The drought in Cape town and surrounding areas have caused a surge in impact investing.
Impact investment is, to a large extent, still fairly unknown and under-used in South Africa, despite the vast opportunities in a country with a massive scarcity of resources.
Social and environmental
Impact investing aims to generate specific beneficial social or environmental effects in addition to financial gain. It aims to reduce the negative impact of business activity on the social environment.
Renewable energy is one sector that allows for easier participating in terms of impact investing. The objective of impact investing is to back ventures and projects which intrinsically have a positive social and environmental outcome as part of the company’s business model.
Investors are increasingly looking at initiatives and technologies which advance the development of renewable energy projects, especially in the current global environment and concerns about climate change.
The current drought in Cape Town and surrounding areas has caused a surge in impact investing by local investors in innovative water re-use projects.
A number of businesses tend to gravitate towards a specific industry for the purpose of impact investing. It would be refreshing for businesses to explore other sectors in which they can do the same.
An important consideration, from a legal perspective, is to ensure that clients involved in impact investing are licensed to do so.
In the current South African context there is significant emphasis on the role of Broad Based Black Economic Empowerment (B-BBEE) initiatives to rebuild and transform the economy post-Apartheid. Further there are a number of environmental and energy compliance requirements.
It is also important to ensure that the structure or investment vehicle selected is legally sound, tax efficient, and limits the liability of the investors and the promoters alike.
Depending on the structure adopted, additional regulatory requirements may become applicable. For example, where impact investing is carried through a venture capital fund structure, Section 12 J of the Income Tax Act must be taken account.
However, these projects can be enormously profitable and viable, with short payback periods.
For example, with energy efficiency the changes to production processes or introduction of new technologies make them increasingly desirable for companies to implement. There is scope to blend social impact with business, especially when considering the scarcity of resources in South Africa.
South Africa undoubtedly is, and continues to remain one of the most unequal societies globally and impact investment can provide the opportunity to create new enterprises and improve firm viability; all of which contribute to addressing the legacy of the past.
Investors, while ensuring that these ventures are financial viable, should guard against impact investing being reduced to yet another “buzzword” which fails to have any meaningful impact from a social, environmental and even philanthropic perspective.
It is important to create awareness of impact investment projects by making it public. This can be achieved through the use of using public platforms such as newspapers, magazines and social media.
Companies may also consider various options to empower workers through these ventures either directly by having a stake in the initiative or indirectly through showing the positive social impact that their company is having on their community.