateral basis are mainly used in line with the specific needs of the borrower as well as the extent of their required flexibility in terms of where they are in their lifecycle, and their ability to repay capital and meet returns.

Where more advanced borrowers have put together a note issuing programme, the Khanyisa Fund could purchase those notes on a private placement basis. Alternatively, should borrowers decide to list those notes on the JSE or an alternative exchange, Khanyisa would look to purchase those notes on the open market after conducting the necessary due diligence.

There has also been growth in sustainability linked bonds on the JSE which Khanyisa could access, depending on the return profile and other relevant criteria.

BY GILLIAN KLAWANSKY