Socially responsible investing should make money, too
Bobby Console-Verma, chief operating officer of diversified agricultural private equity investment firm EmVest Asset Management, says that large-scale farming in sub-Saharan Africa can promote sustainable agriculture and rural development as well supporting smallholder productivity, achieving social responsibility goals while delivering healthy returns to investors…
Socially responsible investing, often described as sustainable, socially conscious, ‘green’ or ethical investing, is generally defined as any investmentstrategy that seeks to consider both financial returnand social good. Socially responsible investors recognise that corporate responsibility and societal concerns are valid elements of investment decisions. SRI is constructed to incorporate both the investor's financial needs and an investment’s impact on society.
SRI started in the United States in the 1920s, when groups decided not to invest in sectors including tobacco, alcohol, pornography and gambling. In the 1970s, the war in Vietnam, apartheid in South Africa, environmental disasters such as the Bhopal chemical plant explosion and the Exxon Valdez oil spill, and ecological problems including destruction of the ozone layer, deforestation and later global warming, led to a thorough appraisal of companies’ social and environmental responsibility. SRI first appeared in Europe in the mid-1980s, since when its growth has accelerated.
SRI investing has become an important factor when backing a project financially. Around 12 per cent of all assets under professional management in the US today is in sustainable and responsible investing. Between 1995 and 2010, total assets under management in SRI grew from USD639bn to USD3.07trn, outpacing the overall market. In Europe, the socially-responsible private equity market totalled some EUR2.5bn at the end of 2010.
The definition of SRI is a matter of perception. Some businesses are claimed to be greener because they recycle their products, or that they use less energy. There are arguments that banks, for instance, are not socially responsible because they make unethical profits or have inadequate governance rules. An investment product must fit an individual’s view of what is ethical. It is a subjective decision as to whether the bar is morally high enough.
Fundamentally, the investing theme must be sound, otherwise the long-term sustainability of the project is in question. The investment should be managed with a view to profitability first and social responsibility second. Thirdly, there has to be a logical dovetailing of interests – say, in commercial agriculture.
Profit and returns drive SRI – sustainable investment is not philanthropy. It is ‘profit-plus investing’ – that is, investing to achieve a substantial return with a social and environmental added value. The longest-running SRI index, the FTSE KLD 400, was launched in 1990 and returned on average 9.51 per cent annually up to December 31, 2009 – a more than competitive performance by comparison with the 8.66 per cent return of the S&P 500 over the same period.
EmVest’s SRI activity supports the growth of commercial farming in sub-Saharan Africa through responsible capital investment. We are active in primary, secondary and tertiary agriculture, encompassing a complete farm-to-fork operation. To achieve our SRI goals, we work with local and national governments as well as rural communities in a transparent and ethical way. When properly executed, large-scale farming is one of the many ways to promote sustainable agriculture and rural development, and can support smallholder productivity as well.
Our goal is to increase food production across sub-Saharan Africa through the introduction of modern farming techniques. The firm’s projects farm more than 30 commodities, creating, supporting and developing local infrastructure. We employ local people in five countries in sub-Saharan Africa, and more than 90 per cent by volume of the food produced is distributed locally.
As an integral part of our activities, EmVest enhances the local infrastructure and provides services to the community – for example, assisting with accommodation, water delivery, electricity and health support services.
We employ a workforce of more than 3,500 people and will continue to expand operations in a controlled, structured and responsible way. The benefits this brings to the local economies will increase with time through further investment in local food-processing operations, further increasing employment and ancillary activities.
We are also responsible for the procurement and distribution of fresh produce to supermarkets, oil rigs and major restaurant outlets. In addition to the farms currently operating, we have begun setting up a dedicated fresh produce distribution centre that will consolidate produce from other commercial and small-scale farmers.
This initiative will be coupled with a training programme to ensure that over time the small-scale farmer will become technically competent, financially secure and able to manage an independent business that will produce quality produce through a stable channel to market.
None of this has been undertaken out of charity. Our target return is 15 per cent per annum. We are socially responsible, but with an eye on profits.
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