Increase investment in Africa or miss the UN’s SDG deadline

A Standard Chartered survey conducted between July and August 2020, amongst a panel of the world’s top 300 investment firms with total assets under management (AUM) of more than USD50 trillion*, found that:

  • Only 3% of their AUM is invested in Africa
  • Lack of investment in emerging markets puts the chances of meeting the 2030 SDG deadline at risk
  • Of those already investing in Africa, 93% say they will likely increase their investment in the future

Africa is not getting the investment needed to help the world meet the UN’s Sustainable Development Goals (SDGs) by 2030, new research from Standard Chartered has revealed.

The $50-trillion question investigates how some of the world’s largest asset managers – with a combined USD50 trillion in AUM – are investing at this critical time for the global economy and the environment.

Emerging markets are seeing a massive shortfall in investment

Our research shows that almost two thirds (64%) of the panel’s AUM is invested in the developed markets of Europe and North America, while just 3% is in Africa.

Asia, which includes several developed markets, takes 22%, while just 2%, and 5% of the assets are invested in the Middle East and South America, respectively.  

The risk posed by emerging markets was flagged as a major barrier to investment. More than two-thirds of investors believe emerging markets are high-risk, compared to 42% who believe the same for developed markets. More than half of the panel (53%) believe returns from investment in Africa are low or extremely low, with almost three in five investors (59%) saying that they are deterred from investing because they lack in-house specialist teams.

In contrast, those already investing in Africa are optimistic about the region, with 93% saying they are likely to increase investment in the future. 54% of Africa investors said their investments had performed as well as – or better than – their developed market investments over the past three years. The figure for emerging markets overall was 88%. However, Covid-19 may have made it even harder for emerging markets to get the investment they need. Some 70% of investors believe the pandemic has widened the capital gap further.

Which markets are getting the most investment? 
North America26%
Middle East2%
South America5%

Not enough investment is linked to the SDGs

The research points to a growing focus on sustainability, with 81% of investment firms now taking a disciplined approach to environmental, social and governance investment. However, this is not translating into investment in the SDGs. Only 13% of the assets managed by our respondents is directed towards SDG-linked investments. Some 55 % claim the SDGs are not relevant to mainstream investment and 47% say investment in the SDGs is too difficult to measure. However, one-fifth of investors admit that they were not aware of the SDGs. Respondents point to regulatory changes, favourable tax treatment, evidence of higher returns, better data for measuring impact, and increased demand from retail investors as the top five factors that might spur on more SDG investment.

What are the tools and incentives to encourage SDG investment?
Regulation that encourages SDG-linked products74%
Favourable tax treatment of SDG-linked investments63%
More evidence that investing in SDGs will not lead to underperformance63%
Better data to measure the impact of SDG investments53%
Retail investor demand for SDG-themed investments53%

Sunil Kaushal, Regional CEO, Africa & Middle East, Standard Chartered said there is still investment gap in Africa to realise the SDGs and this creates an opportunity for us to make a difference where it matters the most.

“A significant surge in private-sector investment – alongside public investment and commitments – will be required to bridge the gap and hit the SDG targets over the next ten years. Right now Covid-19 has made the imperative to act even stronger in the region.

Sunil Kaushal, Regional CEO, Africa & Middle East, Standard Chartered

There is no single answer to The $50-trillion Question, but it is evident that investors need to expand their focus beyond developed markets. Africa, and emerging markets generally, offers investors a unique opportunity: strong returns combined with the chance to have a significant, positive impact in the long term.”

The $50 Trillion Question study follows the publication of Opportunity2030: The Standard Chartered SDG Investment Map which first revealed the multi-trillion-dollar opportunity for private-sector investors to help achieve the SDGs in emerging markets.

*The $50 Trillion Question Investor Panel is made up of asset managers from the world’s top 300 asset management companies. With combined assets under management (AUM) worth more than USD50 trillion (the equivalent to half of global GDP), how the asset managers in our survey choose to invest will have a huge impact on humanity’s ability to solve some of the world’s biggest problems. This study is based on in-depth interviews with the panel, conducted between July and August 2020.

