Responsible Investor

ESG practices in Africa are improving

Uptake is essential for development and building value, says new PRI signatory, CDC.

Strong environment, social and governance (ESG) practices build real value and make commercial sense. These practices are especially important for businesses in Africa, particularly in sub-Saharan Africa, which is rated by some as the most difficult continent in the world in terms of ease of doing business, and is home to a larger proportion of poor people than any other region. Corruption, bureaucracy, inefficient capital markets, poor infrastructure (especially the lack of access to reliable power), and the effects of diseases such as HIV/AIDS, tuberculosis and malaria make many of the region’s economies highly challenging for entrepreneurs and growing businesses. Despite these challenges, there is a growing determination to resolve seemingly intractable issues and shake off the poor reputation of many African companies. We have seen a trend in Africa towards active management of ESG practices. In particular, there is recognition that having good ESG practices builds competitive advantage and value in the business. A strong ESG record can help companies win international customers, build stronger brands, reduce costs and improve performance. It also encourages companies to operate to international standards and owners recognise that this is essential if they are to attract potential buyers when they choose to sell.

Within Africa, different businesses have different ESG concerns. Those with high environmental concerns include ones which have large factories, are involved in oil and gas extraction, large-scale agribusiness, forestry, construction, new infrastructure projects and resource intensive industries, such as cement plants. There are also high ESG concerns in businesses that use low skilled workers, such as textile production, those which operate in countries with weak employment legislation, that involve workers handling hazardous substances and last but not least, businesses which can pose health and safety dangers for consumers, such as food producers. From the business integrity and corporate governance perspectives, there are risks and opportunities for improvement across most sectors. Many fund managers investing in businesses in Africa are now demanding a strong commitment to responsible investment principles. In CDC, this is something we absolutely insist upon. Our fund managers are helping investee companies design action plans for tackling problem areas and introduce appropriate improvements over the investment period. This will often include employing health and safety specialists to manage improvements in environmental and social management and the general health and safety of employees.

Not a member? Register here »