Proving improvement, evaluating value in Africa

As it matures, the 'responsible business' agenda requires (and exhibits) realism alongside idealism. Indeed, it is often by getting real that ideals are realised.

Disciples of the African investing story, positive version, in my experience use a discernible mix of head and heart: citing hard numbers (yield / return), but typically often overlaying it with something of an emotive appeal to be part of something bigger, the rise of a continent and its sustainable development. In extreme cases, this appeal smacks of a guilt-trip.

Yes, many objectively appealing investments in Africa are obscured by enduring unfair misconceptions. And talk of responsible investment in Africa goes over the heads of those whose approach (whatever nice noises they make about being part of Africa Rising) resembles that of the couple in Paul Simon's song: "Soon, our fortunes will be made, my darling / And we will leave this loathsome little town..."

But for the rest (beyond a limited set of mainly mandate-based institutional investors: pension funds, endowments, and the like), heart-based appeals to invest at all in Africa, and then to invest responsibly, will not get us far ... evidence of results will.

Is it too harsh to wish for a day when advocates of investing in Africa by reference to sustainability principles feel confident enough to pitch 'do so just because it works, not also or only because you (we) think it is right'?

The realism-idealism point is that the 'field' of responsible investment / business activity both needs and is increasingly marked by greater discipline and rigour: quantifying qualitative gains, proving improvement, measuring success, evaluating value.

This professionalisation of the wider environmental, social and governance (ESG) industry / discourse is both inevitable (if it is itself to be 'sustainable'), and a good thing. One does not have to be subverted to market considerations to accommodate them, and indeed to harness or leverage them in pursuit of sustainable development.

Hence the focus on aligning ESG considerations with 'core' business or investment ones (see here), on learning and speaking the language of positive value-creation (or at least no value impairment), the focus on positive value not just risk management or compliance or reputation-building or goodness, the focus on framing as need-to-do not nice-to-do, and so on.

However, there is still a need to go beyond saying these things work, to showing they do. Too much still involves treating it as obvious that ESG is value-adding, or pleas to disregard that 'it might not be but is still probably a good thing'.

The notion of 'responsible' investment is that it will do no harm, and of 'impact' investing is that it will go further and do some good. Explicit in at least the latter is proof of impact, but investment generally seeks proof of value, and the challenge is to get conceptions of 'value' to include ESG impact as a matter of course.

Socio-enviro responsibility will hopefully move beyond speaking about the falsity of people-planet-profit trade-offs. It must not just show the approach works and is right. It must aspire to show that ESG-based approaches work because they are right and just (not despite it, as an add-on).

Governments across Africa may regulate for greater ESG emphasis, but this is both unlikely and partly beside the point of responsible investment, which is about going beyond mere compliance, and increasingly (one hopes) about seeing ESG due diligence / impact as simply part of 'investment', without the 'r' word prefix.

Discussions had lately have involved whether there something particular about social and sustainability factors relating to Africa, and a particular way of doing business there in terms of ESG factors, development impact or context. Previous posts on 'Africapitalism' have asked this. There is the dynamism, optimism, leapfrog, frontier feel / phenomenon ... but there are also some pretty entrenched structural features of political economy, and Africa Rising is now over a decade old. (There is also the generic challenge of data reliability / availability in the region).

Arguably, if 'Africa Rising' debate is to mature further, it can certainly still seek to inspire new pro-social, sustainable ways of doing business and investment, but must strive to move beyond appeals. It must construct a case that shows how ESG-based approaches add or protect commercial value (at least in the long-term). This means not appealing by saying 'seek more than yield, make a difference' or on the faith that intuitively ESG-based approaches reduce political and other risk exposure. It means maturing beyond the insinuation that if you do not invest in Africa (at all / sustainably) you're neither with it nor a very nice person, and that if you divest you are hurting its children's future. (Much capital flows out each week to secure the future of someone, somewhere else).

In this sense, there is nothing new, nothing uniquely 'African' about all this. Along with an undeniable gloss of subjective, almost sentimental factors (that is, a degree of herd instinct behaviour), capital looks impassively for value propositions.

The challenge for those interested in inclusive, sustainable long-term growth in Africa that does not mortgage its environment and ecosystems is to move, swiftly now, beyond the binary of 'yield' or 'tree-hugging' and show why it works to filter one's investments and run one's business on an ESG basis. Hard proof, the empiricism to match (and sustain) the optimism.

"Faith..." as Paul Simon's song continues "... is an island in the setting sun / but proof, yes, proof is the bottom line for everyone..."

Jo