Why ESG Makes Great Business Sense For African Fintechs
If you’re reading this, there’s a very good chance you’re already familiar with the acronym ESG. Standing for “environmental”, “social”, and “governance”, it’s a constantly evolving standard that emphasizes the importance of doing business in a way that positively impacts the environment, society, and stakeholders.
In essence, it’s the idea that companies can grow and profit while doing good and it encourages businesses to be more transparent about how they add to or create value for their society, community, and/or stakeholders.
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While ESG has its critics (on both sides of the aisle), its philosophy has gained near-universal acceptance in investor circles. A 2022 study by asset management firm Capital Group found that 89% of investors consider ESG issues in their investment approaches.
Additionally, there are around US$2.5 trillion in ESG assets under fund management. And with rising interest rates putting a dampener on investment (including in Africa), scoring well on those metrics may become more important than ever.
But for African fintechs, the case for ESG goes beyond becoming investable. Implemented properly, the principles behind ESG make a great deal of business sense.
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As an illustration of how much of a boost it can be to a business, a study by accounting firm Moore Global found that companies with strong ESG principles saw their profits grow 9.1% in the three years between 2019 and 2022. In other words, the fintechs that get ESG right won’t just have an easier time attracting investment, they’ll also be better poised for growth, sustainability, and profitability.
Why ESG works
Before looking into how African fintechs can put together the kind of ESG frameworks that encourage growth and investment, it’s worth taking a deeper look at why it makes good business sense (outside of the already strong investment case) to invest in ESG.
One of the most powerful is the African environmental context. According to the Africa Development Bank, for example, Africa is the continent most vulnerable to climate change. Any fintech that understands this and works to ensure that its operations are sustainable isn’t just helping mitigate the effects of climate change on the planet, it’s also helping ensure a future environment in which it’s more likely to survive and thrive.
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Of course, ESG isn’t just about the environment. Its second social pillar has an equally important role to play. For fintechs, this can look like ensuring that they hire diversely, support MSMEs, and contribute positively to employment in areas where it’s needed most. But perhaps even more importantly, it also includes financial inclusion.
Choosing to hire diversely has obvious societal benefits: for example, it means that previously marginalized groups can participate in the economy at much higher levels. But it also comes with significant business benefits. And the higher up the organization those hires climb, the greater the accrued benefits are. According to the Bost