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The Times: Cleaning up its act to woo ethical investors

August 26, 2006
SOME people may be troubled less by the investment risks and more by the ethics of investing in Africa.

After all, it is not long ago that Shell was being pilloried for its treatment of the native Ogoni people in Nigeria.

Those with longer memories will remember the forced withdrawal of Barclays from apartheid South Africa after a student campaign in Britain.
Nowadays, investing in the region carries a much more positive image.

David Aird, managing director at Investec Fund Managers, which is owned by one of South Africa’s biggest banks, says: “On the widest description of ethical investing we are seeing interest from pension schemes and local and national governmental bodies, particularly the latter, where trustees want to be seen to be investing in an emerging continent, such as Africa.”

Against that, there remains an image of corruption and bad corporate governance that tars African companies in the eyes of many investors. “At the micro level, we have to educate investors on how corporate Africa is building its financial reporting up to international standards,”Mr Aird says.

Nick Robins, head of socially responsible investment at Henderson, a rival fund manager, agrees that some companies are working hard to improve their image. “Many of the mining companies, particularly in South Africa, have been some of the most progressive in providing access for staff for Aids detection and treatment programmes,” he says.

And some UK-listed oil companies have strong credentials when it comes to combating corruption, he suggests. Those signed up to the Publish What You Pay campaign aim to make payments to governments transparent and prevent money being siphoned off by officials and politicians.

The recently revamped Equator Principles is a similar initiative to prevent banks from financing unsustainable or socially disruptive projects, such as dams, roads and power stations.

Your fund manager should be ready to ask about everything from Aids to ethics, says Mr Robins. “As an aware investor, you might want to know if they discuss these issues when they meet company managements.”

Andrew Pendleton, of Christian Aid, the charity, agrees that investors need to be inquisitive. “It is a good thing if more money is flowing into more countries, but there are questions to ask,” he says. The most fundamental is how much of the money invested stays in Africa.

Mr Pendleton adds: “There is a net benefit in terms of jobs created, skills being embedded in a country and transfers of technology, but the thing has to be looked at in the round. A lot of money is being dragged out of countries too.”

The cash is being extracted through favourable tax treatments for foreign companies, or by them minimising profits in African countries, he says.

He is also sceptical about the effectiveness of the City’s ethical investment brigade: “The ‘coffee and chat model’ is not effective enough. If you are serious about offering ethical products, you have to get a bit tougher.”
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