SHAW MABUTO: Africa can satisfy consumer demands for sustainability

Many people worldwide have revaluated their lives over the past 18 months of the pandemic. They have changed jobs, moved home to be in places better suited to the new working reality, or closer to their families, and revaluated what they perceive to be important. 

One revaluation concerns our impact on the planet. People were confronted with stark images of nature thriving in the absence of human beings during hard lockdowns worldwide, and that the pandemic was probably caused by humans encroaching on natural habitats. As such, many wondered how they could live more sustainably. In fact, Google searches for how to live a sustainable life increased 4,550% during the pandemic.

That increased interest will not just affect people’s habits, but also the companies they support and make purchases from. That means companies will be under more pressure than before to act sustainably. When it comes to doing so, they could do far worse than to look at some examples of sustainable companies in Africa. 

Consumers are not alone in putting pressure on companies to behave more sustainably. Investors are demanding that the companies they back meet environmental, social and governance (ESG) standards too. In fact, ESG assets are on track to reach $53-trillion by 2025. 

Pension funds, which control vast amounts of capital in many jurisdictions, are demanding sustainability from their portfolio companies too. Earlier this year, for instance, the Scottish Widows Fund announced that it would dump £440m of company holdings that fail its ESG tests. 

Similarly, SA pension funds are legally required to consider the sustainable long-term performance of any assets they invest in. These include ESG factors. There are also various well-established voluntary standards best practices that investors subscribe to. This not only ensures that it is in a company’s best interests to operate sustainably but also means SA companies in particular are well-versed in meeting sustainability requirements.

Fares well

For international investors, conducting due diligence on sustainability should be simple. Given the sort of Africa-centric stories that typically reach Western audiences, that might seem like a surprising statement. How can countries grappling with corruption and wide-scale poverty offer lessons in sustainability? 

In fact, the situation is more complex than that. According to the 2019 Morningstar Sustainability Atlas, for example, companies in SA have levels of ESG compliance on a par with those in Italy, Belgium and Australia. Africa’s most developed economy fares particularly well regarding carbon risk, carrying levels on a par with those of Switzerland, the Netherlands, Denmark, Sweden, Belgium, France and the US.

While ratings will vary across African countries, many SA companies operate continentwide, indicating a widespread willingness to embrace sustainability. That tracks our own experiences as investors. Having worked extensively on the continent we can attest to the opportunities available. This is especially the case for anyone looking to find good companies in which growth capital is needed and which offer good prospects for positive impacts. There are many businesses that have been able to thrive despite the prevailing economic environment and lack of government support. 

A good example of this is Arkay Plastics, headquartered in Mozambique. Even though the industry it operates in is not traditionally associated with sustainability, it is working to be as sustainable as possible. It has, for instance, started supplying crates made out of recycled plastic to a soft drink manufacturer in one market. 

Private equity

With the right backing innovative companies across the continent can grow successfully while making the world a better place and providing returns to their investors. Despite the economic ructions caused by Covid-19 and its associated lockdowns and travel bans, Africa remains a continent of opportunity. But for its people to make the most of those opportunities they will need backing. 

That is where citizens can make the most difference regarding sustainability. By investing in companies that operate sustainably, they encourage those companies to grow and continue with practices that make a positive impact on the world. Here, private equity companies have an important role to play. Private equity not only plays an important role in diversifying investor portfolios but the companies that play in the space are geared to the long term.

Such firms are geared not only to generate returns for investors but also to contribute to the overall wellbeing of the companies they invest in. 

In a world where the future feels incredibly uncertain, it makes sense to back companies that are interested in making it less so, rather than the ones chasing the next, most easily available dollar.

• Mabuto is partner and ESG officer at Spear Capital.