The below shows the panel broken down by AUM, role and location, all of which ensure it is representative of the global top 300 asset managers.

You can read the full Standard Chartered $50 Trillion Question report here.

The $50-trillion investor panel
by AUMby generalised job roleby location
19% are top 10 firms (over USD1 trillion)
46% are top 11-50 Firms (USD1 trillion to USD350 billion)
23% are top 51-150 firms (USD350 billion to USD90 billion)
12% are top 151-300 firms (USD90 billion to USD20 billion)
42% fund managers
41% strategists
17% emerging market specialists
42% are based in North America
42% are based in Europe
8% are based in Japan
3% are based in China
5% are based elsewhere

Standard Chartered

Standard Chartered PLC is listed on the London and Hong Kong Stock Exchanges. Follow Standard Chartered on Twitter, LinkedIn and Facebook.

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LatAm: Six megatrends in payments for 2021

In this webinar presentation, the payments team from Americas Market Intelligence examined six huge shifts that they foresee occurring with payments in Latin America in 2021 and beyond.

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SA companies spent R10.7 billion on CSI in 2020

South African companies spent an estimated R10,7 billion on corporate social investment (CSI) in the 2020 financial year.

This represents a marginal 1,2% growth in real terms from R10,2 billion in 2019, according to CSI consultancy Trialogue. The research was published in the Trialogue Business in Society Handbook. It reflects the 23rd consecutive year of fact-finding into the state of local CSI.

Trialogue Director Cathy Duff said: “CSI expenditure in real terms has not shown a consistent trend since a period of growth between 1998 and 2013. Although we see a slight increase in 2020, we expect that as the economy contracts, so too will CSI expenditure, which generally lags GDP growth.”

CSI expenditure remained concentrated, said Duff. The top 100 companies (by CSI spend) accounted for 69%, or R7,4 billion, of total CSI expenditure. Of this R7,4 billion, almost two-thirds was spent by the 20 companies whose CSI expenditure was more than R100 million in 2020.

Companies that donated the most operated in basic resources (mining, water and forestry), retail – boosted by product donations ‒ and financial services. Together, these three sectors accounted for nearly two-thirds of CSI spend.

Non-cash giving (products, services, time) constituted 16% of total CSI allocation.

Response to Covid-19

Almost all companies focused on the health and safety of their staff (99%) and customers (83%) in their response to Covid-19. Fewer (40%) offered support to suppliers.

At least four out of five companies donated to Covid-19-specific responses, with most supporting interventions in food security (64%), healthcare (60%), and in the form of contributions to the Solidarity Fund (60%). Two-thirds took part in multi-stakeholder responses such as government dialogues and industry initiatives.

The reported impact of Covid-19 on CSI spend was mixed. Almost equal numbers of companies reported increased expenditure (26%), no change in expenditure (21%) or reduced expenditure (21%).

Several companies (13%) reported that expenditure remained the same but was redirected to respond to Covid-19. Only 4% of companies ceased or put all CSI funding on hold.

Causes and geographies supported

As in previous years, education was the most popular cause, supported by 95% of companies and receiving half of all CSI expenditure, said Duff. Social and community development remained the second most supported sector, followed by health, then food security and agriculture. Disaster relief received a relatively small percentage of CSI spend, but many more companies contributed to it this year.

“Corporates supported projects across an average 4,6 sectors, broadly consistent with previous years. This figure is significantly higher than United States companies, which are more focused and supported projects in an average 1,4 sectors in 2017.”

Over half of CSI spend (54%) was allocated to projects with a national footprint. Gauteng was the most supported province in 2020 (48% of companies directed funding to operations in the province, which received on average 19% of companies’ CSI expenditure.) This was followed by KwaZulu-Natal (supported by 35% of companies) and the Western Cape (supported by 28% of companies.)

