Impact investing, which aims to generate positive social and environmental impact alongside financial returns, is ideally suited to retirement funds. By deploying members’ savings to enhance their quality of life, these funds create a virtuous cycle: as members’ lives improve, their ability to save for retirement increases, ultimately benefiting both individuals and the broader economy.

The Global Impact Investment Network estimates that the global investment opportunity for impact is about US$1 trillion [1] and it estimates this sector will deliver double-digit compound growth between now and 2030. Africa in particular has a huge need for socio-economic upliftment. The African Development Bank estimates that the continent needs US$170 billion a year spent on infrastructure and US$2 trillion spent over the next 10 years to address the housing backlog [2].

STANLIB’s Credit Alternatives focus on impact investing stretches across three broad areas:

1. Infrastructure, both economic (energy, telecoms, transport) and social (affordable housing, education and health care).
2. Financial inclusion, which covers SME financing, payment remittances, ethical microfinancing and BEE financing. The objective is to remove barriers for under-served sectors to grow, aiding marginalised groups in particular.
3. Agriculture, where investments can contribute to sustainable land use, increase food security, and tackle issues related to land redress.

Benefits of impact investing

There are several benefits to impact investing. It directs capital towards solving pressing global challenges such as climate change, poverty, access to quality healthcare and education. Importantly, returns must be sufficiently compelling to attract investors, so there should be no trade-off between impact and financial return. Impact investing can also provide diversification benefits, which reduces risk in investment portfolios.

Despite its potential, impact investing presents unique challenges that underscore the need for experienced management:

The first is that it is a relatively new concept in South Africa. Consequently, access to relevant information is limited, which makes it challenging to measure impact.

The second is the lack of a standardised reporting framework.

[1] GIINsight: Sizing the Impact Investing Market 2022. 

[2] Africa Impact Summit Report 2023: Unleashing African Potential Through Impact Investing.

The third is the belief that impact investing should be concessional, so it can be difficult to align the expectations of investors and borrowers.

The fourth is “impact washing” which, like greenwashing, means the danger of making false claims about impact.

Diverse asset classes for impact investing

Impact investments can span a range of asset classes, including cash, fixed income, infrastructure, property, debt and equity. STANLIB’s impact investing approach is via credit. Within this sector, there are various instruments to choose from, including loans, notes, securities and listed debt. This type of investing benefits from active management and should be managed within a diligent environmental, social and governance (ESG) framework.

Practical examples of impact investing

Practical examples illustrate how impact investing can be managed to deliver maximum benefit to investors and recipients:

• Social housing project. STANLIB Credit Alternatives has funded a social housing project that is developing 1 018 affordable apartments. The Social Housing Regulatory Authority (SHRA) provided 70% grant funding for the project and STANLIB supplied the other 30% in the form of a loan. The development, which is nearing completion, provides 24/7 security, with safe spaces for children to play and socialise, access to internet via fibre installation and subsidised rentals. The developer is locked in for 15 years to ensure the estate is well maintained and functioning appropriately.
• Digital infrastructure investment. A second example is the R840 million that STANLIB Credit Alternatives has invested in digital infrastructure. It has provided debt funding to SA’s premier open-access fibre infrastructure and connectivity provider, which has already installed over 13 000kms of fibre in the country’s major metros.
• Clean energy financing. STANLIB has been investing in renewable energy since the first round of the Renewable Energy Independent Power Producers Programme (REIPPP). Our investments in the sector have continued to support private power generation as part of government’s Integrated Resources Plan. The strides made by the private sector working with government has greatly aided in reducing loadshedding, thereby facilitating growth in the economy.

The need for specialist credit management

Specialist credit, or more commonly referred to as private debt, differs from traditional fixed income which largely focusses on listed and tradeable debt instruments. Private debt has the potential to deliver compelling risk-adjusted returns whilst ensuring capital preservation. Investing in private debt instruments generally relies on fundamental bottom-up analyses. Instruments are typically unlisted, hence lowly correlated to the traditional listed debt and equity markets. It is critical to note however, that the investments are not risk free. Investors may face a potential loss of both capital and returns. This makes it essential to use a manager that performs thorough due diligences, regularly assesses and reports on performance, has clear agreements in place to manage defaults and makes an initial and ongoing assessment of recoverable values throughout the life of the investment.