Earlier in October the United Nations-backed Intergovernmental Panel on Climate Change released a report detailing how the impacts of increasing global temperatures are going to be even worse than we thought. Unless we keep warming below 1.5 degrees above pre-industrial times, we could be heading for some rather dire consequences.
It is an alarming study, but it also offers us solutions. If we change our thinking and our approach, it can be done.
This was also the message from former US deputy president Al Gore at the recent GSG Impact Investing Summit in New Delhi. We are currently witnessing, he said, the inevitable collision between civilisation and the natural ecosystem. To preserve life, we have to change. Fortunately, we have the technology that allows us to do it. The only question is whether we have the will. Part of this involves a willing financial system.
This, he said, is the biggest existential crisis in the history of humanity. Are we going to be able to pull together, as we have done in the past, to save our collective future?
It is a question that echoes very strongly with South Africa’s economic reality. We too are heading for a collision unless we address the fundamental problems of poverty, inequality and unemployment. We too have the resources to change that trajectory. We too have to face up to the question of whether we will do what is necessary to put them to work.
It is a question that has to be asked in relation to President Cyril Ramaphosa’s intention to raise R1.2-trillion in new investment into South Africa over the next five years. Raising the money is one thing. Knowing where it will make the most impact is another.
The inaugural South African Investment Summit that will take place this week in support of the President’s investment goal, will in fact be preceded by the South African Impact Investment Forum. This will position impact investing as a meaningful part of the country’s investment drive.
By linking these two together, President Ramaphosa has shown a recognition that growth for the sake of growth is not enough. It also mirrors the kind of thinking that is starting to take hold around the world.
According to the Global Impact Investing Network, the amount of money committed to impact investing has more than doubled in the last year. From $114-billion in mid-2017, there is now $230-billion in funds targeting investments that not only generate a financial return, but deliver positive environmental and social outcomes as well.
As a developing country with significant socio-economic challenges, South Africa is exactly the kind of place where impact investing can be most fruitful – both for investors and the entrepreneurs developing innovative business models.
South Africa has established its own Impact Investing National Task Force, made up of high profile representatives from government, research institutions and private capital. It includes the likes of Absa chairman Wendy Lucas-Bull, and the former CEO of the FirstRand group Sizwe Nxasana. Its aim is to build support for this sector through research, advocacy and building relationships between those who have capital, and those finding strategic ways to deploy it.
As Lucas-Bull notes: “You can’t have inclusivity without growth, but in the past we have had periods of growth that were not inclusive. The imperative now is that we have to work together to stimulate economic growth and make sure that that growth is much more inclusive than our previous experience has been. This is aligned with the President’s call to action to think differently. It’s not just a government issue by itself, and it’s not just a business issue by itself. It needs government, business, and social and labour partners to be pulling in the same direction.”
“In the context of the challenges we face in the country, it is significant that we can stimulate our economy by channelling some of the funds that may have been earmarked only for financial returns to also consider social impact as well,” Nxasana notes.
This is no longer fringe thinking. The owners and managers of capital are coming to recognise that not only are current trajectories unsustainable, they are also not financially viable in the long term.
At the same time, the business opportunities associated with delivering positive outcomes are significant. As Nxasana points out, the links between financial returns, and addressing societal and environmental imperatives have become clear.
“It would be extremely naïve for anyone to not consider the impacts of climate change in financial terms,” he says. “You only have to look at the cost of the recent earthquake and tsunami in Indonesia as an example. We are seeing biodiversity being degraded, oceans rising, extreme weather conditions creating havoc, and they all have huge financial implications.”
Impact investing is really the recognition that throughout history, the greatest opportunities were born out of our most severe challenges.
“We shouldn’t waste a crisis,” says Lucas-Bull. “We do have a crisis in South Africa, and that has been recognised and resulted in the call to action from the President. We have a crisis of growth, and a crisis of employment and inclusivity. We have to address these things with a different mindset and a different sense of urgency to what we have in the past.” DM