Funding recipients

In line with previous years, non-profit organisations (NPOs) were the main recipients of CSI funding. Over 90% of companies directed an average 54% of their spend to NPOs.

The next most common recipients were government institutions such as universities, schools, clinics and hospitals. These were funded by 69% of corporates and received on average 25% of companies’ CSI spend.

One out of five companies funded social enterprises, which aim to maximise profits while maximising benefits to society and the environment.  This, however, amounted to only a small percentage (2%) of average company CSI spend.

Rationale and strategy

“The majority of companies (81%) rated ‘moral imperative’ as one of their top three reasons for supporting CSI, with 53% rating it as the top reason. This is consistent with previous years,” said Duff.

More than half of companies undertook CSI because of licence-to-operate obligations other than BBBEE, although only 11% ranked this as their top reason,

Reputational benefits, which ranked second in 2017, were rated lower this year. Only 35% of companies reported reputational benefits as one of their top three reasons for supporting CSI.

Impact of weak economy

Discussing trends in local CSI, Duff noted that net profit after tax (NPAT) of the 194 listed companies analysed showed a median decline of 12,7% in 2020, reflecting the weak state of the economy.

“CSI budgets are often determined as a percentage of NPAT and are based on the financial performance of the previous year. This results in a lag between current NPAT performance and budgeted CSI spend.

“Declining corporate profitability is expected to have a negative impact on future CSI budgets, although the extraordinary contributions to Covid-19 relief programmes in 2020/21 may delay the downturn in CSI spending.”

To read more: The Handbook can be downloaded free

As in previous years, the Trialogue Business in Society Handbook is noted not only for its in-depth research but also for its expert contributions and striking design. This year, images from The Lockdown Collection appear on the front cover and throughout the edition. The Lockdown Collection is an art initiative founded this year to capture South Africa’s Covid-19 lockdown and to support vulnerable artists.

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Montauk Renewables lists on the Johannesburg Stock Exchange

US-based renewable energy company, Montauk Renewables, listed on the Johannesburg Stock Exchange’s (JSE) Main Board, making this the first company listing for 2021. This listing is a secondary listing for the company under the alternative fuels classification. Montauk Renewables is a new listing resulting from the unbundling of Montauk Holdings.

A leader in renewable energy development from biogas, Montauk Renewables has been specialising in the recovery and processing of methane gas sources for use as an alternative to fossil fuels for over 30 years. The organisation has extensive experience in the development, operation, and management of biogas fuelled renewable energy projects.

“As an organisation that is environmentally conscious, the JSE is pleased to welcome Montauk Renewables onto the Main Board. This listing is an opportunity for South African investors to invest in the green fuel
space, and help preserve our planet for future generations. We wish Montauk immense success in their growth journey as we all work together towards growing shared prosperity.”

Valdene Reddy, Director of Capital Markets at the JSE.

The JSE now has 337 companies listed with a market capitalisation of over R18.9 trillion.

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Taking stock of Covid-19 through a sustainability lens

If you are reading this, you are well on your way towards surviving one of the most cataclysmic events of our lifetime; one that is forever going to reshape the way we view the world and drive home the importance of prioritising sustainability and all it entails during the years ahead.

The coronavirus, which originated in a wet market in Wuhan, China, in December 2019, has since been declared a global pandemic that has spread across the planet through international travel and global supply chains. At the time of writing, the number of cases worldwide was inching towards the 54-million mark. Additionally, the effects of the virus have reverberated through global financial markets and economies, resulting in the greatest recession since World War II.

The pandemic has also brought to bear the severity of socio-economic inequalities, risks introduced by our unsustainable systems as well as the materiality of fat-tail events. In so doing, it has provided us with an opportunity to redefine a new normal and introduce structural shifts that will help us work towards a sustainable future for all.

Many countries instituted national lockdowns at an early stage in the pandemic, which is a classic example of a suppression approach to pandemic management. The logic underpinning this methodology is to introduce social distancing to entire populations and minimise the number of additional infections reproduced by each confirmed case, thereby slowing the spread. This, ceteris paribus, is a highly effective public health risk management plan. However, in reality all other things are not, in fact, equal. Thus, the coronavirus has brought crucial attention to the social element of environmental, social and governance (ESG) issues.

