According to the October 15th edition of the Weekly Net Asset Value Data for Collective Investment Schemes published by the Security and Exchange Commission (SEC), the Zenith Ethical fund has become Zenith ESG Impact fund. That makes it Nigeria’s first ESG fund.
ESG stands for Environmental, Social and Governance. There are ESG funds and Impact funds that could be structured differently or as a combination. In the case of Zenith ESG Impact fund, the fund manager, by the name of the fund, has or hopes to structure the fund both as an ESG fund as well as an Impact fund.
ESG funds are portfolios of equities and/or bonds constructed in such a way that environmental, social and governance factors become an integrated part of the investment process.
The constituent equities and/or bonds in such portfolios are selected following some stringent tests about how the companies or governments issuing such equities and bonds are enforcing ESG criteria in the administration and operation of the company or government.
Like ESG funds which take the environment into account, impact funds are funds whose investment strategy, process and objective are to generate positive, measurable, and environmental impact in addition to generating financial return for the investors.
In fact, the Global Impact Investing Network defines “impact investments” as “investments made with the intention to generate positive, measurable social and environmental impact alongside a financial return.”
Not too long ago, ESG and Impact investing became the new buzzword in the asset management and investment arena. 2020 was quite climatic for those words as they made it to the media and investment prospectuses with a lot of regularity and frequency.
Though the popularity of ESG and Impact investing has increased since then, there is still some confusion as to where the boundary between ESG and Impact investing is drawn.
The future of ESG and Impact Investing in Nigeria
It is not just enough to change the name of a fund or rebrand a fund as an ESG or Impact fund. It is important to make sure that such a fund is living by that name through its investment strategies and processes. But how easy or possible is it to have an ESG or Impact fund in Nigeria?
ESG funds invest in companies that are transitioning or in the process of transitioning to low carbon footprints and low energy costs; businesses that are making their workplaces fully or more inclusive and supportive of employees.
ESG funds also invest in companies where the board has independent and diverse voices, especially along racial/tribal and gender lines. With all that said, how many companies in Nigeria practice true inclusiveness both in gender and tribal lines to be considered fit for an ESG portfolio?
How many companies in Nigeria have boards that are truly independent and diverse and willing to speak up against societal ills and in support of employees? Your guess is as good as mine.
According to the IFC’s Operating Principles for Impact Management, for an investment to be an Impact investment or fund, the investors must intend impact. In that case, there should be an articulation of particular outcomes that will be pursued through the investment and who the beneficiaries are or would be.
The investors should contribute to the impact by articulating how the investment will help to achieve the intended outcomes, and the investors should be able to measure the impact of the investment on social and environmental improvements. In addition, an Impact investment must materially advance progress towards meaningful social and environmental improvements.
A living example of an Impact fund is the ABC World Asia Fund.
This is a fund with a portfolio size of about $300 million investing in businesses or companies that aim at delivering meaningful and positive change in South Asia, South-East Asia and China.
Using its investments, ABC World Asia fund intends to address Asia’s environmental and social issues like “climate and water solution, financial and digital inclusion, better health care and education, sustainable food and agriculture as well as smart and livable cities.”
The fund does not stop there, it measures the social and environmental impacts of its investments, every step of the way. That is Impact investing.
While it may not be easy to meaningfully engage in Impact investing in Nigeria, there is no doubt that Zenith Asset Management has set the ball rolling. There are many social and environmental areas in Nigeria that can benefit from Impact investing, like electricity, roads, healthcare and lots more.
As far as the contributions by investors to the Impact fund is channelled to investments that will result in social and environmental improvements in Nigeria, the rebranding of “Zenith Ethical fund” as “Zenith ESG Impact fund” will be a step in the right direction and a laudable pacesetter in the Nigerian mutual fund industry. Otherwise, it will be remembered as just a name change.
There is an indication, however, that Zenith Asset Management can do it. According to a publication in World Finance on July 14, 2021, and authored by Ebenezer Onyeagwu, Group Managing Director and CEO of Zenith Bank, Zenith has taken some initiatives towards making policies that are in line with ESG criteria.
According to him, “all the bank’s credit and investments are now being screened for environmental and social (E&S) risks.” The bank is also signatory to various domestic and international sustainability frameworks including United Nations Sustainable Development Goals (SDGs); United Nations Global Compact Principles; Central Bank of Nigeria Sustainable Banking Principles; and International Finance Corporation Performance Standards.
It is my belief that if Zenith Bank can be ESG conscious, Zenith Asset Management, can as well.