Ethical Investing Shines in Africa as Economy Grows

By Ron Robins, Founder & Analyst, Investing for the Soul

Blog Enlightened Economics; twitter

First published June 18, 2010, in his weekly economics and finance column at
alrroya.com

A new light in African ethical investing was shone on the plateau continent June 9,
2010. Called AfricaSIF, “… [it] is designed to be a pan-African knowledge base,
network and advocate for integrating ESG [environmental, social and governance]
factors into investment in Africa.” Based in South Africa, this non-profit organization
has the support and partnership of the West’s heavyweights of ethical and socially
responsible investing (SRI). These include America’s Social Investment Forum (SIF),
Britain’s U.K. Social Investment Forum (UKSIF), E.U’s Eurosif, and Canada’s Social
Investment Organization (SIO).

African interest in ethical investing is evidenced by the launching in recent years of

ethical-socially responsible investing (SRI) indexes and funds. These include the
Johannesburg Stock Exchange’s (JSE) SRI index in South Africa, and Africa investor’s
(Ai) SRI 50 and SRI 30 indexes. Egypt has the MENA ESG index while Mauritius has
the Africa Sustainability Fund and Ghana its ARK Mutual Fund.

These developments are great news for ethical and conventional investors who may
like to invest in Africa.

For the past several decades, and with the arrival of the financial crises two years
ago, ethical investing has been gaining ground globally. In the U.S. the SIF
estimates that one in every nine dollars invested is through an ethical or ESG screen
of some kind.

There are many styles of ethical investing and all with the same basic theme:
applying personal values to investing decisions. Variations include socially
responsible investing, responsible investing, sustainable investing, and impact
investing.

Most long-term studies generally agree that there are no significant differences in
investment returns between ethically oriented portfolios and conventional ones.
Some studies show that you may do even better by applying personal values to
investing.

In fact with the investment world demonstrating rising concerns over ethics, and,
increasingly incorporating ESG factors into investment decisions, returns on ethical
investments may outperform in the decades ahead. For comprehensive information
on ethical investing visit my globally popular site http://investingforthesoul.com/. (I
have been following ethical investing for forty years).

Ethical investing likely began to be introduced to Africans when western institutions,

funds, and companies boycotted the South African apartheid regime in the 1970s
and 1980s. A set of principles, the Sullivan Principles, created a code of conduct for
companies operating in South Africa. It is probable that these ethical actions played
a significant role in bringing down the apartheid regime and laying the foundation for
South Africa’s comparative leadership in ethical investing.

Among emerging countries, South Africa has been a global pioneer in SRI and ethical
investing. The JSE was the first stock exchange in the world to launch an SRI index.
The Index provider FTSE together with the JSE also pioneered an Islamic index
creating the FTSE/JSE Shariah All Share Index. The JSE further leads as one of the
world’s first stock exchanges to be a signatory to the United Nations Principles of
Responsible Investment (UNPRI).

However, ethical investing is still in its infancy in South Africa, comprising about one
per cent of the value of all investment portfolios in the country—which total around
R2.5 trillion (about $320 billion).

But as the founding of AfricaSIF indicates, ethical investing is beginning to blossom

in the country. Another reason for optimism concerning ethical investing in South
Africa is that ethics and social justice are ranked highly in the South African
corporate community. Quoting a 2008 report by the University of Pretoria’s Centre
for Business and Professional Ethics (CBPE), “… the majority of companies on the
Johannesburg Securities Exchange are ethically conscious and… report on the ethical
climate within their organizations… [the report] focused on 55 Socially Responsible
Investment (SRI) companies listed on the JSE… “ Further, “… all companies in South
Africa listed on the JSE are urged [actually required] to submit their annual and
sustainability reports detailing their corporate governance practices such as
compliance with ethical standards, codes, policies and practices.”

Thus among emerging countries South Africa leads in corporate social responsibility
(CSR) reporting practices. In December 2009 a report, Corporate Sustainability
Disclosure in Emerging Markets, authored by the Emerging Markets Disclosure
Project (EMDP) of the SIF, remarked, “Companies from South Africa exhibited the
best overall transparency practices, while firms from China, India, Indonesia, and
Mexico, lagged.” South African companies led in another CSR reporting study by
SIRAN in March 2009 too.

Africa has one billion people, thirty million square kilometres of land, is endowed with
vast natural resources, and an economy likely at a take-off stage similar to Asia two
decades ago. Between 2002 and 2007 pan African growth was over 5 per cent
annually. Companies from China, India, and many other countries are investing
heavily in Africa.

Foreign direct investment flowing into Africa, relative to GDP, is almost as large as
that flowing into China according to the McKinsey Quarterly June 2010 report. The
report adds, “… [T]he annual flow of foreign direct investment (FDI) into Africa in
2008 increased to $62 billion, from $9 billion in 2000.”

At this stage Africa potentially represents a great opportunity for investors of all
shades. Key areas of interest to investors wanting to both profit and invest ethically
include companies and projects related to climate-change issues, water purification
and sanitation, and the agriculture and extractive industries.

With twenty stock exchanges and the increasing quality of CSR reporting, investing
in Africa will become increasingly more comfortable for ethical investors.

Just as the world’s attention focused on FIFA’s World Cup in South Africa, there is
global attention to a new economic dawn for all Africa. With the advent of AfricaSIF
and the development of CSR throughout the continent, we will be increasingly able to
apply our personal, ethical, or moral values to African investments. We can thereby
achieve both profits and the personal satisfaction of helping the poorest continent on
earth rise above its old darkness and transition to a sunnier future.

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