National lockdowns entail the suspension of economic activity, which results in loss of income and employment, pushing the vulnerable segments of society, already on the precipice of poverty, into a state of destitution. Also, countries encumbered by acute socio-economic inequalities, like South Africa, have had to face the reality that large segments of their populations living in high population density areas and with inadequate access to clean water and sanitation would face a higher risk of exposure to Covid-19. The reality of the plethora of social risks has since powered the rollout of unprecedented global fiscal stimulus packages to soften the adverse economic effects of the pandemic.

Although these packages have provided the buoyancy required to see us through the immediate challenges, a fundamental shift in the discourse surrounding the risks fragile economic structures pose is translating into the development of a far more robust and well-defined path towards a sustainable future.

Consequently, sustainable investing will be a vital component of a post-pandemic recovery. For instance, there has been an increase in the global issuance of social and sustainability bonds over the past five years. New issuances in response to Covid-19 are also coming to market. A guidance note has been published by the International Capital Markets Association (ICMA) to provide a benchmark for the structuring and reporting standards associated with the new Covid-19 social bonds.

Domestically, the South African Minister of Finance announced plans to amend Regulation 28 of the Pension Funds Act to improve the ease with which retirement funds can finance infrastructure projects to help kickstart economic development.

The establishment of a robust regulatory framework and the dramatic increase in the need for social intervention worldwide will dramatically improve the level of interest in sustainability bonds and help reshape the economy of the future.

Companies adapting to change

Specific sectors and individual firms have been impacted in varying ways by the pandemic. When governments instituted lockdown laws, the spotlight turned to company governance practices and how executives would navigate the crisis.

Corporate boards faced scrutiny from various stakeholder groups that challenged the shareholder-centric model of governance, thereby making the board decision-making process much more multi-faceted. Companies became more cognisant of the central role they play in maintaining the socio-economic well-being of society through sustained value-creation. They also recognised how a well-functioning society puts them in a better position to meet their key performance indicator targets.

As a result, many boards decided to suspend or reduce their dividends and bonuses due to uncertainty regarding the scope and duration of the crisis. From an environmental perspective, working from home policies shed light on the environmental impact of commuting workforces. According to the International Energy Agency, a record drop in emissions is expected for 2020, with a projected 7% decline in energy-related CO2 emissions relative to 2019. Cities across the world have experienced lower smog levels, reduced water pollution and restored biodiversity highlighting the benefits of working remotely.

As such, many companies, like Microsoft, have implemented these policies permanently. Research also shows that infectious disease transmission is precipitated by rising temperatures, loss of biodiversity and other elements of climate change. By acknowledging this interconnectedness, global corporations are now playing a pivotal role in mitigating climate change risks.

Another equally crucial indirect consequence of the pandemic is the shift in focus to the social component of the traditional business model. Corporate culture measures such as employee health and safety and labour practices, including paid sick leave, have become priority areas and subject to intense public scrutiny.

Furthermore, severe supply challenges have also highlighted the risks of globalisation, and many companies have since amended their supply chain management processes to better diversify suppliers and reshore production. These social developments will not only improve working conditions but foster job creation and enterprise development.

Investor awareness on the rise

In light of the pandemic and growing public awareness of the climate crisis, investors across the world are shifting from a morally agnostic investment approach to one that aligns with their ethical concerns. This is evidenced in budding investor appetite for sustainable products, which has resulted in record-breaking flows into ESG funds in 2020.

Companies with strong ESG profiles have shown resilience in this time of crisis by staging a strong recovery post the March market lows.

This has prompted investors to rethink the impact ESG considerations may have on their investment returns. As supporting evidence, the MSCI World ESG Leaders Index has delivered returns in line with the MSCI World Index within a tight tracking error, other than its marginal outperformance in the wake of the March 2020 crash. This is a comforting return profile for the passive but ethically driven, investor.

