Investment trend to look out for in the new year

The rate cap law was finally repealed, inflation was largely benign, the shilling was stable and the NSE All-Share Index ended in the green at 17.8 percent. FILE PHOTO | NMG 

By RUFUS MWANYASI
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Summary

• The rate cap law was finally repealed, inflation was largely benign, the shilling was stable and the NSE All-Share Index ended in the green at 17.8 percent.
• Progressively, trends such as acceptance of environmental, social and governance (ESG), private equity (PE) investments in fringe sectors, board diversity, shareholder activism and impact investing steadily gained foothold.
• That said, what’s next for 2020? Well, there’s plenty to speculate on but ESG is one area I am positive will become even more mainstream for these two reasons.

It’s the first of the year and that means we’ve got to keep moving. But a quick reflection on last year; although a little troubled— 10 Nairobi Securities Exchange (NSE) listed companies issued profit warnings (up from eight the previous year) one was placed in receivership and several implemented various retrenchment programmes — overall, it turned out positive.

The rate cap law was finally repealed, inflation was largely benign, the shilling was stable and the NSE All-Share Index ended in the green at 17.8 percent.

Progressively, trends such as acceptance of environmental, social and governance (ESG), private equity (PE) investments in fringe sectors, board diversity, shareholder activism and impact investing steadily gained foothold.

That said, what’s next for 2020? Well, there’s plenty to speculate on but ESG is one area I am positive will become even more mainstream for these two reasons.

First, the disinvestment movement is now officially a force to be reckoned with and the momentum looks irreversible.

Beginning this month, through the Transition Pathway Initiative (TPI), ESG-oriented investment funds are set to begin disinvesting from companies that are not taking their responsibilities to assist with the transition to a low-carbon economy.

Climate Action 100+, another initiative backed with more than 300 investors with more than $32 trillion of assets, is spearheading a similar campaign as TPI. To date, the market for sustainable funds has risen to Sh5.2 trillion (Q1 2019), according to Fitch ratings.

According to Morningstar, the number of sustainable mutual funds has expanded to 3.955 since 2012, an increase of 80 percent.

Locally, plans to launch a sustainability index, to encourage listed firms to adopt higher ESG practices, shows good direction and momentum on matters ESG.

NSE has been part of the Sustainability Stock Exchanges initiative since 2015.

Lastly, adoption of ESG principles by local companies is gradually improving.

Needless to say, the absence of a policy framework may have delayed an early off-take, nonetheless, growing acceptance and early movers such as Acorn — the Kenyan property developer raised Sh4.3 billion through a green bond last year officially becoming Kenya’s first green bond — are good indicators of a bright future.

Besides, long standing use of ESG principles by big guns such as Safaricom has set a good precedent for listed corporate Kenya. It’s highly likely the market will witness several green bonds listings this year (KenGen, are you listening?).

To end, agreeably, lots of progress has been made in the past which has built up to the present reality — the Green Bond Programme is now a reality, Kenya’s Capital Markets Authority has its Stewardship and Corporate Codes.

Kenya’s banking industry also has its adopted sustainable finance guiding principles and so on.

That said, from here on, the ESG trend is likely to take more centre stage than before as demand for these products grows. All in all, ESG investing is on the rise and as industry with huge potential, I am willing to bet on it as the “hot ticket” for the 2020s.

Mwanyasi is Managing Director, Canaan Capital Limited.