Renovating derelict buildings in Johannesburg's inner city is expensive business. High risks have sent banks scuttling for cover; they won't lend without someone else chipping in first.

This is where investments of the socially responsible kind have filled the gap. In 2006, Futuregrowth's infrastructure & development bond fund was the first private institution to lend money to get the Trust for Urban Housing Finance (TUHF) on its feet.

Futuregrowth's infrastructure & development bond fund is SA's largest dedicated infrastructure debt fund. It was initiated in 1995, and is worth R4.5bn. It is also SA's best-performing bond fund, and has been for the past 14 years.

TUHF funds property entrepreneurs to purchase or improve residential rental buildings in SA's inner cities.

The entrepreneurs are small to midsized companies, and sometimes family-owned ventures, who would have a hard time getting finance from a conventional bank. Futuregrowth gave TUHF an initial R50m. This has grown to R180m and they are in negotiations about lending more.

The money has enabled TUHF to fund entrepreneurs like Jeremy Berman and his brother Paul, who now own 22 buildings in Johannesburg's city.

Refurbishing housing in the inner city is the key ingredient of inner-city regeneration. Futuregrowth portfolio manager James Howard says it has a high social impact, while still giving investors a financial return.

The company's other socially responsible investment funds include the infrastructure & development equity fund, worth R474.5m, and the community property fund, worth R2.6bn.

Socially responsible investing (SRI) integrates environmental, social and governance, or ESG, factors into investment decisions. It is aimed at investors who primarily want a return but also want their investment to have a positive social impact.

The untapped potential is huge. Of SA's R2.5-trillion investment industry, just R20bn is dedicated to SRI. In developed countries, 10-15 percent of retirement assets are invested in SRI strategies.

SA's most recent SRI venture is 27Four's Kunye Fund, launched in May. It is a pooled portfolio with a 50-50 split between Futuregrowth's Infrastructure Bond Fund and Investec's RI Equity Fund. Kunye is worth R20m to date.

27Four MD Fatima Vawda says trying to change the mind-set of investors has been a challenge. Investors still don't believe that one can get good returns from SRI funds, she says.

Howard agrees: "There is still huge confusion about SRI, which some investors mistake for CSR — corporate social responsibility. They think it will mean giving their money away or forgoing a return."

But Howard says awareness has increased. And the funds have performed on average or above others, which has helped to dispel the myths.

Another SRI initiative is Cadiz African Harvest Fund Managers' joint venture with nonprofit organisation Greater Good SA. Greater Good SA has an SA Social Investment Exchange — a stock exchange which lists development projects that offer a return for those who choose to invest, but not in the form of profit.

Other SRI funds include Old Mutual Asset Management's Infrastructural, Development & Environmental Assets (Ideas) Fund, which also invests in inner city housing.

Ideas has invested about R112m in a 50 percent stake in the Affordable Housing Company, which provides accommodation to low-income households in Johannesburg.

Given that SA has no shortage of areas where socially responsible investments would be welcomed, SRI doesn't mean saving whales.

Infrastructure remains one of the biggest challenges, and with its high social impact, it is the ideal avenue for investing responsibly.

Financial Mail

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