Businesses, in whatever form, seek long-term growth. They allocate their resources to manage risks, seek new opportunities and meet regulatory requirements through proper oversight of their operational systems. As a central point of contact for issuers, investors and market intermediaries, stock exchanges have long been recognised as essential players in the transition to sustainability for companies.
To better understand the sustainable investment trends in Africa, MK-Africa partnered with the Nairobi Securities Exchange (NSE) to host Shameela Soobramoney, the Chief Sustainability Officer at the Johannesburg Stock Exchange (JSE) in a webinar on Monday, 10th August 2020. The online event began with opening remarks from Muthoni Kanyana, MK-Africa’s CEO who noted that ten years after the launch of the Sustainable Stock Exchanges initiative, the extent of exchanges’ engagement with sustainability continues to deepen and evolve leading to an increase in the effectiveness of the markets and also building resilience into their operations. Interestingly, socially responsible investing is gaining more traction during the Covid-19 pandemic as flows in the US and Europe listed Environmental, Social and Governance (ESG) funds for the year to date having already exceeded 2019.
Shameela began her presentation by describing sustainability investing as encompassing a 3-pronged paradigm shift: from financial capitalism to inclusive capitalism, from short-term capital markets to long-term sustainable markets and from financial reporting to integrated reporting. Focus on short term results leads to the externalisation of issues on the environment and society forgetting that we are entirely dependent on both to survive as businesses and individuals. Trends indicate that ESG integration is the most preferred strategy with 70.3%, 76.7% and 62.7% per region respectively in East, Southern and Western Africa regions. More on the JSE’s evolving hybrid approach to sustainability is covered in our ‘Sustainable Investment Trends in Africa’ blog post.
“Sustainability emerged from corporate ethics in response to perceived public discontent over long term damage caused by focus on short-term profits.”Shameela Soobramoney, CSO, JSE
The NSE CEO, Mr. Geoffrey Odundo also made key note remarks on sustainable investment noting that the drivers for this in Kenya include: increasing investor demands and policy risks as new regulations addressing sustainability concerns exert pressure on stakeholders to start focusing on sustainability investments. Also supportive regulation by the NSE and the Capital Markets Authority (CMA) and new powerful consumer groups such as Millennials and Generation Z who are supporting awareness of the importance of sustainable business models.
There are however limitations to the growth of sustainable investments owing to lack of, and the prohibitive costs, of the data needed for sustainable investment decisions, little incentive for companies to enhance their ESG reporting and limited technical expertise. Mr. Odundo concluded by analysing governance and its impact on investment. Research and practice has demonstrated that proper governance structures have the potential to enhance profitability, growth, and attract investment. He therefore encouraged companies, including SMEs, to put in place strong governance structures so as to enjoy better performance.
