From October 17 to 20, 2023, developed countries led by the United States of America held their ground, insisting that they must have total control over this fund, which they say is being established for developing countries.

Many experts including Harjeet Singh, the Head of Global and Political Strategy of the Climate Action Network (CAN), saw this resolution as a complete disappointment. This insistence by the U.S and her allies is nothing short of an attempt to exert control over developing countries.

By trying so hard to force developing countries to accept that the Loss and Damage Fund must be domiciled within the World Bank – an institution long seen by developing countries as serving the interests of developed countries – developed countries led by the United States and Switzerland have once again showed that, for them, climate action is not about justice and corrections of the mistakes of the past, but more about them exercising powers over anything and everything in the world.

Historically, emissions by developed countries created the climate crisis. Furthermore, those emissions were used by developed countries to boost their technological progress giving them an advantage when it comes to control and access to finance and technologies needed to cut down emissions. Having exploited the common resources of the entire world to get to this point, it is only a fair that they should support poor countries who are bearing the impact of the climate crisis to grow in a more sustainable way.

Nonetheless, these countries have continuously refused to make the basic compromises required to build trust in the international process and encourage developing countries to pursue low-carbon development. First, they failed to meet the $100 billion annual support agreed to in 2009 to assist developing countries by 2020, next they tried to pass of high interest loans as part of the effort to meet the $100 billion pledge. And now, this bull-headed decision to have control of the Loss and Damage Fund with the usual conditions to make sure that access becomes extremely difficult for those who need adds salt into the wounds of developing countries.

Let us be clear, the funding expected from rich countries either as part of the Green Climate Fund, Adaptation Fund, or the Loss and Damage Fund, should not be viewed as charity.  Instead, they are essentially tokens from massive profits made by developing countries from destroying the earth. It is as simple as that. While the language of compensation is not explicitly used in the UNFCCC texts, that is essentially what it is, and the fact that poor countries agreed to expunge compensation language from the text is already enough demonstration of compromise and good will by the Global South.

Confronted with the stark reality of climate change, and constantly reminded by developed countries that they must take action to address climate change, developing countries have since committed to follow the low-carbon development path hoping that those who destroyed the earth would at least live up to their own words and provide the agreed financial support necessary to encourage mitigation and adaptation efforts, and also support for Loss and Damage.

Yet, all poor countries continue to get is warm words and empty promises.  It is instructive that as soon as the Ukraine-Russian war hit, and energy became a problem in Europe, developing countries that had been told by rich countries to divest from fossil fuel and make net zero transition plans watched as Europe made a dash for gas in Africa and had coal-powered energy industries were reactivated in Germany!

The Loss and Damage Fund therefore presented a clear opportunity for developed countries to, for once, build trust and defer to what works for those whom the fund is being set up for. But as usual, they have re-emphasized that for them, it is only about what benefits them, and not what is best for the long-term good of the world.

By Chukwumerije Okereke and Nnaemeka Oruh

Prof Chukwumerije Okereke is Professor of Global Governance and Public Policy at the University of Bristol

Nnaemeka Oruh is Senior Policy Analysts with the Society for Planet and Prosperity, Nigeria

Original from: https://www.environewsnigeria.com/deadlocked-loss-and-damage-funding-rich-countries-trample-on-equity-and-trust-in-global-climate-agreement/

Strong leadership, smart incentives and an inclusive approach are among the requirements if African nations are to successfully put the environment at the heart of their economic growth.

This was the finding of international researchers involved in a project led by the University of Reading. The Governing Inclusive Green Growth in Africa (GIGGA) Network is setting out a framework for robust assessment and understanding of green growth governance in Africa.

Professor Chuks Okereke, Professor of Environment and Development at the University of Reading, and project lead, said: “Green economy has immense potential in Africa, but it is an area that is very poorly understood in the continent due to a lack of research. There is an opportunity for many African countries to leapfrog more developed economies by integrating green schemes at this early stage in their growth.

“We are seeking to help countries put green initiatives at the centre of their development, by laying the foundations for an inclusive, structured approach to transforming economies.”

The research team assessed more than 950 academic literature and 500 high-profile economy activities in Africa, particularly in Ethiopia, Kenya, Nigeria, Rwanda and South Africa, to develop a research agenda on governing inclusive green growth in Africa to inform future ESRC and Global Challenges Research Fund (GCRF) funding activity. Inequality and poverty are still issues across the continent, while economic growth is still largely reliant on natural, non-renewable resources.

