An investment that is considered socially responsible (SRI) because of the nature of the business the company conducts. Common themes for socially responsible investments include avoiding investment in companies that produce or sell addictive substances (like alcohol, gambling and tobacco) and seeking out companies engaged in social justice, environmental sustainability and alternative energy/clean technology efforts.
This practice is growing into a widely followed practice, as there are dozens of new funds and pooled investment vehicles available for retail investors. Mobilizing institutional investors for SRI provides those who are interested in investing in social impact projects with a vehicle to contribute positively to communities as well as providing financial gain for investors. Private companies are however beginning to see it as good for their bottom line to address societal needs.
Yet from environmental concerns to serving the deprived, there is a wide range of unaddressed requirements. According to 91 scientists convened by the United Nations recently, the world is now moving faster towards a climate change disaster. Climate change will aggravate the water scarcity and acute groundwater depletion, which is present in most developing countries across Africa.
The One Planet Summit, launched by French president Emmanuel Macron in December 2017, will be held in Africa for the first time, underlining planetary correlation in a way previous summits – held in Paris and New York – arguably could not. In the run-up to the Summit, Monica Juma, cabinet secretary in Kenya’s ministry of foreign affairs, said, “We’ve begun to frame Nairobi as the world global environmental capital.”
She indicated that Kenya was determined to upscale discussions on the sustainable use of natural resources in line with United Nations’ Sustainable Development Goals.
The environment is top of the agenda but most importantly, the effect of climate change on Africa is of growing concern due to the growing wealth inequality the continent faces which has the potential to create complex social issues. The demand for a more robust business infrastructure has led to the change in how investors look at business over the past few years.
A broad range of investors have started questioning the sustainability of returns they get. It not only about profits anymore but rather what effect the actions of businesses have on societies at large.
For example, it is considered cool by many investors now to stay away from companies that sell cigarettes and other socially harmful products. This has led to the impetus of Social Businesses. Noble Laureate Mohamed Yunus used another approach. He successfully created a model for running “Social Businesses”.
Social businesses refer to organisations that are set-up for resolving social problems. Investors create a social business for answering a social issue and not for the investment returns the business would generate. Investors get to recoup their capital back, but they are not entitled to anything beyond this.
From focusing on pure returns, investment thinking has been shifting to a new growth area: socially responsible investing. As of 2016, SRI assets grew to about $ 23 trillion about 25 percent higher than 2014.