Sustainable practices, such as strong incident risk management, fair labour practices, stakeholder-conscious boards, and clear decarbonisation pathways, have proven to be factors that drive long-term sustainable returns. To this end, we should witness an acceleration in the incorporation of ESG considerations into traditional valuation and risk models.

Forging a path forward

The turbulence caused by the pandemic and its indirect consequences has emphasised the need for global social change, multi-stakeholder centric business models, and international cooperation on public health and climate change considerations. This provides us with the carte blanche to rebuild a sustainable future for all and a resilient global financial ecosystem. The question is, which side of history do you, as an investor, want to be on?

Jessica Phalafala, Fixed Income Quantitative Analyst, Prescient Investment Management
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Towards gender equality in the SA agriculture sector

Standard Bank and United Nations (UN) Women are providing financial literacy training to thousands of women farmers in African markets including Malawi and South Africa.

In October 2019, in an Economic Empowerment of Women in Africa through Climate Smart Agriculture (CSA) agreement, Standard Bank and UN Women launched a partnership aimed at empowering women through modern farming technologies that increase productivity and income potential while reducing greenhouse gas emissions.

UN Women is executing the programme under its ‘HeForShe’ campaign as part of championing the advancement of gender equality. Standard Bank is a global champion of ‘HeForShe’. The CSA programme is aligned with the UN Sustainable Development Goals in the pursuit of gender equality, decent work and economic growth.

Standard Bank has committed US$3 million over a three-year period to end-2021 for the project, which is targeting 50 000 women. “Through this three-year CSA initiative, we aim to contribute to the economic empowerment of women across Malawi through climate smart agriculture and practical business skills,” says Graham Chipande, Head of Relationship Banking at Standard Bank Malawi.

In addition to critical farming skills and tools, the beneficiaries receive training for key technical skills including financial literacy. This is an important component of the project in that it will help to ensure the long-term success of the farmers.

While Covid-19 and social distancing requirements have posed challenges, significant progress has been made since CSA’s launch. In the first half of 2020, 40 business clusters were formed in Malawi to provide basic business management skills. These skills include record keeping, gross margin analysis, price discovery, and the development of business plans, among other skills. The business groups have more than 4 000 smallholder farmer members between them – three-quarters of whom are women.

By the end of 2020, 5 000 women farmers in the country are expected to have received financial literacy training. The beneficiaries farm primarily groundnuts, which are processed into oil, flour, and peanut butter. “Through the project’s holistic and comprehensive approach to empowering women farmers, we are helping to improve their functional skills as well as financial skills so they can manage and grow their farming businesses,” Chipande said.

In South Africa, approximately 950 women farmers have received training in business management and digital and financial literacy in the first half of 2020. The UN Women’s office in the country has continued to work throughout the national lockdown. Standard Bank has remained fully operational as a designated essential services provider.

In the six months to end-June, agricultural inputs – drought-resistant seeds of various crops, fertilisers and organic manure, farming equipment, and training on climate-smart agriculture – were delivered to 2 753 women farmers in South Africa.

Besides business skills, the CSA programme is designed to increase productivity, facilitate access to higher value markets and supply chains, and yield high quality produce.

“By the end of the programme, we want to ensure that women farmers are well equipped to thrive in a changing climate,” said Keneilwe Nailana, senior manager Agri Business, Standard Bank South Africa. “They will also be better placed to move up the value chain and access new markets and finance, and ultimately to grow their businesses.”

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Urgent action needed to clean up the energy system

By John Green, Chief Commercial Officer, Ninety One

As we add impetus to the global move to a cleaner, more sustainable energy system, perhaps the greatest obstacle we face is the enormous financing requirement that this step-change in our economies will face. Experts like the Climate Finance Leadership Initiative tell us that the financing required to clean up our supply-side energy system over the next 30 years is anything between $100trn and $150trn.

If we go with $100trn that amounts to around $3.5trn a year. Achieving this mission is therefore not about marginal change, waiting, over analysing or seeking out the perfect data set. It is about taking meaningful and significant action now.

