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How Africa can satisfy consumer demands for sustainability

How Africa can satisfy consumer demands for sustainability 41

By Shaw Mabuto, Partner and ESG Officer, SPEAR Capital 

Over the past 18 months of the pandemic, a lot of people around the globe have dramatically re-evaluated their lives. They’ve changed jobs, moved home to be in places better suited to the new working reality or closer to their families, and re-evaluated what they perceive to be important.

One major re-evaluation concerned our impact on the planet. People were confronted with stark images of nature thriving in the absence of human beings during hard lockdowns around the globe and the fact that the pandemic was likely 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 by 4 550% during the pandemic.

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

Adding to existing pressure 

Before looking at those examples, however, it’s worth pointing out that consumers aren’t alone in pressuring companies to behave more sustainably. Investors are increasingly demanding that the companies they back meet environmental, social, and governance (ESG) standards too. In fact, ESG assets are on track to reach US$53-trillion by 2025.

Notably, pension funds (which control vast amounts of capital in many jurisdictions) are increasingly 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 Environmental, Social, and Governance (ESG) tests.

In every way, therefore, it’s in a company’s best interests to operate sustainably.

Africa and sustainability 

Given the kind 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 actual fact, the situation is somewhat more complex. According to the 2019 Morningstar Sustainability Atlas, for example, companies in South Africa have levels of ESG compliance on par with those in Italy, Belgium and Australia. Africa’s most developed economy fares particularly well when it comes to carbon risk, carrying levels on par with those of Switzerland, the Netherlands, Denmark, Sweden, Belgium, France, and the US.  While ratings will vary across African countries, many South African companies operate across the continent, indicating a widespread willingness to embrace sustainability.

That tracks with 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 where growth capital is needed and which offer good prospects for positive impacts. There are many businesses that have been able to thrive in spite of the prevailing environment and lack of government support.

A good example of this from our own portfolio is Arkay Plastics. Even though the industry it operates in isn’t traditionally sustainable, it’s working to be as sustainable as possible. It has, for instance, started supplying crates made out of recycled plastic to a major soft drink manufacturer in one market.

Investment and backing

With the right backing, innovative companies across the continent can grow successfully while at the same time making the world a better place and providing returns to their investors. But they will need backing.

And that’s where ordinary people can make the most difference when it comes to 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 (PE) companies have an important role to play. PE not only plays an important role in diversifying investor portfolios but the companies that play in the space are geared to the long-term. Additionally, PE 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.

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