They identified five areas where more research is needed to identify opportunities and limitations for green growth for Africa’s economy:

• Infrastructural investment Infrastructure, such as roads, airports, housing and power stations, in many African countries is not adequate for the population, while many have limited access to electricity and clean water. A positive aspect is that there is little environmentally-damaging infrastructure to be replaced, offering a blank canvas for green development. New funding, both from public and private sources, is needed.
• Institution Most progress in pushing green growth in Africa so far has come from strong political will and leadership. It is a key research challenge to understand what model of governance allows such arrangements to work. Some deep-rooted laws and behaviours also need to be modernised.
• Incentives Many countries have plans, but few have been translated into policies with clear incentives and penalties. Workshops run by the project team identified a lack of ownership of green policies by African governments.
• Innovation Limited funding, infrastructure and human/technical capacity is currently hindering innovation, which is crucial for agriculture and waste management plans. Increased green innovation research capacity at universities and research institutions is needed. Most funding currently comes from Europe, which means research agendas may not be focused on African concerns.
• Inclusiveness There is currently large gap between the rich and poor in Africa, but green growth emphasises equity and social inclusion. For example, cooking and farming initiatives directly benefit poorer communities. Environmental initiatives are often at odds with social ones, and corruption in government and private sectors is an issue, so more research is needed to ensure green growth does not harm poorest communities.

The GIGGA Network was formed to respond to the Global Challenges Research Fund (GCRF) Strategic Networks call in 2016. It is a multidisciplinary research group, also including African think tanks, civil society organisations and government departments.

The Network is backed by £145,000 by the Economic and Social Research Council (ESRC), and won a £15,000 grant from the Global Challenges Research Fund.

The GIGGA Network project will be profiled as part of Green Great Britain Week by the European and Social Research Council (ESRC). The week, starting 15 October, is a new initiative that seeks to highlight opportunities presented by clean growth and allow the UK government to support climate action.

A video produced by the network on the challenges of governing inclusive green growth in Africa is available here https://www.youtube.com/channel/UCQsxTSp7OinGfGX3uduVQPw?view_as=subscriber

By all accounts, engaging the private sector in climate-smart investments will be a cornerstone to growing climate business. In many sectors they already play a large role, supplying nearly a third of global investment in research and development of new renewable energy technologies, or $2.5 billion in 2016 alone. Scaling these technologies up to meet targets set in the Paris climate agreement, however, will require trillions more in innovative climate-smart investments particularly in emerging markets. And this presents us with opportunities. In fact, IFC estimates that 21 developing countries alone hold over $23 trillion in climate-smart investment opportunities through 2030.

The time to capitalize on these opportunities is now. In the words of Michael Bloomberg and Carl Pope, from their recent book, Climate of Hope: “… We believe that by changing the way we think and talk about climate change, we can lower the temperature of the debate – and accomplish a whole lot more.”

And this captures very well what IFC is all about — creating markets, creating and supporting businesses that are financially and environmentally sustainable, and through that, making a difference. Closing off a successful fiscal year in 2017, IFC committed close to $4.8 billion from its own account and mobilized funds from other investors in climate-smart industries, helping scale up climate investments in 41 emerging markets. While these industries are all showing promise, there are five sectors where, based on our experience, innovative approaches are poised to widen the tent, attracting billions in private sector capital.

Unquestionably, meeting future demand for food will be one of the world’s greatest climate-related challenges. The human population is projected to grow from 7.3 billion as of 2015 to 9.7 billion by 2050. Without robust steps to increase productivity and climate resilience of agricultural practices, business-as-usual is expected to reduce global agriculture yields by up to 50 percent by 2030. Fortunately, businesses are beginning to employ climate-smart agriculture measures that can dramatically increase productivity and resilience while reducing greenhouse gas emissions. IFC is focused on helping scale these practices by providing investment and support for specific agribusiness needs, including increasing productivity of animal protein producers, optimizing inputs through precision agriculture, and reducing food waste through investments in logistics and infrastructure.

Another significant impact of global population growth will be the rapid growth of urban environments which will exert pressure on existing building stocks. Buildings are estimated to be responsible for about one third of global greenhouse gas emissions.

This challenge also creates an opportunity for climate-smart investment in green buildings. To help private lenders understand and engage in this opportunity, IFC is helping promote a universal and accessible green performance standard to identify areas for cost savings in buildings. The IFC EDGE program offers developers and investors a free tool to choose options to reduce consumption of energy, water, and extracted materials in new and existing building stock.

As global population and incomes rise, 70 percent of developing country populations are expected to live in cities by 2050. This opens doors for opportunities to build “smart” cities, capable of sustainably meeting demand for infrastructure in urban environments, and private sector interventions are now dramatically changing urban landscapes. In the United States, ride sharing services such as Uber and Lyft are reducing car ownership in cities, which can subsequently reduce congestion and greenhouse gas emissions. IFC is investing in public-private partnerships in Turkey to expand metro rail services and in India to upgrade street lighting networks.