At previous annual Climate Finance Summits, the key players in the climate finance industry have come together to debate the climate issue. There have always been question marks – is it real? Do we need to take it that seriously? How can we quantify the risk? How can we understand and capture the prospective returns?

At last, I believe this debate is largely over. Everything that is going on in the world now has galvanised all parts of society to take action. We must not underestimate our power to make an impact. In addition, the available investment opportunities are profound and it is increasingly clear that we do not have to sacrifice returns to do the right thing.

To this point I would like to share a personal experience that has given me hope in humanity’s ability to achieve the de-carbonisation mission. Our firm, Ninety One, has its African hub in Cape Town, which experienced a dramatic water crisis in 2018. After three consecutive years of drought, with rainfall two standard deviations below the norm, the city faced the approach of Day Zero: the day on which the taps would run dry. But Day Zero never came. Not because the rains came, but largely because the community took action. Water consumption dropped by almost 60% from 1.2bn litres per day to approximately 500m litres per day. The community understood the threat and acted. The crisis was averted.

My messages from this experience are relevant to all of us. 

The climate crisis is real. It is not distant science; it is not average world temperatures that never affect us; it is not an academic debate about whether divesting is right or wrong. It is here. 

This example shows us that action can make an impact and that action starts with each of us asking ourselves what we need to do. If we take positive action we can face down this challenge.

In our view too much of the decarbonisation debate and consequential implementation has focused on negative action. How do we divest? What should we exclude? How should we screen? But negative action is not enough; positive action is critical to achieving decarbonisation. As investors, positive action takes the form of the allocation of capital to businesses, assets and projects that deliver a decarbonisation outcome. This is not that difficult to achieve and could be a very significant driver of future returns.

The bad news is that progress in this regard has not been sufficient. The United Nations’ Principles for Responsible Investment, a leading proponent of investment to combat climate change, has confirmed that of the approximately $100trn in global investment assets only $1.3trn is allocated to positive action strategies. The ShareAction and Asset Owners Disclosure Project estimate that the world’s 100 largest pension funds are investing only 1% of their assets in low carbon solutions. In 2018, the Climate Policy Initiative estimated a total of $579bn was invested to finance decarbonisation. This falls well short of the $3.5trn per annum we need.

So there is a lot for us all to do. For all of the asset owners, pension funds, sovereign funds, insurance companies, and individuals: consider whether you are doing enough to allocate capital specifically to investments that will support and benefit from decarbonisation. Exclusion is not enough! 

For the asset consultants: do you have clear advice frameworks for pension funds who want to allocate more to positive action investment strategies? Have you considered these strategies and the role that they can play in fund portfolios fully? 

A leading consultant recently suggested that on return prospects alone, a sample fund should be allocating up to 10% of their assets to positive action investment strategies. Asset consultants are a critical part of this mission, and they need a strong view on how investment positively supports decarbonisation. 

For asset managers, the challenge will be to do more, and better. We have to understand and price climate and sustainability risk into all of our investments. We have to engage smartly to drive change constructively and effectively. We have to reject box-ticking in favour of substance and develop investment strategies dedicated to positive action.

This is the kind of change that happens once in a generation in our industry. In the 1970s and 1980s, we saw a decline in direct ownership of equities by individual investors in favour of funds. In the 2000s we saw the rise of diversification evidenced by a decline in home bias, as well as the growth of alternative investment strategies.

In the coming years and decades, the defining issue will be to mobilise finance for the challenge of climate change.

Financing decarbonisation is critical to our future as humanity. It is not going away. It will not cease to be relevant until climate change ceases to be relevant.

The good news is that, as was our experience as residents of Cape Town, if we all do our part, this is Mission Possible – not Mission Impossible.

I conclude with this quote by David Attenborough: “This is not about saving our planet – it’s about saving ourselves. It’s not all doom and gloom, there is a chance for us to make amends…all we need is the will to do so.”

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