Leadership: Impact Investing

What is Impact Investing?

By Emma Montocchio, Head of Impact Investing Solutions at Decusatio

You can pick any acronym or buzzword and you’ll find that it’s being vociferously debated at every level in corporations across the globe, with supporters and detractors trying to get their points across.Net zero. ESG. Sustainable Development Goals (SDGs). Enterprise and Supplier Development (ESD). Socio-Economic Development (SED). Corporate Social Investment (CSI)…

As a business, we tend to prefer the term “impact investing”. “Impact” because this is the desired outcome from these activities. “Investing” because these projects do need to be viewed through a lens of delivering economic returns for stakeholders.

Globally, the increasing focus on social responsibility and social impact investments has grown significantly in recent years as more companies seek to benefit from the positive outcomes of their investments. According to the Global Impact Investment Network (GIIN) this market now has over $1.16-trillion in assets under management and according to research out of Riscura in 2022, South Africa has over 120 impact investment funds that are operational.

Companies are embracing the idea of making contributions that benefit both the environment and society and there is an increased focus on impact investments that have the potential to generate both financial returns and positive social outcomes beyond ad-hoc ESD, SED and CSI initiatives. Companies that invest in these types of investments can stand out from their competitors and attract new customers and partners. Furthermore, companies that invest in social impact investments can benefit from increased employee engagement and morale.

We have a very good example of this from a project we run in KZN which has seen a forward-thinking corporation recognising the importance of youth employability and new venture creation, but also recognising that it needs to meet certain other impact metrics. Over the past 24 months they have established a sanitary pad manufacturing operation, a beauty spa and recently a solar energy project which trains and deploys accredited solar installers across the country.

This project brought together a variety of funding channels including ESD, skills development, YES B-BBEE incentive and in its latest phase funding out of a Development Finance Institution (DFI), but its integrated nature means that it can meet a number of goals for the participating corporate including:

• Net Zero commitments

• B-BBEE goals

• Meeting Sustainable Development Goals 3 (Good Health and Wellbeing), 5 (Gender Equality), 7 (Affordable and Clean Energy), 8 (Decent Work and Economic Growth), 10 (Reduced Inequalities), 11 (Sustainable Cities and Communities)

On top of this, the creation of youth jobs in the region leads to a lower cost of doing business and stronger relationships with communities. As Environmental, Social and Governance (ESG) frameworks mature and sustainable finance becomes more mainstream, we can also expect to see more innovative funding models coming through.

So Why Should Your Organisation Care About Impact Investing?

In answering this, perhaps we need to start with a loaded question: “Is it the prerogative of South African businesses to do good?” This is an intriguing question on many levels.

Recently there was survey data released by Afrobarometer, led by the Institute for Justice and Reconciliation (IJR) and Plus 94 Research and its high-level conclusion was: “Almost two-thirds of South Africans agree with taxing the rich at higher rates to fund government programmes that benefit the poor – especially those that support the youth.”

Circulate this statement around your workforce and we suspect you will find broad based agreement… right up until the point where you add in another dimension: The definition of “rich”.

There’s a fabulous tool called the “World Inequality Database” and I want you to consider just 2 data points:

• If you earn the National Minimum Wage of R4 407 per month, 59% of the South African population is poorer than you

• If you enter the median salary bracket in South Africa of around R12 500, you are in the top 20% of earners in the country

Now consider that Tax Freedom Day falls on around the 1st of June in South Africa – the average taxpayer is working 5 months of the year, just to fund the government and there’s a lot of debate around what you actually get for your taxes. As a business owner, you are paying tax but you’re also contributing at least 1% of your Net Profit After Tax (NPAT) to Enterprise Development (ED), and at least 1% or 2% of your NPAT to Supplier Development and then another 3% - 6% on skills development.

But Where Is The Return On This Investment?

GDP is stagnant, youth unemployment is rampant with a massive skills deficit, salaries are not growing in line with inflation and infrastructure is crumbling and the private sector is having to step in.

Cas Coovadia who heads up Business Unity South Africa (BUSA) made a very powerful comment recently that the government needs to stop waiting for crises before dealing with them. Corporate South Africa is a step ahead and this is why we believe Impact Investing is going to play a key role in unlocking growth in South Africa in the coming years.

Overall, investing in social impact investments provides numerous benefits to companies. Not only can it generate a financial return, but it can also make a positive contribution to society and the environment. Companies should consider investing in social impact investments in order to benefit from the positive outcomes and remain competitive in an increasingly socially responsible market.