African Infrastructure Investment Managers (AIIM) is one of the largest African infrastructure managers, with $2.4 billion in assets under management, and is part of the Old Mutual Alternative Investments group. Dean Alborough is the firm’s head of ESG, responsible for ensuring the implementation of its ESG practices, including impact investing activities throughout the investment lifecycle, and managing ESG systems and performance of AIIM’s assets.
What makes a successful impact strategy?
Any impact investment strategy needs to include the fundamental elements of upfront intent for an environmental or social positive impact, measurement of the impact achieved and the financial return. When we consider impact, we start by considering the major global challenges humanity is facing, particularly those relevant in Africa. Once we know the critical needs to be addressed, we consider our own expertise and where we can make the most significant difference. By thinking in this way, we have decided to prioritise four impact themes: fighting climate change; being a champion for better governance; increasing diversity; and what is known as ‘decent work’.
These four themes play out through our investment strategy as seen in our latest pan-Africa fund, African Infrastructure Investment Fund 4. AIIF4 strategically targets impact in the digital, energy transition and mobility and logistics sectors.
We particularly look at the UN Sustainable Development Goals (SDGs), and seek to tie every investment we make to specific goals through our theory of change methodology, ensuring it has an impact pathway and end goal of positive impact.
Finally, in terms of measuring impact, we collect quantitative and qualitative data. This is perhaps one crucial difference between private and public markets. ESG practices in the public markets are far more reliant on third-party data providers, whereas we collect data ourselves. That said, there is a role for specialist advisers who can help us with modelling and benchmarks.
How do you seek better governance?
We think of it in two different ways: structural governance and functional governance. Structural governance is the legalistic framework – the boards, the charter, and so on. All of that must be the starting point, especially where we are creating a special purpose vehicle from scratch.
When we move on to functional governance, we are really seeking to drive a performance mindset. While everything may look right on paper, we ask ourselves whether a framework is actually working in a company and whether it is being implemented properly.
As an investor in private markets and in growth platforms, this has to be a focus. Strong governance is fundamental to the smooth operation of any business. If processes and governance fail, as an investor you will never fully achieve the positive impact you seek.
Will the push-back against ESG in the US spill over into Africa?
I think much of the push-back against ESG is because many people do not properly understand what it is about in the first place, resulting in unaligned expectations of ESG outputs. This is partly the fault of the ESG community itself, in that we have often had a lack of clarity around definitions and requirements for ESG. Perhaps if we can be clearer, then this would reduce some of the current friction in the financial system.
In Africa, however, the alignment between robust ESG systems and strong financial outcomes is something that has been well-demonstrated over a number of vintages. The involvement of development finance institutions in the sector for more than two decades has meant that the ESG systems are generally embedded in the investment processes that managers apply.
There is a potential that global investors try to separate the ESG considerations based on what is being seen in the US. But we believe that rather than being a stand-alone hurdle to pass, ESG consideration is an integral part of the process of making good investment decisions.
Is your focus on diversity and decent work also driven by your African perspective?
Yes. For example, gender is a particular focus for us and our clients, in part because there have been specific challenges historically in the infrastructure sector, especially in Africa. Likewise, as a South African manager, we have a specific focus on addressing historical inequalities in our South African investments.
Our concept of decent work is similar. We do not simply want to create jobs; we want to create jobs that are dignified, safe and meaningful. All our investment impact pathways include gender, decent work and climate action.
With your impact philosophy, what investment themes do you see in energy?
Our key focus is being part of the solution for the energy transition to lower carbon energy mixes. Inevitably, we lead with an emphasis on investment in renewables. Historically, this has been in large-scale wind or solar utility projects.
Given the current imperative to enhance the power generation capacity and decarbonise the power mix, we are seeing a massive acceleration in off-grid private power in South Africa, including the commercial and industrial sector as businesses look for alternative solutions to ensure long term sustainability of their energy supply. In this area we have made a significant investment in Net Zero Africa (NOA), who are targeting the creation of a gigawatt of off-grid commercial and industrial power.
We very much believe an accelerated energy transition is crucial to fighting climate change. At the same time, we try to keep economic, technical and social perspective for what is practical and realistic in an African context.
As part of a feasible energy transition, it is important that we recognise the need for ‘base load’ power supply in certain energy grids. This means gas and liquid natural gas will still likely play a key role in the mix of energy going forward. Likewise, liquid petroleum gas remains a key fuel source for cooking across Africa, where it can replace deforestation for charcoal production.
Can investment in digitalisation also be ‘green’?
Certainly ‘greener’. A good example would be Eastcastle Infrastructure, a telecommunication business, rolling out telecom towers across the Democratic Republic of Congo and Nigeria. Tower sites historically powered by diesel generators are installing solar energy and battery power supply with a material reduction in carbon emissions across the portfolio.
Data centres are power hungry, often resulting in a relatively high carbon footprint. We are driving green building certification and the use of renewable power for data centres, such as Onix DC in Ghana, which has built a solar power plant adjacent to the data centre providing cheaper and cleaner power than traditional sources.
Of course, in digitalisation, the inclusion of underserved communities in the digital economy is also an important aspect of the impact. This is true of investments in towers, in data centres and fibre, such as MetroFibre South Africa which is providing fibre to the home and business in lower economic areas at affordable rates.
What about sustainability in mobility and logistics?
In logistics we have invested in The Logistics Group (TLG), a private logistics operator, which handles a range of different commodities through multiple ports and corridors. Here again we are able to look for energy efficiencies, climate resilience and adaptation, such as using technology to reduce the empty back-haul of trucks.
As we head into a world of uncertainty, strong logistics will prove increasingly important in avoiding the kind of disruption we saw during the covid pandemic. We have also identified key export corridors for investment that are critical to the supply of battery metals, a key input in supporting the ramp-up of global battery production and, ultimately, the decarbonisation of transport and energy systems through improved storage solutions. Saving emissions by transporting goods more efficiently will always be a focus in our mobility strategy. But there are also opportunities for climate adaptation, such as in Kenya through an investment called Infraconnect, through which c.80 kilometres of previously dirt roads that have very high traffic volumes are being re-engineered and upgraded, allowing the roads to better withstand increased precipitation and flood risks and ensuring long-term climate resilience.
What is the outlook for infrastructure impact investment in Africa?
Africa has long been the most underserved region for infrastructure investment globally and we continue to operate in markets where there is significant demand for high-quality infrastructure to expand and replace the existing infrastructure which is no longer adequate or efficient to meet the needs of the societies it serves. That demand is rising rather than falling.
Africa also has a high proportion of vulnerable communities, particularly to climate change. This presents huge opportunities for positive impact through replacing this inefficient infrastructure with sustainable long-term solutions.
From an impact investing perspective, climate will remain the number-one priority. However, I think this will increasingly be joined by the biodiversity loss crisis.
Again, Africa has some of the highest natural capital in biodiversity desperately requiring protection. The challenge, however, is establishing investable cases. Some of the most promising cases I have seen are based on a mixed land use model, including sustainable agriculture and community enfranchisement.