In some of the emerging economies, solar and wind energy technologies are often underutilized because they suffer from variable supply, known as “intermittency.” Energy storage solutions can help reduce these impacts by providing a back-up generation option. New research from IFC suggests that over the coming decade, energy storage technologies will grow 40 percent annually in emerging markets. This growth is likely to unlock significant environmental, social, and economic benefits. IFC is growing this market through early-stage venture capital investments in energy storage markets, ranging from lithium-ion battery technologies to photovoltaic (PV) storage systems.

A critical challenge remains the ability to scale up climate-smart investments bringing new financiers into the climate-smart investment space. For example, institutional investors, comprised of pension funds, insurance companies, and sovereign wealth funds, manage $71.4 trillion in assets but currently play a limited role in global climate finance. To attract these investors, climate-smart projects must offer scale, safety, and simplicity. IFC’s Green Bonds Program has been very successful in engaging these investors, issuing over $5.7 billion in 13 currencies through 74 green bonds on its own balance sheet over the last decade.

Looking Forward

Together, these sectors represent the frontier of climate-smart investment. Innovation in climate-smart agribusiness, green buildings, smart cities, and finance can transform the way global economies function to align with a sustainable future where green growth is a norm, not an exception. By investing its resources in these emerging opportunities, IFC is helping to build the foundations for companies in emerging markets to invest and rapidly grow climate business.

By  ALZBETA KLEIN

According to the US National Weather Service’s Climate Prediction Center, Sierra Leone received an unprecedented amount of rainfall this year – three times the normal seasonal rainfall. Such torrential rains are a clear sign of the changing climate. In August 2017, at the height of the rainy season, Freetown received an unprecedented average of 539,9mm of rainfall. With its land size of 356,9km2, Freetown had an average of 190 million cubic meters of rain water to drain. This extreme volume of water, combined with human factors like encroachment on natural environment such as creeks and wetlands, which are the natural drainage and storage systems for flood waters, as well as construction on flood-prone areas and inefficient drainage systems, among other factors, cumulatively precipitated this disaster.

In early 2017, new data from the UK Met Office, the United Kingdom’s national weather service, and the US National Aeronautics and Space Administration (NASA) show that the earth’s temperature has increased to about 1,1°C above pre-industrial levels. This is dangerously close – just 0,4°C away – from the 1,5°C threshold set by the Paris Climate Change Agreement to prevent the worsening effects of climate change. At this rate, the vulnerability of Africa’s coastal cities is unprecedented. Sea level rise is projected to hit coastal cities – 14% higher than the global average by 2100 for the fast approaching over 4°C warming scenario. The impact will stretch far and wide beyond Freetown to expose millions to risk of flooding. By 2050, high numbers are projected in coastal cities of Mozambique (5million), Tanzania (2million), Cameroon (2million), Egypt (1million), Senegal (0.5million), and Morocco (0.5million). Such flooding will reverse economic and development gains with the ensuing health impacts and damage to infrastructure, loss of tourist sites and disruption in food supply. It will also expose the populations to elevated food prices, loss of livelihoods and strife.

As far as ecosystems degradation is concerned, Africa loses up to USD68 billion annually. This means that the continent’s natural buffer against such impending climate change effects is being lost at a rate of about USD180 million daily.

The science is clear. The escalating climate change knows no boundaries, and this is coupled with an increasingly degraded environment. Countries across Africa need to urgently address these dual challenges if we want to forestall similar disasters in future.

This is the logic behind the universal, global response to climate change that has been called for under the Paris Agreement. Sierra Leone, classified as the third most vulnerable country to climate change, stands to benefit from being part of this global collective action – and it is among the countries that have ratified the Paris Agreement, demonstrating its resolve to combat climate change. In fact, Africa as a whole has shown global leadership in responding to climate change.

The good news is that practical solutions have been successfully applied across Africa. In Rwanda’s Geshwati area, a land suitability and use map is informing policy decisions to relocate vulnerable communities from previously encroached natural environments and high-risk areas to safer habitation areas. Considering that agriculture is the backbone of these communities, this plan is also informing on ecosystems-based adaptation (EBA) agriculture techniques that the communities can safely engage in for their livelihoods without degrading the area. Simultaneously, the plan is guiding the restoration of previously degraded catchment areas using EBA techniques like agro-forestry and the planting of indigenous trees, among others, to stabilize soils and slopes and to regulate flood waters. This has eradicated landslides that were once a common phenomenon in the area.

A similar two-pronged strategy has been successfully applied to build resilience in Mozambique’s coastal communities that were highly vulnerable to coastal flooding. For example, an investment of USD120 per person to rehabilitate depleted mangroves and establish crab farming restored mangroves. These have become natural buffers against coastal flooding while simultaneously preventing future encroachment by providing alternative livelihood activities away from the mangroves.

