Catalysing impact investing to fuel development in South Africa.
The Accelerating Impact initiative explores a pathway to foster a supportive regulatory environment for impact investing, focusing on three critical areas: instrument design and disclosure, tax regulation, and the B-BBEE framework. Through these efforts, we aim to empower a sustainable and inclusive future.
Instrument design and disclosure
Globally, there is growing recognition of the need for clear disclosure requirements for investment instruments carrying sustainable or impact labels. These labels serve as an important part of the investment proposition, offering clients greater confidence in their ability to allocate capital toward meaningful impact.
For investors seeking to achieve both financial and impact outcomes, transparent and reliable disclosures are essential. A fund identified as an impact fund should meet well-defined, necessary, and sufficient conditions to ensure credibility. Establishing such conditions within a regulatory framework helps maintain appropriate market conduct while serving the best interests of investors.
Impact investments often have unique characteristics, such as being unlisted or illiquid and require specific reporting and measurement standards to track both financial and impact outcomes. As global sustainable finance and impact disclosure frameworks continue to develop, regulators have the opportunity to incorporate best practices that define and support these instruments. In some cases, this may require tailored regulatory approaches that account for the distinct nature of illiquid assets and ensure appropriate measurement and disclosure requirements.
This white paper explores how regulation can contribute to the development of clear and credible impact investment instruments that align with global best practices.
Taxation and Public Benefit Organisations
Public foundations have long been at the forefront of impact investing. These non-profit organisations, often backed by large investment endowments, have traditionally invested in publicly traded debt and equity instruments to generate returns that fund their programmes. Over time, many have come to see their investment portfolios as more than just financial assets; they are tools that can be actively managed to further their broader mission through “mission-aligned investing”.
However, as foundations take a more proactive approach to managing investments that balance both financial and impact objectives, they may encounter challenges within existing tax frameworks. In some instances, such activities could raise concerns about compliance with tax-based restrictions on non-profit operations, potentially affecting their tax-exempt status.
This white paper examines how South Africa’s tax rules could be clarified to support foundations and non-profits in pursuing impact investing while ensuring their tax-exempt status remains protected.
Enhancing B-BBEE for impact investing
Impact investing is already embedded within elements of South Africa’s Broad-Based Black Economic Empowerment (B-BBEE) framework, even if it is not always explicitly recognised as such. Many empowerment transactions designed to drive economic transformation share core principles with impact investing, as do the enterprise development components of B-BBEE. These initiatives go beyond financial returns by incorporating transformation as a key objective.
Currently, the B-BBEE framework primarily measures activities, focusing on money spent or invested, rather than assessing the actual impact created. There is an opportunity to strengthen this framework by shifting towards an approach that recognises and incentivises measurable impact.
This white paper explores how the B-BBEE framework, specifically ESD, could evolve to better support and reward impact investing that delivers meaningful and lasting transformation.
