June 18, 2010Ethical Investing
Shines in Africa
As Economy Grows
By Ron Robins, Founder & Analyst - Investing for the
Soul
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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