Investors still lukewarm on social impact investing in Africa

14 Dec '10

2 min read

Many institutional investors are now monitoring the social impact of their portfolios, but the majority simply negatively screen out “bad” investments, according to research conducted by This is Africa magazine, a part of The Financial Times, on behalf of the Rockefeller Foundation.

A representative sample of investors from Europe and North America were polled on their exposure to emerging markets; the attractiveness of Africa within the wider emerging markets; their understanding of socially responsible investment and the social impact of investments; the relationship between socially responsible investment and financial returns; and their knowledge of impact investing as an asset class.

39 percent of investors surveyed said that they monitor the social impact of their investments. 60 percent of this sample take a negative screening approach, and 40 percent actively try to achieve a social return on investment. Sovereign-backed pension funds and foundations are well ahead of their commercial rivals in terms of impact investing.

42 percent of the investors that were surveyed said that they would be interested in developing a greater understanding of the positive social impacts. However, many investors expressed scepticism over the measurement techniques and standards used to measure impact and called for standardisation of the industry.

Several also highlighted that their fiduciary responsibility precluded them from moving into impact investing until the link between social return and financial return is adequately demonstrated. As one UK pension fund manager said: “Our fiduciary responsibility is to provide returns for members. We are not here to be philanthropic. That's someone else's job: governments, charities and foundations.”

23 percent of investors did suggest that they would take lower rates of return for a proven social impact, however, in general these were state-backed funds.

“This research shows that investors are increasingly aware that they can achieve both financial and social returns on their investments, rather than simply limiting the potentially negative impacts by cutting out so-called vice assets,“ said This is Africa editor, Peter Guest. “However, many have very reasonable concerns that the evidence base for the anecdotal link between financial and developmental return on investment is still quite slim, and that the standards used to measure development in both the private and public sectors probably are not as rigorous as they might be used to.”

This is Africa