In a world of imperfect information, institutions should reflect African realities
Foreign direct investment (FDI) into Africa has also dropped as a result, with investor confidence dented by weak economic forecasts. The rise of ESG investing, which sees investments assessed on a range of ethical, sustainable and governance metrics, should in theory be channelling funds into worthy projects across the continent to bridge this gap.
Ethical investment principles applied in practice, however, can in fact create additional barriers, where the evidence needed to meet ESG requirements is unavailable. Operating in emerging and frontier markets often means working with imperfect information, and accepting a degree of risk. This lack of information has led to African countries obtaining among the weakest ESG scores across international rankings. The Global Sustainability Competitiveness Index for 2020 counted 27 African states amongst its bottom 40 ranked countries for sustainable competitiveness.
As someone who has seen first-hand the social and economic benefits of entrepreneurial projects in African nations, it makes no sense to me that a supposedly more ‘ethical’ approach to investing would discourage investment where it would do the greatest social good. The financial community has further work to do to generate metrics that take account of uncertain environments and imperfect information.
The countries in greatest need of foreign investment often come with unacceptable levels of legal, even moral risk for investors. It is surely to be welcomed that the international legal systems is increasingly holding companies to account for corporate behaviour in Africa.
The UK Supreme Court’s ruling that oil-polluted Nigerian communities could sue Shell in the English courts is sure to create a precedent for further cases. This month, LSE listed Petra Diamonds reached a £4.3 million settlement with a group of claimants who accused it of human rights abuses at its Williamson operation in Tanzania. A report by Rights and Accountability in Development (RAID) alleged cases of at least seven deaths and 41 assaults by security personnel at the Williamson Mine since it was acquired by Petra Diamonds.
Finance and commerce must not be blind to ethical concerns, and any involvement in the sorts of abuses alleged in these cases should be roundly condemned. Where there is conflict and where there are human rights abuses, western capital must stay well away. When conflict gives way to peace, however, western capital can be deployed to rebuild society. To do so, investors need to have confidence that they can operate in post-conflict zones without exposure to spurious legal claims.
Leading international lawyer Steven Kay QC recently published an extensive defence of his client, Lundin Energy, which has faced an extended ordeal in the court of public opinion, regarding its operations in southern Sudan between 1997 and 2003. The case against Lundin is based on allegations made by NGOs some twenty years ago. The same allegations formed the basis of a US lawsuit against Canadian company Talisman Energy in 2001, which failed due to a lack of evidence.
Kay is withering about the quality of evidence in the report, specifically its ‘independence and reliability’, saying it would not be ‘admissible in an international criminal investigation or prosecution’. The key point here is the international consensus that such allegations are dealt with by the appropriate institutions, in this case, the International Criminal Court. In this case, the company has faced trial by NGO and the media, while, it is claimed, activists have ‘shopped around’ for a jurisdiction which will accept the case. The public prosecutor in Sweden, having considered the case for an extraordinary eleven years, will decide shortly whether the wholly improbable case that the Lundin Chairman and former CEO were complicit in alleged war crimes in 1997 — 2003 will be pursued as a charge for trial or will be closed down.
I am by no means an expert on international or indeed Swedish law, but in Kay’s description, this is a case where the public narrative has far outrun the limited and imperfect information we have regarding the facts on the ground. Western companies operating in post-conflict zones are rightly held to high standards and are expected to be partners in countries’ economic development. This simply will not happen if part of the cost of doing business in these countries is to be pursued for decades by spurious legal claims.
Africa has a grim history of heinous crimes committed in the name of Western capitalism, there can be no doubt of that. Wherever they operate, Western companies should form social and economic partnerships with their host countries and communities, maintaining a duty of care to the populations and the surrounding environment. We cannot, however, assume that conditions for these companies will be identical to conditions in established markets. International institutions, standard setters and civil society should be mindful of African realities when fulfilling their right and proper role of holding companies to account for operations in Africa.