ESG in Africa

Posted 20 April 2023

The words ‘Africa’ and ‘sustainability’ are rarely uttered in the same breath. Yet there is a quiet ESG revolution occurring on the continent, and it is one that could soon grab the attention of many investors.

For policymakers across Africa are waking up to the realisation that ESG is here to stay and that it will influence macroeconomics for years to come. As a result, several African nations have begun to embrace ESG as a key theme in their ongoing development.

Last year , the Official Monetary and Financial Institutions Forum (OMFIF) carried out a continent-wide economic development survey and found encouraging signs of ESG adoption. Seventeen out of the 26 countries in its financial markets index have introduced sustainability-focused financial policies – that’s five more than in 2021.

This is taking many shapes. For instance, nine African countries – including Tanzania and Morocco – have begun issuing sustainability-linked debt and incorporating these metrics into national economic development. Other countries have also begun creating environments to attract new generations of ESG-conscious investors. South Africa, Namibia, Uganda, and Egypt have all recently started introducing ESG disclosure frameworks, encouraging companies to improve transparency standards. For context, the UK and US are still working on these same areas of regulation.

Africa’s ESG future

It’s clear that ESG will play a crucial role in Africa’s macroeconomic development, as it will in many major markets. This was underscored by the African Development Bank recently launching a pan-African framework to encourage the deployment of green finance across the continent and support energy transition projects.

ESG is disrupting markets around the world. This creates an opportunity for Africa to essentially ‘catch up’ with more economically developed regions and there are already signs of this. For example, according to the UN PRI, one of the largest sources of PRI signatories among emerging markets – with 2% – is South Africa. Meanwhile, China only accounts for 1% of managers signed up to the UN PRI.

Of course, challenges remain. For one, significant changes will be required in the industries that already dominate Africa’s economy: mining, mineral, and energy. A lot of investment is required to improve these industries’ ESG scores, and the risk of job losses creates ‘just transition’ considerations – essentially, what is the immediate human cost of long-term ESG decisions?
Additionally, much of Africa still has significant poverty issues. Of its 1.4 billion population, it is estimated 490 million people in Africa live in extreme poverty . This creates obvious challenges in some more deprived regions where economic development is still nascent.

Regardless, the ESG opportunity in Africa is vast and already receiving vital support from policymakers across the continent. There is further to go in developing ESG in Africa, but there are plenty of encouraging signs for investors.