Responsible Investing and Its Impact on South Africa

Setting the Scene for the Road Ahead – the Positive Shift of Wealth Management in South Africa

21 August 2024

Responsible Investing

The history of responsible investing (RI) in South Africa dates back to the 1970s when investors began to align their portfolios with social concerns. This was further shaped by significant events such as, the publication of the King Reports on Corporate Governance in 1994, 2002 and 2009, the launch of the United Nations Principles for Responsible Investment in 2006 and the formulation of institutional investor guidelines such as the Code for Responsible Investing in South Africa.

The wider adoption of RI in South Africa is recommended given the benefits this investment discipline holds for planet, people and profits (investors, society and nature). Improved corporate reporting as well as investor and trustee education are necessary to achieve this goal. Many local RI funds have an impact investing strategy, employ socially-oriented investment criteria and have a utilitarian ethic.

By recognising the progress made and the opportunities that lie in responsible investing, or RI, in our region, Jersey Finance and Melville Douglas (the boutique investment fund manager for the Standard Bank Group) jointly held an event that delved into RI and its impact on Africa. Melville Douglas believes that it is their responsibility to offer solutions that are relevant and adaptable to both today’s challenges and the continually evolving landscape. Advocating for the integration of ESG in investment practices is a fundamental part of being a responsible investor. This drives them to deliver on their dual mandate of generating attractive risk-adjusted returns, while making a positive impact.

A key highlight of these discussions explored how we can leverage responsible investing to develop the nation’s aspirations for greater lives and livelihoods of our people.
Key among this is the exploration of what a ‘Just Energy Transition’ for South Africa.

Dr Rufaro NyakatawaMarket Development Consultant – Africa, Jersey Finance

South Africa’s energy sector; transition to renewable energy

South Africa has experienced a significant improvement in its power supply recently, with a notable absence of load shedding. By incorporating electricity generated by private companies into the main power supply, the government aims to reduce the strain on the national power utility, Eskom. Additionally, a strengthened maintenance regime for power infrastructure is believed to be contributing to the overall stability of the power grid.

The country is making strides towards a positive transformation of its energy sector with an emphasis on just energy transition, equity, fairness and transparency. The government for one, is diversifying its energy sector to make it more suitable for investment by developing the Renewable Energy Independent Power Producer Procurement Program (REIPPPP), which has so far succeeded in boosting private sector renewable energy projects to commercial fruition. During COP 27, South Africa unveiled the government’s Just Energy Transition Investment Plan (JET-IP) to accelerate decarbonization. Globally, in 2022, the Global Energy Alliance for People and Planet (GEAPP) announced support for countries such as South Africa, as they push forward on their energy transition plans.

COP 28 saw Africa win with declarations on sectors such as energy transition, food systems and climate financing. Even so, Africa’s pace towards the global climate goal set by nearly 200 countries at COP 28, of limiting global warming to 1.5 °C within reach, is still not as swift as other regions. Africa holds about 30% of the world’s critical mineral resources alongside abundant clean energy resources – wind and solar – that can serve as the foundation for clean industries and commodities. The energy transition will increase the demand for these vital resources and in turn accelerate investments and create employment opportunities for millions. The road towards COP 30 can start with funding the continent’s requirement of up to US$250 billion annually until 2030 to respond effectively to climate change.

Just recently, President Cyril Ramaphosa in his opening parliament address, highlights that, ‘the country’s plan to transition into renewable energy will be facilitated through the Just Energy Transition Investment Plan, which sets out a clear path to invest more than R1.5 trillion in the sector, including support for workers and communities in Mpumalanga and other coal-producing regions.’

Private sector solutions

The private sector is armed with innovation, investment capacity, and market. It is an indispensable driver of economic growth through private enterprise development. For banks, ESG increasingly important aspect of doing business, as it can help to manage risks, enhance reputation, meet regulatory requirements, drive innovation and increase access to capital.

Standard Bank in 2023 alone mobilised over R50 billion of sustainable finance for corporate clients and provided over R2 billion in loans to small and medium enterprises to help business owners access affordable and reliable alternative energy products. Additionally, the group disbursed over R145 million to homeowners and over R840 million to businesses for solar installations in South Africa.

The global financial system is changing and industry alongside businesses have a responsibility to leverage their expertise and capital to support an environmentally and socially sustainable global economy.

As South Africa’s finance industry works towards RI and ESG-oriented goals, it is forward-thinking IFCs such as Jersey, as an intermediator of more than £1.4 trillion of global capital, that can help shape a sustainable economic future. Jersey’s commitment to sustainable finance is evident through various initiatives aimed at promoting green and impact investing. This aligns with global trends towards sustainability, making it a strategic partner for South African projects focussed on climate resilience and social impact.

Jersey’s relationship with Africa is broad, deep, and based on shared interests. Over many decades, Jersey has built strong connections with Africa by supporting both inbound and outbound investment for private and institutional investors. What is clear is that the efforts Jersey has put into building strong relationships with Africa over the past decades have earned Jersey a good reputation, and that is really putting Jersey in a prime position to be at the forefront for supporting new, and critical, waves of investment into Africa as the continent.
Responsible Investing can only be actualised through good governance and ethical capital raising. This is a journey for Africa – a journey worth taking.