How to make a return on your investment and create jobs at the same time
As impact investment gains ground around the world – the benefits it offers are becoming clearer, with opportunities for skills development and job creation for young people among them. But to achieve these we need to take steps to improve how we measure and report in the sector.
Socially responsible investment is on the rise globally, with one out of four of the total assets under management in the US currently being invested in socially responsible ways - over $12 trillion. According to a CNBC report, socially responsible investment is rising because a new wave of investors and consumers are seeking to use their capital to achieve a greater purpose beyond profit.
The idea of money as a force for developing and improving society can be traced back more than 200 years to religious practices such as Sharia investing and John Wesley’s dictum to avoid profiting from practices such as gambling or alcohol. And in the past few decades it has surged in popularity as an investment discipline. No longer content with profit as the only required return on investment, investors are now increasingly calling for investment strategies that consider other impacts, including environmental, social and governance (ESG) impacts.
Impact investment is seen by many as a possible solution to South Africa’s developmental and social problems. It is after all, a discipline that encourages positive impact and tangible returns - goals that are beneficial to society or the environment such as renewable energy, housing, job creation etc., while also generating financial returns. But studies show that there are challenges to this approach. One survey by South African researchers pointed to several obstacles, among them not enough awareness about impact investment in the country as well as the lack of standardised and detailed reporting measures. Being able to track, measure and report on environmental and social outcomes of an impact investment is critical and one of the big factors hampering the sector’s growth in SA.
Last year, I had the opportunity to attend an Executive Education course on Impact Measurement and Management for Investors at the UCT Graduate School of Business (GSB). The Bertha Centre course convenor, Aunnie Patton Power, says there is currently a plethora of approaches, frameworks and tools available to measure impact, but these need to be better integrated into investment strategies to generate and use data to advance the intended social and environmental impact from investments. They also need to more meaningfully use available technologies, such as remote sensing, the internet-of-things, cellphone surveys, blockchain and artificial intelligence to create traceable, verifiable and accurate data.
Without accurate measurement and meaningful analysis, the growth of impact investment will be stifled, Patton Power argues. This data will also enable companies to report more accurately on the benefits and achievements of socially responsive investing, which will create better awareness and help grow the sector. By contrast, a lack of proper reporting, runs the risk, as sustainable business trade organisation Ceres reports, of “reinforcing the misconception that environmental, social and governance issues are extra-financial and not material.”
The Bertha Centre for Social Innovation and Entrepreneurship, a specialised centre at the UCT GSB, has conducted research into various tools and measurement platforms that can be used successfully to measure investment impact. Through the Bertha Centre, the UCT GSB was one of nine universities chosen by the United Nations Development Programme (UNDP) in 2017 to develop a research agenda to better leverage private investment to finance the Sustainable Development Goals (SDGs).
Some projects are easier to measure in terms of outcomes or impact. For instance, investments into hospitals or schools can be measured in terms of patient numbers or educated children. But with other projects that are more complex or longer term – such as investing in a municipality or the building of a road, evaluating and monitoring the impact can become problematic. Sometimes indicators change or there are secondary benefits – for example job creation or income generation that can be hard to quantify. Measuring change in human behaviour is also problematic and not as simple as measuring data points, for instance.
It comes down to the complexity of data, how it is gathered and who verifies it and what method of standardisation is required. There is an increasing need for data collection and management in the impact investing sector and this presents opportunities for data scientists of various qualifications and ranges of ability. However, data scientists are in short supply in South Africa.
While there are data science degrees at master’s level in South Africa, these produce only about 40 data scientists a year which is significantly less than is needed in the sector. “South Africa is facing an enormous unemployment problem at the same time as the world is heading at breakneck speed towards the Fourth Industrial Revolution,” says Shaun Dippnall, who, along with fellow actuaries Aidan Helmbold and Dave Strugnell, founded the Explore Data Science Academy where data scientists are trained – sometimes straight out of school. He points out that there are many talented young people in the school system – and not just in the better resourced schools. All they lack is opportunity.
Undoubtedly, a booming impact investment field offers manifold benefits to South Africa beyond ESG impacts, not the least of which is employment for these young data scientists. It opens doors to those with skills and financial know-how required to manage, evaluate and analyse the large amounts of data produced by various measurement tools, apps and programmes. New ventures and start-ups looking for funding, as well as for companies who want to reach financial and impact objectives also stand to benefit from a thriving impact sector.
In many ways, impact investment is a gift that keeps on giving. As the sector grows, we expect more doors to open in terms of not only the social and developmental outcomes but also in terms of secondary benefits, like skills development and amplifying the meaningful returns to all stakeholders involved. But to get there we need to rapidly and urgently improve our measurement and reporting. Without this critical data to guide and leverage our success, there is a real chance that the opportunities offered by impact investing may slip through the fingers of South Africa’s business and financial communities leaving all of us the poorer for it.
