Now the focus is on an environmental, social and governance (ESG) approach to investing. This is a more positive and proactive approach to reviewing companies for potential investment. Instead of accepting a potential loss of return while achieving “something good”, this approach works on the assumption that companies adhering to high ESG standards are likely to deliver superior returns.
So, investors can invest their entire portfolios to achieve “something good”, and they can expect to attain better investment returns. The focus on ESG has almost become a “licence to operate” for asset managers wanting to attract and maintain assets from South African investors.
But there is a step beyond ESG investing. Large investors can take a step into the realm of “impact investing”. This is where investors actively seek to make a positive impact on communities through their investments by, for example, creating opportunities for jobs, affordable housing, clean drinking water, agricultural development, improved access to education, health services, financial services and so on.
Many “impact investing” opportunities are available to South African investors, including capabilities that were developed to meet the criteria of the Financial Sector Charter. These investment opportunities can often only be considered by larger investors because they are less liquid and long-term in nature.
Impact investing can be one of the highest levels of outcomes-based investing, as investors adopting this approach are actively seeking to make a positive impact on the world in which their stakeholders live.
Janina Slawski is the principal investment consultant at Alexander Forbes Investments.