WHAT IS ESG INVESTING? HOW AFRICAN START-UPS STANDS TO BENEFIT FROM IT.

WHAT IS ESG

ESG stands for Environmental, Social, and Governance. It is a type of investing that takes into consideration a company's performance on environmental, social, and governance issues when making investment decisions. 

ESG investing is based on the belief that companies that perform well on ESG factors are more likely to be sustainable, profitable, and less risky over the long term

Here is a brief overview of what each of the ESG factors means:     

Environmental: This aspect refers to how a company manages environmental challenges, including problems like pollution, climate change, and resource depletion. Investors also take into account environmental factors, including a company's carbon footprint, water use, and waste management procedures.

Social: This relates to a company's impact on society, including issues such as human rights, labor practices, community engagement, and most recently equity and equality. 

Investors also take into account the company's social stance, including its diversity and inclusion policies, how it treats its employees, and how involved it is in the communities where it works.

Governance: This is a reference to a company's management and governance methods. It incorporates matters like board composition, executive compensation, and shareholder rights. 

Examples of governance criteria that investors consider include the independence of the board of directors, the alignment of executive compensation with company performance, and the transparency of financial reporting.

For further simplification, ESG investing offers a way for investors to align their investment portfolios with their values and to support companies that are working to make a positive impact on society and the environment.

How African start-ups will benefit

ESG investing can take a variety of forms, including the integration of ESG factors into traditional investment analysis, the use of ESG-themed investment products such as mutual funds and exchange-traded funds (ETFs), and engagement with companies on ESG issues through shareholder activism.

As this futuristic form of investing is becoming increasingly popular in Africa in recent years, investors look to support companies that are working to make a positive impact on the continent's economic, social, and environmental development.

One of the key drivers of ESG investing in Africa is the growing recognition of the links between environmental sustainability, social progress, and economic growth. Investors are increasingly aware that companies that prioritize environmental sustainability and social responsibility are more likely to be sustainable and profitable over the long term.

Another factor driving ESG investing in Africa is the growing awareness of the social and environmental challenges facing the continent, including issues such as climate change, water scarcity, pollution, and inequality. 

Investors are looking to support companies that are working to address these challenges responsibly and sustainably, and are increasingly using ESG criteria to guide their investment decisions.

Where Start-ups come in.

Renewable energy: The development of renewable energy sources such as solar and wind power is a key focus of ESG investing in Africa. Renewable energy projects can help to address the twin challenges of energy access and climate change, while also creating economic opportunities and jobs.

Start-ups that target these problems as their mission, tend to be on the right path of benefiting from ESG investing

Agriculture and food security: ESG investors are also interested in supporting companies that are working to improve food security and reduce poverty in Africa, while also promoting sustainable agricultural practices and protecting biodiversity. 

Financial inclusion: ESG investing brings in support for companies that are working to promote financial inclusion and support small and medium-sized enterprises (SMEs), which are often the engines of economic growth in Africa.

Governance and transparency: ESG investors are increasingly using governance and transparency criteria to guide their investment decisions in Africa, including factors such as board independence, executive compensation, and shareholder rights.

While ESG investing is still a relatively new field in Africa, there are a growing number of investment products and platforms that focus on ESG criteria.

Investors interested in ESG investing in Africa should carefully research any investment products and consider seeking the advice of a financial professional before making investment decisions.