David Morobe, executive general manager for impact investing at Business Partners Ltd in Johannesburg, was on time, on top form and on point as he joined Asset to talk about Business Partners Ltd’s role in implementing funding for green SMEs. It’s clearly an exceptionally positive and exciting initiative for a company which has been at the forefront of financing and supporting entrepreneurs on their journey to success for 40 years. Its alignment with green funding taps directly into the current environment, social and corporate governance (ESG) focus of investment markets.
The fund was launched on 31 March 2020, says David, and its structure supports and incentivises an increase in investment in green Small and Medium Enterprises (SMEs). It has clearly defined outcomes, supporting increased capital allocation to green industry businesses and requiring high quality, consistent reporting of green impacts.
“As the fund launched we were working from home, which was foreign to our operation for the most part. At Business Partners Ltd we are a very interactive team, and we spend a lot of time engaging with entrepreneurs and going out to evaluate businesses, so it was a slow start.
“As with so many other companies, our IT platform had to be upgraded as lockdown came into effect. However, in our case, it was especially urgent because applications from SMEs for finance under the Sukuma Fund were coming in online at great speed. We had been awarded the mandate to manage the billion rand fund by the Rupert family and our premier shareholder, Remgro-Limited. Everything seemed to be happening at once – we had a multi-million rand fund to manage and the country was in crisis, owing to the Covid-19 pandemic.”
Most businesses applying for funding were not in fact seeking finance to promote growth, David recalls. The majority of the early applications which Business Partners Ltd received were from enterprises seeking to keep their doors open and retain their staff until such time as lockdown eased and the business climate improved. By December 2020 however, David says they started to experience pleasing traction, with more business owners applying for finance to restart their operations, including those in the green industry space.
“It was very encouraging to see the calibre of applications coming in, and our focus this year has been on securing more of them. Let’s speak a bit more about the kind of green businesses we would like to see coming forward. In our initial planning sessions we started with a broad definition, looking at enterprises which were managing their pollution levels, using natural resources in a more sustainable manner, exploring better ways of recycling waste and handling residual waste in a more acceptable manner.”
From this broad perspective, Business Partners Ltd decided to zero in more closely on businesses that could be classified as green SMEs . It tasked its investment teams to target businesses that are providing consulting, advisory, and capacity building services in the green space. It also looked at manufacturers of green products such as solar panels, water reticulation systems and supporting technology. Suppliers and installers that are partnering with green-industry enterprises were targeted and end-users of green products, goods and technologies were approached.
“We really wanted to identify those SMEs that are manufacturing equipment and resources to support sustainable practices, established entrepreneurs with viable enterprises in green industries that enhance the environment, reduce carbon emissions, and adopt renewable energy technologies. These industries would generally be found in the energy, waste, and water sectors, and are all potential candidates that could qualify within the framework of what we consider a green SME,” says David.
“The adoption of ESG principles is growing strongly and is moving into the strategic centre of businesses. Fund managers are on board and at Business Partners Ltd we have fully embraced the importance of a green business strategy. Whether we interact with local funders or international development finance institutions (DFIs), one of the first questions that arises is our approach to green issues and how this plays out in our business strategy.”
David comments that educating SMEs in the importance of adopting sustainable practices is something Business Partners Ltd acknowledges as paramount. For many SMEs their sole aim is to generate a profit, with green issues not a prime consideration. This is changing however. Business Partners Ltd is committed to assessing business finance applicants – whether they are green industry businesses or not – and guiding them as to how they could improve their chances of impacting on the growing need for a sustainable environment. By being greener their case is stronger in terms of receiving funding from either traditional Business Partners Ltd finance or funding set aside for green SMEs.
“We are working hard to educate business owners about how being a greener SME is valuable on a number of levels, apart from gaining access to funding. We’ve launched an active information drive on all aspects of the green environment amongst our office teams, our current SME clients and with all prospective clients who are seeking funding and business support.
“We deal with a whole spectrum of businesses. If we look at the smaller, more emerging enterprises, it’s probably a longer journey for them to understand and adapt to the green space than someone operating a medium-sized manufacturing business who knows how to manage their effluents for example. I think we will have a good percentage of businesses responding to our drive to improve greening practices, but we recognise the duality of the South African economy and the time it will take before everyone has a higher consciousness of green business.”
Business Partners Ltd has a technical assistance fund, available at zero interest, which can be used for the purpose of helping SMEs to adopt environmentally-friendly processes. A team of external experts is available to assist business owners with whatever help is needed. It could be in the form of general advice or it could be more specific help that is needed. “When we do our due diligence ESG check we can identify areas of weakness in an enterprise and offer our technical assistance fund to address those weak links and help to put the enterprise on a stronger footing,” David says.
With regards to green industries, Business Partners Ltd considers financing applications from formal businesses looking for a minimum loan amount of R500, 000 and a maximum of R50 million. Each application is considered on its merits. Green metrics are applied to determine if the business meets the criteria.
David says they are also looking at greening their own real estate portfolio, tasking all regional property heads to assess their portfolios and draw up a greening strategy and budget on each property. The process is well underway and good progress is being made.
By the end of 2023, David expects the greening focus to have gained traction. In being awarded the management of the fund, Business Partners Ltd is committed to generating jobs via the SMEs it approves for funding. In addition, the technical assistance on offer will equip the SMEs’ staff with the necessary skills to maintain the greening initiatives which have been put in place.
“We’re in the early stages of our commitment to greener business practices, but already some SMEs are demonstrating proactivity. Many have adopted solar panelling to overcome loadshedding issues and support sustainable practices, while others are improving their water efficiency solutions and adopting tighter recycling measures. We’re definitely charting a greener course for both Business Partners Ltd and SMEs into the future.”
Green SMEs we finance
Business Partners Ltd considers financing for businesses that limit or prevent harm to the natural environment compared to conventional alternatives. These are businesses that:
- Adopt and/or are receptive towards green innovations and broader eco-industry, including greener properties.
- Actively develop, manufacture, and/or provide goods and services that have positive environmental benefits.
- Seek to implement or are implementing measures and/or technology for sustainable energy, waste and water practices.
- Are less polluting and/or use all-natural resources in a more sustainable manner.
- Recycle more of their wastes and products.
- Handle residual wastes in a more acceptable manner.
Tags: Business partners, Green solutions, green innovations, sustainable energy, green businesses, David Morobe, asset magazine, Business Partners Limited
Source: Asset Magazine – https://assetmag.co.za/issue99/index.html?page=66#