Greater Good South Africa

A new generation of aspirational givers, empowered by entrepreneurship, are spearheading the use of business models to solve global problems. An edited extract of an article⁽¹⁾ by Dr Suzette Viviers from theDepartment of Business Management at the University of Stellenbosch, Tamzin Ractliffe, Founder of the GreaterGood Group and NeXii Global and Dean Hand, CEO of GreaterGood SA explores the growth of impact investing by these ‘philanthrocapitalists’.

Studies show that charitable giving is surging worldwide⁽²⁾, but note that there is a shift from traditional philanthropy to more focussed social enterprise causes. Commentators claim that a new generation of “engaged, aspirational givers, empowered (and enriched) through entrepreneurship” are applying their business skills to tackle pressing social and environmental challenges. This growing class of ‘philanthrocapitalists’ (led by billionaires such as Bill Gates and Warren Buffet) believe that using business models to solve global problems is far more effective than using traditional grant-making approaches.

Not ‘cheque-book charity’
By comparison⁽³⁾, the South African philanthropic movement is characterised by a host of small, private initiatives run by prominent family trusts that have been operating for years. Examples include the DG Murray Trust, Ernest Oppenheimer Memorial Trust, Donald Gordon Foundation and the Albert Wessels Trust. Although many of these trusts have been operating under the radar, the debate about “the affluent being obliged to give back to the society that made them wealthy” is muted.

One of the best known new generation of philanthropists in South Africa, Cyril Ramaphosa argues that corporate philanthropy (CSI) should not merely be ‘cheque-book charity’ – it should be central to doing business in South Africa. His views are mirrored by other ‘philantrocapitalists’ such as Tokyo Sexwale and Patrice Motsepe.

Generous nation
According to a 2010 study by Barclays Wealth, South Africans are the second most generous nation when it comes to giving, only surpassed by the US⁽⁴⁾. Reasons are attributed to the country’s low level of social services and the growing inequality between rich and poor. The report claims that government’s inability to meet many of South Africa’s social challenges has prompted the wealthy to take on the responsibility. They [the rich] believe that they have a moral duty to bridge the gap. 

Investing responsibly
The 2010 Report on Socially Responsible Investing Trends in the US (2010) indicated that responsible investing – investments in businesses with a commitment to minimising environmental impact and maximising transformation and good governance– continued to grow at a faster pace than the conventional investment assets. In South Africa, the launch of the FTSE/JSE Socially Responsible Investment Index in 2006 drew significant attention to responsible investing in South Africa. Growing numbers of local market participants have subsequently become signatories of the United Nations Principles for Responsible Investment.

Investing for impact
Socially Responsible investment is often referred to as the ‘do no harm’ approach, in that while it promotes sustainable business practices, it doesn’t necessarily increase capital flows into on-the-ground development. Impact Investment goes a step further by targeting not simply companies who have favourable records of societal and environmental impact, but those whose primary reason for existence is the achievement of social and environmental change.

An Impact Investment is therefore an investment into a company, organisation or enterprise that addresses a social or environmental good by applying market-based strategies in sustainable business models that provide both financial returns and social or environmental impact.

Testing ground
Impact Investment is expanding globally, commanding serious attention from policymakers and significant investment from asset managers. A recent study by Hope Consulting found that there is currently in the region of $120 billion of retail market opportunity for impact investing in the US alone, half of which is for smaller (less than $25,000) investments by retail and high net worth individual investors⁽⁵⁾.

South Africa is in many ways a perfect testing ground for impact investment. It contains some of the most sophisticated financial infrastructure and successful private sector businesses in the world. If South Africa can mobilise its powerful and dynamic private sector and capital markets to work towards social and environmental goals, those goals will become more attainable, more quickly. Impact investment can also provide an efficient mechanism for South Africa to pursue some of its other special objectives, like B-BBEE and land reform.

Beyond philanthropy
In South Africa there are approximately 53 responsible investing funds established between 1 June 1992 – 31 December 2010. An analysis of the investment mandate of each and discovered that 27 funds, (26.42%) have or had an impact investing focus and a further 18.87% used a combination of impact investing and positive screening strategy.

Impact investing goes far beyond traditional philanthropy in that it strives to improve the standard of living in local communities. Rather than just teaching a hungry man to fish, as opposed to giving him afish, it’s about supporting the fisherman that fishes sustainably. And it is this philosophy that appears to be the driving force behind the new breed of philanthrocapitalists.

> Find out more: The South African network for Impact Investing (SAII)

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⁽¹⁾ Viviers, S., Ractliffe, T. & Hand, D. 2011. From philanthropy to impact investing: shifting mindsets in South Africa. Corporate ownership and control, Vol.8: (page numbers forthcoming)

⁽²⁾ Naidoo, P. 2010b. The rich come to the party. Financial Mail, 209(3):28-29.

⁽³⁾ Global giving - The culture of philanthropy. 2010. Barclays Wealth, November, [Online] Available: http://www.barclayswealth.com/Images/Global-Giving-the-Culture-of-Philanthropy.pdf

⁽⁴⁾ Naidoo, P. 2010a. Nation of givers. Financial Mail, 209(3):24-28.

⁽⁵⁾ Money for Good: The US Market for Impact Investments and Charitable Gifts from Individual Donors and Investors” Hope Consulting, May 2010. http://www.hopeconsulting.us/pdf/Money%20for%20Good_Final.pdf