Investing Capital for Sustainable Impact Takes Centre Stage in Nigeria

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Beyond making money from investment, investors are encouraged to seek channels where their investment will make measurable impact in people’s lives. The industry-led initiative designed to get professionals who determine how and where institutional funds are deployed to optimise social, environmental and financial impact, is gradually gaining acceptance in Nigeria, reports Bamidele Famoofo 

Financial pundits including  regulators, private capital investors, investment advisers and analysts among others, recently converged on Lagos, for one common purpose.  It was how Nigeria can get join the rest of the world to seek how capital can be invested in a way that will be sustainable and at the same time create measurable impact in the lives of the people.

Founder and Lead Strategist, Ideanest Investments, Olu Ogunfowora, set the balling rolling at the two-day conference on ‘Investing Impact Capital in Nigeria’ when he told the dynamic gathering of financial experts and academia that the conference was a unique opportunity to have their say on any topics or issues relating to investing for sustainable socio-economic impact in Africa.  “The discussion can include issues of business, economic climate, regulation, government and politics affecting investing for impact on the continent,” he hinted.

Ogunfowora in his opening remarks disclosed that there are many public and private organisations working to more effectively put private capital to use for the public good, with a good number of businesses accessing new customers, investors and markets through business culture and investment strategies that deliver good social and environmental outcomes without compromising financial performance.

However, he said, investing capital for sustainable impact in Nigeria is still hampered by the limited understanding of ESG Integration and impact investing, lack of bankable transactions, the reluctance of growth enterprises to forego equity, a difficulty long-term raising capital and finding exits.

Ogunfowora assured participants that the conference, an industry-led initiative, was designed to seek solution to the impediments slowing down the country from achieving sustainable impact in capital investment as he said professionals who determine how and where institutional capital is allocated to integrate ESG issues and commit impact capital at scale to investment opportunities that optimize social, environmental and financial impact were congregated in the room to proffer solution to the challenges of impact investment.

Acting Director General, Securities and Exchange Commission (SEC), Mary Uduk, who spoke from the regulatory perspectives in her keynote address which bothered on SEC’s initiatives to make Nigeria’s capital market more sustainable, defined impacting investing as “investments made into companies, organisations, vehicles and funds with the intent to contribute measurable positive social, economic and environmental impact alongside financial returns.”

Uduk noted that investing with impact aims to generate market-rate financial returns while demonstrating positive environmental and/or social impact. She argued that sustainable investing should not be limited to investors willing to accept unattractive returns in order to create social good if necessary capital must be mobilised for real impact.  “Rather, there should be demand for investment products that seek attractive returns while benefitting society. The goal of investing with impact is to identify opportunities that deliver positive impact as well as competitive financial performance,” she added.

Uduk was however delighted about the increasing awareness among investors across the globe to recognize the need to avoid negative effects and follow international norms and principles designed to address environmental, social and governance (ESG) risks.  Meanwhile, the SEC boss expressed concerns about some investors avoiding investments in specific industries that they consider as causing harm like tobacco and gambling, noting that impact investing goes well beyond avoiding harm and managing ESG risks. “It aims to harness the power of investing to go good for society by choosing and managing investments to generate positive impact while also avoiding harm,” she argued.

Uduk disclosed measures taken by SEC to encourage sustainable investment in Nigeria to include the launch of the Green Bonds Issuance Rules. She disclosed that the Commission collaborated in the Green Bonds Market Development Programme (GBMDP), a programme supported by the Climate Bonds Initiatives (CBI), the FMDQ OTC Securities Exchange (FMDQ) and the Financial Sector Deepening Africa (FSD Africa) to support the development of a Non-Sovereign Green Bond market in Nigeria. “The objective of the release of the green bond rules was to direct financial capital to more sustainable economic activity,” SEC revealed.

Uduk promised that the capital market will continue to play an important role in attracting and sustaining required investment in sustainable economic activity through investment vehicles such as infrastructure funds, sukuk, revenue bonds, corporate bonds and equities.

As part of its contribution to ensuring sustainable capital investment in the country, the Nigerian Stock Exchange (NSE), says it has issued sustainability disclosure guidelines which provide the value proposition for sustainability. “The guidelines have been developed while recognizing that issuers may be at varying levels of understanding the requirements for the disclosure of sustainability information relating to ESG issues. They recognize that moving to best practice sustainability performance reporting and disclosure is a journey, and that preparing a sustainability report can be challenging especially for first time reporters and small scale companies,” NSE disclosed.

Institutional real estate investors who represent private equity investors at the forum highlighted their activities in tandem with investing with impact in Nigeria’s housing industry.

Director, Real Estate, Actis, Funke Okubadejo and Moyo Ogunseinde, Chief Operating Officer/Executive Director, Uraga Real Estate, said they are increasingly pursuing investments that align with top-down social and environmental goals and help mitigate risks. Their activities, they said, also include requiring new acquisitions to meet specific energy performance criteria, ensuring minimum climate-related risk assessment, supplying more affordable housing, or new jobs creation paying a liveable wage. The session also examined how real estate developers and funds are increasing transparency, producing more quantifiable, comparable, and transferable metrics.

The Rest of Africa

Besides Nigeria, investing capital for sustainable impact in Africa currently run in South Africa and Kenya , and with an ambition to gain footprint across the continent.

In South Africa, Africa’s most developed economy; long-term savings pool is estimated at over R2.250 trillion (about N58trillion).  According to financial analysts, South Africa is comparatively best positioned to make the most of impact investment strategies in sub-Saharan Africa. Especially with access to education, healthcare, and food – impact thematics that will make a significant impact on the social demographics of South Africa.

However, unlocking impact capital at scale in South Africa is hampered by lack of experience which prevents investment committees and trustees from allowing their investment teams to make impact capital commitments. As well as limited availability of investment vehicles that offer the required diversification of risk. Investing Capital for Sustainable Impact in South Africa is an industry-led initiative designed to get professionals who determine how and where money is deployed to allocate impact capital at scale to investment opportunities that optimize social, environmental and financial impact.

Kenya is East Africa’s preferred market for impact investors and businesses seeking initiatives that deliver good social and environmental outcomes without compromising financial performance. This is evident in the amount of impact and patient capital it has attracted compared with its peers in the region.

The noteworthy achievement in impact capital investing in Kenya can be linked to the proactive approach by Kenyan regulators to align companies and operators within their purview to sustainable investment and business practices. However, to scale-up impact capital, Kenyan long-term asset owners have to take to lead and work with their advisers to innovate products that will enable them to allocate capital for sustainable Impact.

Investing Capital for Sustainable Impact in Kenya is the foremost content-led platform designed to put the spot on Impact entrepreneurs, Impact Investors, Impact Managers and Impact Enablers.