We Borrowed the Language of Investment. Not the Logic.

What private equity's investment discipline reveals about the way corporate South Africa allocates capital for social value.

There is an interesting contradiction in the way corporations approach investment.

When allocating commercial capital, companies generally recognise that the quality of an investment depends on more than the credibility of the enterprise receiving it.

The investment thesis, capital structure, management capability, risk allocation and conditions for creating value are all subjected to scrutiny. The investor is expected to exercise judgement not only about where capital should go, but how it should be deployed and managed.

Corporate social investment operates under fundamentally different conditions. Its purpose is public benefit rather than financial return. Social outcomes are often difficult to measure, may take years to materialise and depend on institutions and circumstances beyond the control of either the investor or the implementing organisation. Nor should the ownership rights, financial incentives or management control associated with private equity be transferred uncritically into social development.

The analogy therefore has limits, and important ones.

Nevertheless, private equity provides a useful point of comparison because it demonstrates a form of investment discipline that extends well beyond the initial allocation of capital. It provides a way of examining whether the decisions surrounding an investment are as carefully considered as the performance expected from it.

This distinction sits at the centre of a new GrowZA research paper, The Investment Paradox: Capital Allocation, Investment Discipline and Social Value in South African Corporate Social Investment.

The paper explores a question that receives relatively little attention in conventional social investment reporting: Are corporate social investors held to the same standard of accountability for their investment decisions as implementing organisations are for the outcomes they deliver?

Strategy is not the same as investment discipline

Corporate social investment in South Africa has become considerably more sophisticated. Companies have developed strategic priorities, investment portfolios, theories of change, governance arrangements and increasingly elaborate approaches to performance measurement.

These are important developments, and the evidence does not support a sweeping claim that the sector lacks investment strategy or institutional discipline.

The more interesting question concerns what happens between the articulation of a strategy and the commitment of capital.

An investment strategy establishes what an organisation seeks to achieve. Investment discipline examines whether the amount, structure, duration and conditions of financing are appropriate to that ambition.

A corporate investor might have a well-developed strategy for improving youth employment, select a credible implementing organisation and establish measurable placement targets. Yet the programme might be financed through annual agreements despite requiring sustained employer relationships, specialist personnel and longer-term support for participants.

Annual financing may be entirely defensible, particularly where performance is uncertain or a staged commitment is prudent. But its appropriateness should be an explicit investment decision, supported by a rationale and subject to review.

The same reasoning applies to the treatment of institutional costs, restrictions on expenditure, payment schedules and the distribution of financial risk.

These are not merely administrative provisions attached to an otherwise sound investment strategy. They are part of the investment itself, with potential consequences for the organisation's ability to produce the intended social value.

What private equity brings into focus

The comparison with private equity becomes useful when we examine the principles governing the relationship between capital and value creation.

Private equity investors generally begin with an investment thesis that explains why a particular enterprise represents an attractive opportunity, what value might be created and which conditions are necessary to realise it. They consider capital adequacy, management capability, governance and risk before committing funds. After investment, attention turns to stewardship, performance, adaptation and eventual exit.

These practices are neither universal nor guarantees of good outcomes. Commercial investors can misjudge opportunities, undercapitalise enterprises and pursue incentives that undermine longer-term value.

Nevertheless, the principles reveal five useful questions for corporate social investment.

First, the investment thesis. A corporate priority such as education, health or employment establishes a field of interest, but not necessarily a convincing explanation of how a specific capital commitment will create value. Investors should be able to articulate why a particular intervention is preferable to credible alternatives, what change is anticipated and what assumptions underpin that expectation.

Second, capital adequacy. Commercial investors recognise undercapitalisation as a threat to value creation. In social investment, the relationship between a programme budget and the full economic cost of delivery deserves similar attention. Management systems, safeguarding, financial controls, supervision and institutional continuity may be necessary components of a credible intervention rather than peripheral overheads. Their costs should be examined for necessity and efficiency, not automatically excluded because they fall outside direct programme expenditure.

Third, risk allocation. Funding agreements determine which party absorbs inflation, interruptions, delayed payments and changes in operating conditions. Restrictions can serve legitimate governance and compliance purposes, but they can also transfer uncertainty to organisations with limited capacity to absorb it. Investment discipline requires these arrangements to be justified against identifiable risks.

Fourth, stewardship. In commercial investing, the commitment of capital generally begins an ongoing process of monitoring assumptions, assessing performance and making consequential decisions. Social investment reporting often provides detailed information about recipient performance, but equivalent visibility over the investor's own decisions to maintain, modify or withdraw financing is not always available. Better stewardship would examine both, without displacing the authority of implementing organisations or communities.

Finally, value creation and exit. The completion of a funding agreement does not necessarily coincide with the realisation of social value. Investors need to consider what outcomes or capabilities are expected to endure, whether continuity is necessary and what consequences may follow the withdrawal of support.

Taken together, these principles raise a question about the design of social investment, rather than simply the performance of social programmes.

The accountability imbalance

Consider how performance is ordinarily examined.

An implementing organisation may be required to account for expenditure, procurement, delivery milestones, beneficiary reach, governance compliance and outcomes. Its performance becomes visible through reports, audits and evaluation processes.

The corporate investor, meanwhile, determines the amount of capital available, the financing period, payment conditions, eligible expenditure, reporting requirements and the degree of flexibility permitted during implementation.

