Case study by Norsad Finance
In the spirit of showcasing leadership and raising standards of responsible investment among all our signatories, we are pleased to publish case studies of all the winning and shortlisted entries for the PRI Awards 2021.
Give an overview of your sustainability outcome targets and explaining the methodology for establishing them. This should include information on:
- The sustainability outcomes, positive or negative, that you are seeking to shape.
- The specific targets you have set, and relevant related policies you have established to implement action on sustainability outcomes.
- Any additional context relevant information – that have influenced your choice of sustainability outcomes and targets – including links to global goals and thresholds.
- % of AUM to which these targets apply.
Norsad Finance Limited (Norsad) has been investing for impact in the Southern African region (across the Southern Africa Development Community) for over 30 years. The principal objective of Norsad is to contribute to private sector development in its markets by providing funding to enterprises that are financially, socially and environmentally sustainable and which create jobs with decent working conditions, adopt good governance practices, and contribute to economic growth and poverty alleviation. Norsad provides direct debt financing of US$5m to US$10m to financial institutions and to mid-market companies for growth and development, and it is currently invested in 26 companies across 12 African markets in high impact sectors.
Norsad recognises that the growth it supports can have unintended negative outcomes on local communities, workers and the physical environment. Norsad is committed to ensuring that the costs of economic growth do not fall disproportionately on employees or those who are disadvantaged or vulnerable, that the environment is not degraded in the process, and that natural resources are managed efficiently and sustainably. Norsad Finance’s core purpose is “Building a Better Africa”, which reflects its intended impact and unrelenting commitment to ‘’make sure no one is left behind’’ in its impact investment.
The key themes and UN Sustainable Development Goals (SDGs) that are aligned with its impact mandate are:
- Promoting sustainable livelihoods (SDG 1: No poverty and SDG 8: Decent work and economic growth, SDG 9: Industry, innovation and infrastructure);
- Financial inclusion (SDG 8: Decent work and economic growth);
- Gender equality (SDG 5: Gender equality); and
- Investing in climate and clean energy (SDG 7: Affordable and clean energy and SDG 13: Climate action).
To alleviate negative outcomes of its investing, Norsad considers ESG factors as a crucial part of the decision-making process and incorporates sustainability criteria into all its business processes and financing activities. To achieve this, all its investments go through a rigorous ESG and impact screening assessment, and it helps investee companies to formulate and implement adequate internal social and environmental policies. Through systematic monitoring and measuring of impact and ESG compliance, Norsad tracks performance and the financial returns and sustainable impact of its investments.
To ensure it does not invest in activities with the potential to negatively impact on society and the natural environment, Norsad also requires investee companies to apply the following international principles and standards when applicable: International Finance Corporation Performance Standards and any relevant accompanying Guidance Documents; International Labour Organization (ILO) Core Conventions and recommendations, and ILO’s Basic Terms and Conditions of Employment; and European Development Finance Institutions’ Principles for Responsible Financing.
To drive continual improved performance, and to build and maintain trust amongst its stakeholders, Norsad considers the measurement and reporting of impact performance as critical. It recognises that only when performance is measured can it be effectively managed, and only when performance is reported internally and externally are stakeholders able to glean a clear understanding of its work, including its key successes and challenges.
Norsad has set the following targets and KPIs in this regard:
- An aspiration to positively impact the lives of 100m Africans by 2030; and
- 25,000 direct Jobs supported, of which 11,250 are female and 3,750 are young people.
The Norsad Impact Policy outlines its goals, objectives and commitments in relation to impact, the standards, principles and guidelines that underpin these objectives, and the way in which the organisation’s impact aspirations align with and contribute towards Norsad’s broader objectives.
Norsad has selected the SDGs to which it aligns its activities as its impact investment thesis of promoting inclusive growth and addressing inequality in its markets. In addition, the Norsad Social and Environmental Sustainability Policy expresses its commitment to incorporating sustainability criteria in its financing activities and communicates the expected standards of performance to its clients and other stakeholders. Its impact and sustainability principles and targets are applicable to 100% of its US$175m of AUM.
Explain how you have sought to shape sustainability outcomes through investment allocations, stewardship of investees and/or engagement with policy makers and key stakeholders. This should include information on:
- Which levers you have used to achieve your targets, and why you have chosen them.
- If and how you are working collectively with other investors or collaboratively with other stakeholders to achieve your targets.
Norsad is a private debt provider, providing financing where loans from banks are unavailable or unaffordable due to perceived risk. It works with its investee company partners to manage and mitigate risk while maximising opportunities. Its impact investing thesis and mandate is integrated throughout its business and financing activities, with its approach to sustainability enshrined in its Social and Environmental Sustainability Policy and its Social and Environmental Management System, which acts as its Sustainability Handbook.
Norsad’s impact goals and objectives have been carefully selected to closely align with regional development priorities for the countries within the Southern African Development Community region, and with the SDGs. Any impact outcomes achieved should be appropriate to the local context and country needs. Its impact investment thesis of promoting inclusive growth and addressing inequality in its markets is closely aligned with the core mandate of the SDGs, while its partner investee companies’ activities align closely with several of the SDGs and their associated targets.
Norsad adopts a gender lens when identifying and assessing potential investments and subscribes to the 2X Challenge. The 2X Challenge is based on the premise that women in developing countries reinvest approximately 90% of their income into their families and communities, whereas men reinvest only 30-40%.
Norsad publishes an annual impact report and is an advocate of the Principles for Responsible Investment (PRI) through its media, communication and reporting strategy, reflecting its commitment to accountability. In 2020, it set out to increase its reach in responsible investing through various approaches, including regional and global media engagement, ESG speaking engagements, and increased contact points with recognised bodies such as PRI and the Global Impact Investing Network (GIIN). Its membership of GIIN allows Norsad to contribute to knowledge exchange, highlighting innovative investment approaches, building the evidence base for the industry, and engaging in producing valuable tools and resources.
Describe how you are tracking performance against your sustainability outcomes targets (short, medium and longer term). Include details of any progress achieved to date, any lessons learned, and how strategies or implementation approaches have shifted as a result of experience thus far.
Short and medium term: Norsad’s investments have supported 10,366 jobs during the 2020 reporting period, including 40% women (in alignment with its commitment to the 2X Challenge and investing with a gender lens) and 10% youth employees (in alignment with its commitment to substantially reduce the proportion of youth not in employment). Women occupied over 40% of management positions across Norsad’s portfolio in 2020, compared with 29% of managerial positions worldwide. While this achievement is aligned with the targets of SDG 5, we are continuing to identify measures to improve on its gender-related targets in coming years.
Norsad’s investments in the food security sector contributed to a sold product value of US$49.4m and supported SDG 2.
Longer term: Norsad aims to positively impact the lives of 100m Africans by 2030. To date, it has impacted 40m.
In terms of lessons learnt, the COVID-19 pandemic has highlighted the need for sound ESG management and practices and turned the spotlight on the materiality of the ‘S’ factor. Norsad believes that ESG management results in sustainable businesses that are resilient, adaptable and able to recover from shocks.
Looking forward, Norsad plans to sign up to the Task Force on Climate-Related Financial Disclosures to enable reporting on climate-related financial risks. It also intends to lead by example and build capacity within its portfolio, and is optimistic that, with its resilience, strong partnerships, committed and diverse team, it will prevail over challenges and contribute to extending its impact.