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Challenging the state on impact investing

The social and environmental benefits of impact investing are too important to be left to the private sector alone. If South Africa is to have any hope of a sustainable future, the state needs to improve its game dramatically.

There’s a simple litmus test for any kind of investment, including impact investments: Would you put your pension money in it? If the answer is yes, then you’re free to apply whatever other ethical, social or other criteria you please. If the answer is no, then the promised impact is likely to be a fantasy and you can move on to the next opportunity.

All investments come with some risk, of course, and there’s no reason to suppose companies that intend to have some positive impact on the world are any more risky than others. In fact, “doing well by doing good” has an impressive track record, with impact investment funds achieving returns at least equal to comparable funds, and in some cases much better.

There is more than one way to support companies that strive to be environmentally or socially beneficial, though. Investing in them is one way to do it; another is to buy their products and services. Consumer pressure is already driving many companies to operate more sustainably, with Unilever and South Africa’s own Woolworths being notable examples. The more consumers support businesses with positive impacts on the world, the more profitable they will be and the more investment they will attract. We may not all be fund managers but we are consumers, and so this is an impact anyone can have.

But the consumer and investors are really only bit players in a national drama; the real power in any move to drive sustainability is the state. The state is by far the biggest and most powerful economic actor in any country, because it creates the tax and policy environments that can make or break entire industries. It can create attractive business environments for sustainable businesses or it can frustrate innovation. Imagine if the billions we have poured down the drain to prop up horrors like SAA, Eskom and our other SOEs had instead been used to create tax incentives for renewable energy companies, or to properly support emerging farmers, or to subsidise research and development costs to help our ever-shrinking manufacturing sector stay competitive. We might be looking at a very different future right now.

So yes, let us by all means choose to invest in companies that are both profitable and have a positive impact on the world. But let’s not stop demanding that the state step up to its responsibilities to create an environment that lowers the risks, to consumers and businesses alike, of acting for the greater good.

Food for thought

Germany is not known for its sunshine—yet it’s the world leader in renewable energy generation. In the first half of 2019 renewable sources delivered nearly 50% of its power, more than coal and nuclear combined. This didn’t happen by accident. One critical driver was the Renewable Energy Act of 2000, which created serious financial incentives for renewables. Along the way it also created more than 200,000 new jobs and a thriving new export industry. That’s one successful policy intervention!

As published in Accountancy SA - February 2020


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