Impact investing is an investment strategy that aims to generate a positive social or environmental impact alongside a financial return. In Kenya and Africa, impact investing has been gaining traction as investors seek to make a difference in their communities and promote sustainable development. But how exactly does Environmental, Social, and Governance (ESG) factor into impact investing in a Kenyan and African context?
In Kenya, impact investing is also gaining momentum, and ESG factors are increasingly becoming a focus of investors. According to a report by the Kenya Association of Investment Groups, impact investing in Kenya is estimated to be worth over KSh 400 billion (approximately $3.6 billion), with sectors such as renewable energy, agriculture, and health receiving the most investment.
One of the key ways that ESG factors into impact investing is through the selection of investments. When selecting investments for an impact portfolio, investors must consider not only the potential financial return but also the potential social and environmental impact. For example, an investment in a renewable energy project would have both a financial return and a positive environmental impact, while an investment in a company that prioritizes worker rights and fair labor practices would have both a financial return and a positive social impact.
Management of investments is another way that ESG factors into impact investing. Once an investment has been made, investors must actively monitor and engage with the investee to ensure that it is meeting its social and environmental impact goals. This includes regular communication with the investee, tracking progress against impact goals, and making changes to the investment as needed.
Similarly, in Africa, there is a growing awareness of the importance of sustainable agriculture and the need to support smallholder farmers. Impact investors can play a vital role in this by investing in agribusinesses that promote sustainable farming practices and provide fair prices to farmers. These investments not only provide financial returns but also support the livelihoods of smallholder farmers and contribute to food security in the region.
Microfinance institutions (MFIs) play a critical role in providing access to financial services to low-income individuals and entrepreneurs. Many MFIs in Kenya and Africa have adopted a social performance management approach, which takes into account the impact of their activities on their clients and communities. Impact investors can support these MFIs by providing them with the capital they need to expand their services and reach more people.
African Development Banks addressing environmental and social issues through “Scaling Solar” program. The program aims to increase access to solar power in Africa by providing financing and technical assistance to solar projects. The program has already supported the development of over 1 GW of solar power in Africa, reducing dependence on fossil fuels and providing clean energy to millions of people.
Some specific examples of ESG-driven impact investing in Kenya among others include;
- M-KOPA Solar: M-KOPA is a Kenyan pay-as-you-go solar company that provides affordable solar home systems to off-grid households. The company’s business model prioritizes ESG factors, such as environmental sustainability, by providing households with access to clean energy that reduces their dependence on fossil fuels.
- Jacaranda Health: Jacaranda Health is a Kenyan healthcare company that provides affordable maternal and child health services to low-income women. The company’s business model prioritizes ESG factors, such as social impact, by providing high-quality healthcare services to underserved communities.
- The Global Environment Facility (GEF): The GEF is a global impact investor that provides funding to projects that promote environmental sustainability. In Kenya, the GEF has supported several projects, including the Lake Victoria Basin project, which aims to conserve biodiversity and promote sustainable use of natural resources in the Lake Victoria Basin
However, impact investing in Kenya and Africa is not without its challenges. One of the main challenges is the lack of data and information on social and environmental impact. This can make it difficult for investors to identify and evaluate investment opportunities and measure the impact of their investments. Additionally, the lack of standardization and regulation in the impact investing market can make it challenging for investors to compare and evaluate different investment opportunities.
Despite these challenges, the impact investing market in Kenya and Africa is growing. More and more investors are recognizing the potential for impact investing to generate both financial returns and positive social and environmental impact. As the awareness of the importance of impact investing and ESG factors continues to grow, it is likely that more and more investors in Kenya and Africa will adopt this strategy in the future.