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Picture: 123RF
Picture: 123RF

Since it burst onto the scene a few short months ago, generative artificial intelligence (AI) has hogged the headlines and occupied a significant portion of our cognitive real estate as to whether it is a good or bad thing for us.

A few days ago, more than 350 scientists issued a joint letter warning that “mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war”. The Financial Times reports that experts such as Geoff Hinton — an academic and former Google employee viewed as one of the “godfathers of AI”— have said the most immediate danger is not that machines will independently run amok but that humans will misuse them.

The opposite is also true: if humans use them properly, what then might be the potential of these technologies? This could especially be true when it comes to impact investing, which is the practice of investing capital with the aim of generating positive environmental, social and governance (ESG) outcomes alongside financial returns. This is increasingly recognised by investors, companies and governments as important in building a sustainable future. 

Impact investing was born out of work done by the UN in the 2007-08 period, when it was looking at ways to finance development that would not only deliver profits but also better the lives of communities. Innovative financing instruments such as grants, technical assistance interventions and outcomes funding were identified as useful tools.

Fast forward 15 years and we now have an array of innovative financing models designed to evince a specific social or environmental outcome. These include blended finance, first-loss guarantee, impact bonds and unsubordinated debt. SA’s government, for example, aims to deploy blended financing — an approach that combines official development assistance with other private or public resources in order to “leverage” additional funds from other actors —  to enable lower-income households to access solar energy solutions as part of the president’s Energy Action Plan.

Of course, the concept of financing as “innovative” is not new. In a historical sense, finance has been inherently innovative, evolving to respond to the needs of the time. For example, the eras of manufacturing and industrialisation gave rise to concepts such as valuation and capital budgeting. 

So how might innovative financing evolve over the next 10 years with tools like AI and advanced data analytics at its disposal? While not without problems of bias and ethical concerns — much like their human progenitors — these tools have the potential to dramatically improve how we match investments to values and goals that deliver results.

For example, as S&P Global points out, AI allows sustainable investors to collect and analyse more information than ever before when accounting for ESG risks and opportunities. Additionally, investment managers are coming under increasing pressure to measure ESG criteria in their portfolio, and AI could help here too: technologies will filter essential data that investors lack, acting as the catalyst for sustainable investing at scale.

Such tools could help democratise impact investing by making it accessible to a wider range of investors, including retail investors and small-scale enterprises, through new digital platforms and tools.

This is not to say we humans can abdicate our responsibility, and role in, what happens. The opposite is true. We need to be more vigilant than ever to make sure we use these tools for good. Dialogue and knowledge sharing must therefore play a key role in shaping our future in a technology era. There will be many conversations that need to be had to make sure we understand what is at stake and governments, civil society and business need to work together to ensure technology benefits all people — rich and poor.

Blind spots have already been identified. For example, while technology might allow some of us to work a four-day week, many people still feel overworked because humans will consistently find ways to try to add value. Another might be: how do we measure the value of people who service households and those who care for children and the elderly? These people are important enablers for not only economics but for social cohesion, community development, and mental health and wellness, but are often not factored into the investment decision-making processes.

Many of these conversations will need to be about Africa. With the world’s fastest-growing and youngest population, the continent is, in a very real sense, the future of this planet both as a resource for talent and an investment destination. Thus, as we head into this new digital era, African stakeholders must ensure that they are participating in and leading such conversations.

The inaugural Africa Impact Summit taking place in Cape Town in July — which seeks to grow a body of knowledge drawn from the experiences of impact investing across Africa and build a network of partners and collaborators to enhance impact — will be an important landmark in this regard.

Young Africans in particular have an important role to play in influencing the future with their ideas. We need to be active participants in building a continent in which our children can live comfortably.

The next 10 years will be both challenging and exciting. We don’t know where AI can take us, but we can perhaps take comfort in the fact that innovative finance is a proven methodology for helping to drive adaptation and impact. Provided that we make sure we keep people and the environment at the front and centre of investment decision-making, impact investing in the age of AI has the power to bring various forms of capital to bear on addressing African challenges and can play an important role in strengthening economies and building resilience.

And when Africa does well, the world does well, so there is everything to play for here.

• Hadebe is an economist and CEO of KH Research Equity Partners, a research-driven private equity business. 

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