ALUDO: How to select investments that provide social impact

My recent travels within the African continent have been encircled by the promise of Africa’s rising economy with the reality of the poverty levels that still subsist despite this.

Like the stark contrast of high rise buildings and large slum dwellings, public and private players are grappling more and more with challenges of fast economic gains without similar pace in social progress.

I’d like to focus on Impact Investing: the practice of selecting investments that provide social impact in addition to investment return.

Managers are guided by the principle that the best interest of the shareholders in any strategy and investment plan come first. They always have, many argue, and as far as these minds are concerned, they always will.

But examples in recent decades with growing investments in microfinance, community development finance, and clean energy illustrate that working in the best interest of shareholders and having a positive impact is possible.

With many of the world’s business leaders seeking investments in areas that drive social enterprise, this industry continues to grow across asset classes including private equity, debt and fixed income.

For the capitalist mind that cannot dare grasp this, let’s compromise that this refers to the idea of investing first for financial return, but also for social returns as well. Not to be confused with investing first for return, then use of a fraction of profits for social impact.

Focus

So why would a business consultant’s mind promote so much focus on socially responsible investing?. While it may seem a little schizophrenic at first, I truly believe the two go hand in hand. With more experience, in both personal and professional life, I find this has been the missing factor – call it a sort of work and life balance.

Investment managers will not have to look far, most successful businesses today address an unmet societal need. Whether financial system business models that increase access to millions of unbanked customers or technology companies providing digital innovative platforms that accelerate knowledge access and learning: There is tremendous investment opportunities that exist in the world’s greatest companies with unique services and value systems.

If the private sector is incorporated to address the funding gap and raise the required trillions, shared value investment strategies will create an accelerating effect on initiatives towards meeting the 2030 Global Goals.

If we promote this strategy, we will allow billions in capital to address the SDG challenges, allowing the money to meet the market place in life changing ways.

The writer is a strategy aisor and africapractice MD, East Africa.

SOURCE: BUSINESS DAILY