African fintech’s path to prosperity through embracing ESG for sustainable growth

  • 21 Aug 2023
  • 3 Mins Read
  • 〜 by Grace Marione

In the dynamic world of finance and technology, a new paradigm has emerged, one that seeks to bridge the gap between profit and societal benefit. Enter ESG – Environmental, Social, and Governance – a concept that has garnered increasing attention and recognition among businesses and investors alike. While ESG principles have their share of critics, there is no denying the palpable shift in investor sentiment toward companies that prioritise ethical and sustainable practices. This shift is particularly evident in Africa’s burgeoning fintech sector, where the ESG framework not only beckons investors but also promises a roadmap to lasting growth.


A 2022 study by the reputable asset management firm, Capital Group, illuminated the meteoric rise of ESG in investment considerations. An astounding 89% of investors now factor ESG issues into their investment strategies, highlighting the undeniable sway that responsible business practices hold in shaping market perceptions. Furthermore, a substantial $2.5 trillion worth of assets are currently managed with an ESG focus, signalling that ESG is not just a passing trend, but a seismic shift in investment dynamics.


The timing couldn’t be more critical for African fintechs. With the spectre of rising interest rates casting a shadow over investment prospects, the need to differentiate and attract capital becomes paramount. ESG metrics offer a beacon of hope in this challenging landscape. A strong ESG score can not only bolster an organisation’s appeal to investors but also fortify its position against economic headwinds. This is exemplified by a study conducted by Moore Global, an accounting firm, which revealed that companies imbued with robust ESG principles enjoyed a staggering 9.1% growth in profits between 2019 and 2022.


However, the allure of ESG for African fintech extends beyond its investment allure. It resonates deeply with the continent’s unique challenges and opportunities. Africa, as posited by the African Development Bank, stands as the region most susceptible to the ravages of climate change. In this context, a fintech that conscientiously integrates sustainability into its operations not only contributes to the global fight against climate change but also secures its own viability in an ever-changing environment. This is more than a strategic manoeuvre; it’s a commitment to nurturing an ecosystem in which fintech can not only survive but also thrive.


The success of ESG hinges on more than just buzzwords; it is underpinned by a profound understanding of its intrinsic value to businesses. ESG inherently aligns with sustainable growth, as it demands a holistic approach to operations. Embracing environmental consciousness, a fintech can reduce its carbon footprint, harness renewable energy sources, and proactively combat the climate crisis. These endeavours don’t just fulfil a corporate social responsibility; they also translate into tangible cost savings, bolstered by reduced energy consumption and improved operational efficiency.


Yet, ESG’s influence extends beyond environmental stewardship. It encompasses social dimensions as well, championing diversity, equity, and inclusivity. African fintechs are uniquely poised to capitalise on these principles, given the continent’s rich tapestry of cultures, languages, and perspectives. By fostering a diverse workforce and cultivating an inclusive business environment, these fintechs can tap into a wellspring of creativity and innovation. Moreover, a socially conscious approach inherently resonates with a populace that seeks financial empowerment and access – pillars on which fintech was founded.


The final pillar of ESG, governance, bolsters the foundation upon which the entire framework rests. Transparent and robust governance mechanisms not only ensure ethical conduct but also foster trust among stakeholders. In an industry often plagued by scepticism, a fintech that prioritises ethical governance demonstrates its commitment to integrity, thereby cultivating enduring relationships with customers, investors, and partners.


As the sun sets on conventional business models, African fintechs stand at a crossroads – one that presents both challenges and unprecedented opportunities. The ESG framework provides not just a roadmap but a compass, guiding these fintechs toward sustainable growth, ethical prominence, and resilience in the face of uncertainty. The journey toward embracing ESG is not without its obstacles, yet the rewards it offers – from heightened investor interest to fortified market positioning – are too compelling to ignore.


In the ever-evolving landscape of global finance, ESG has transcended from a mere buzzword to a critical factor that shapes the destiny of businesses. As African fintechs embrace ESG principles, they not only secure their place in the financial ecosystem but also become harbingers of a more equitable, sustainable, and prosperous future – a future where profitability and societal good are not at odds but united in a harmonious dance toward progress.