WHAT IS ESG?
“ESG” (environmental, social, governance) refers to the three main factors that determine the sustainability and social impact of an investment. (An investment is giving money to a business in the hope of making a profit.) ESG investments seek to make a positive, long-term impact on society and the environment.
This means that investors will look at environmental (e.g. emissions produced), social (e.g. protection of labourers), and governance (e.g. diversity of the workforce) factors when they invest in businesses. This is becoming more common as people put greater emphasis on sustainability in personal and public life.
ESG IN SUB-SAHARAN AFRICA
It is forecasted that there will be considerable growth in ESG investment in Sub-Saharan Africa, especially in Kenya, Nigeria, and South Africa. The private sector (parts of the economy not under state control) is expected to play a large role in investments in this area.
ESG investment may include investing in projects such as green energy electrification programs, housing estate developments that are focused on sustainability, and green agriculture (farming in sustainable ways).
In 2019, sub-Saharan Africa received 14% of global ESG investment, behind North America and Latin America. Several African governments are planning to issue green bonds in the next few years (where profits from the bonds have to go to environmental projects), which should encourage more sustainable investments.
BARRIERS TO ESG INVESTMENT
There remain a few barriers to ESG investment. This is mainly from a lack of knowledge about ESG and how to apply it to investment strategies. Also, some people who profit from investing in environmentally-damaging businesses are unwilling to change to investing in eco-friendly initiatives. This is a particular challenge in sub-Saharan Africa because of the dominance of extractive industries (taking raw materials from the ground) due to large reserves of oil, gas, and coal. However, over time, education and the need to take action to prevent climate change will change traditional methods of investing.
POSITIVE IMPACTS OF ESG INVESTMENT
ESG investment is important because it can tackle the social and economic challenges of a region by contributing to sustainable development programs. This is particularly crucial for developing countries, which have limited resources to manage the negative effects of climate change, such as droughts and floods. This can lead to unreliable agricultural production, impacting people’s access to food. ESG investment will help to counter these risks.