Those decisions can influence organisational behaviour and the feasibility of the intervention. Yet they are not necessarily examined with the same visibility as the recipient's performance.

This creates a potential accountability imbalance.

If a programme underperforms, its management, delivery systems and institutional capability should be scrutinised. But a complete assessment should also consider whether the investment was adequately financed, whether its conditions were proportionate and whether the original assumptions remained reasonable as circumstances changed.

This does not make the investor responsible for every implementation failure. Nor does it suggest that more flexible or longer-term financing necessarily produces better outcomes.

It recognises that programme performance and investment decision quality are distinct but related questions. Assessing one without the other can leave important explanations for success or failure unexplored.

What the South African evidence suggests

The research draws attention to a useful indication of the financing preferences operating within South African corporate social investment.

Trialogue's 2025 State of CSI in South Africa reports that 91% of participating companies would not consider unrestricted funding, while 80% would not consider funding reserves. In a separate group of nonprofit respondents, 59% reported having received unrestricted corporate funding.

These figures concern different respondent groups and cannot be directly compared or projected onto the entire corporate sector. They also do not demonstrate that restricted financing produces inferior outcomes.

What they do establish is a reason to examine how funding conditions are selected and justified.

An investor may impose restrictions because of statutory obligations, verification requirements, corporate governance policies or established contractual practice. These are not equivalent sources of authority, and they should not be treated as though they are.

South Africa's B-BBEE environment adds another layer of complexity. Requirements associated with socio-economic development recognition, tax treatment and corporate governance can shape funding decisions, but not every condition embedded in a grant agreement is necessarily required by legislation.

Distinguishing mandatory controls from discretionary financing choices would create an opportunity for more deliberate investment governance.

The available evidence also shows variation in corporate practice. The Johannesburg Stock Exchange's 2025 sustainability reporting, for example, describes consideration of flexible or unrestricted support within its CSI portfolio.

The argument is therefore not that corporate investors uniformly adopt restrictive practices. It is that the rationale and consequences of financing architecture deserve to become more visible and independently examinable.

From recipient accountability to investment accountability

The GrowZA research paper proposes a practical response through a six-gate Investment Decision Framework.

Rather than introducing another layer of recipient compliance, the framework directs attention towards the quality of the investor's own decisions. It examines the social value sought, capital adequacy, institutional capability, risk and controls, stewardship, and evidence and learning.

These dimensions are translated into a proposed Investment Decision Note that would record the reasoning behind material financing commitments, including the alternatives considered, the assumptions made and the decisions that should be revisited during implementation.

The framework is conceptual and requires empirical testing. It is not presented as a validated measure of investment quality, nor as a substitute for legal compliance, due diligence or programme evaluation.

Its immediate contribution is to introduce a second object of accountability into social investment governance.

Alongside the familiar question of whether an intervention delivered meaningful outcomes, investment committees should be prepared to examine whether the capital was allocated, structured and stewarded intelligently in pursuit of those outcomes.

The distinction becomes particularly important when companies report social investment performance primarily through expenditure, beneficiary reach and programme outputs. These remain useful measures, but they cannot independently establish social value or demonstrate that the original investment decision was sound.

A programme can deliver against its contract while making a limited contribution to meaningful change. Conversely, a well-judged investment can encounter circumstances that prevent the anticipated outcomes from materialising.

Investment quality cannot be established solely by examining the eventual result. It must also be assessed against the information available when decisions were made and the quality of the response as new evidence emerged.

Taking investment seriously

The central argument of The Investment Paradox is not that corporate social investors should become private equity firms, nor that nonprofits should face fewer accountability requirements.

It is that a sector organised around the allocation of capital should be equally interested in evaluating the quality of capital-allocation decisions.

Corporate investors already understand the importance of investment theses, capital adequacy, governance, risk management and stewardship. These disciplines do not lose their relevance when the intended return is social rather than financial. They require adaptation to different objectives, relationships and forms of value.

The research proposes that investment strategy, financing architecture and stewardship should be treated as related but independently assessable dimensions of corporate social investment. This would shift scrutiny beyond the performance of recipients to include the decisions of those providing the capital.

The implications extend from the design of funding agreements to the way investment committees assess proposals, evaluate programmes and report on their portfolios.

Perhaps the most consequential change would be a more reciprocal understanding of accountability.

Implementing organisations would remain responsible for the resources entrusted to them and the outcomes they pursue. Corporate investors would be expected to explain the reasoning behind the financing decisions that help determine what those organisations can realistically achieve.

That is a more demanding interpretation of social investment, but also a more credible one.

If we are serious about the language of investment, we should be equally serious about the logic that sits behind it.

About the research

This editorial introduces The Investment Paradox: Capital Allocation, Investment Discipline and Social Value in South African Corporate Social Investment, a GrowZA Research working paper by Craig Kensley, published in October 2026.

The paper is a critical, desk-based policy synthesis drawing on investment governance literature, social-performance scholarship, South African corporate social investment evidence, regulatory guidance and international research on philanthropic financing. It proposes a six-gate Investment Decision Framework and a corresponding Investment Decision Note for further testing.

The working paper has not undergone external academic peer review, and its proposed framework has not yet been empirically validated.

Read the full research: The Investment Paradox, GrowZA Research.

Next in the series: The Funding Agreement Is an Investment Decision, examining how financing conditions, investment duration and capital adequacy influence the prospects for creating social value.

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