Sierra Leone and other at-risk countries can benefit from similar strategies that restore degraded ecosystems, allowing them to act as a buffer to the compounding effects of climate change. Creating sustainable alternative livelihood activities away from risk-prone areas can also help prevent possible future encroachment, thus preventing the degradation of natural ecosystems. After all, natural ecosystems are our best bet against mounting climate change-driven disasters.
Maps of projected changes in Northern Hemisphere seasonal mean surface air temperature from the late 20th century to the mid-21st century, based on SRES emissions scenario A1B photo credit WikiCommons
We must fight the trend of urbanisation

Africa’s cities face the fastest pace of urban population growth globally. This growth, however, does not reflect positively on economic growth, which is a key enabler to building climate resilience. For example, the World Bank notes that African cities are almost 30% more expensive than other countries at similar income levels. Housing is 55% more costly and food prices are 35% higher than in other low and middle-income countries. Considering the high unemployment and underemployment, the majority – more than 50% – of urban dwellers end up living in slums. Sierra Leone, which faces an urbanisation rate of 2,9%, has 75,6% of its urban population in informal settlements. These urban poor stand out as the most vulnerable, something that needs to be addressed urgently.

To address this, a key area is diversifying and decentralising socioeconomic growth opportunities away from cities. This is critical to eradicate the allure of cities as being the only areas where one can access income opportunities. It is vital to decongest cities and curtail the growth of informal settlements that are vulnerability hot spots.

Focusing on the catalytic area of Ecosystem-based adaptation (EBA) Driven Agriculture and industrialisation powered by clean energy offers an opportunity to diversify income opportunities to sustainable sectors of EBA-driven Agriculture & Clean Energy at a minimum. Cumulatively, this amalgamation is projected to create an agro-industrial sector worth up to USD1 trillion by 2030, while ensuring ecosystems are taken care of and carbon is offset to ensure climate resilience. It is such diversification that will open up rural Africa, where 70% of agriculture takes place, to industrialisation and the creation of economic opportunities to relieve the pressure on urban areas.

How to make it happen

Making this paradigm shift happen requires a collective undertaking. It will take the intervention of both state and non-state actors, as is called for in section 5 of the Paris Agreement. Mutual partnerships to bridge policy and operational gaps will have to be formed. Through the Ecosystem-based Adaptation for Food Security in Assembly (EBAFOSA), countries and stakeholders are engaging to bridge critical gaps. Among the intervention areas that are being prioritized is the harmonization of policy across complementary ministries, such as the ministries of agriculture, industrialization, land, energy, trade and roads, among others, to ensure that their policies complement the establishment of clean energy-powered agro-industrial zones in rural Africa as special enterprise zones and centres of sustainable jobs creation. For example, through EBAFOSA, Sierra Leone is harmonizing finance, industry, energy and agriculture sectoral policies to establish tax concession incentives for agro-based industries that are powered by clean energy in rural areas. These are set to attract investment to these areas to fuel job creation and take the pressure off urban centres like Freetown.

Another area is affordable financing. To fuel the growth of sustainable businesses outside cities, EBAFOSA is also bridging financing gaps to spur entrepreneurship in these catalytic sectors in rural areas. Kenya provides an example on this. In Makueni County, which is the first county to legislate a climate change fund to domestically finance climate actions, EBAFOSA Kenya is facilitating mutual partnerships between the county government and the private sector actors to ensure that this fund is partly used to de-risk private-sector lending along the sustainable agriculture led, clean energy-powered agro-value addition chain. Working with select micro-financiers, the government of Makueni County is developing a risk-sharing facility by providing a monetary deposit as security to cover default risk and unlock up to 10 times the securitized amounts for lending to entrepreneurs along the sustainable agriculture-led clean energy-powered agro-value addition chain. This risk-sharing facility is reducing the cost of capital and incentivising private sector actors engaged along this chain – from farmers, distributors, marketers and advisory service providers – to capitalize their businesses and create sustainable jobs at the sub-national level to lure people away from crowded cities.

Also an important area where harmonization can happen is in the building of multi-stakeholder, complementary partnerships to bridge policy and operational gaps towards sustainable rural industries. In Cameroon, EBAFOSA is catalyzing partnerships at policy and ground level towards linking off-grid small-hydro directly to power cassava and Irish potato processing in rural areas into varied product lines. These are then linked to markets and supply chains across the country, using ICT mobile apps. A total of 10 youth groups engaging in ICT, clean energy and marketing have been engaged, creating green jobs for approximately 100 young people. More than 500 women now have access to value-addition services As a result they have cut their post-harvest losses to enhance their income stability and the community’s food security. Such gainfully engaged people will not be lured to cities in search of a livelihood.

Working together towards a common goal

“Traveling is learning,” says an African proverb. Sierra Leone and other at-risk countries stand a real chance of forestalling similar disasters by domesticating the above solutions that have been successfully applied by their counterparts across Africa. EBAFOSA, through its modus operandi of ‘innovative volunteerism’, offers an opportunity for country stakeholders to convene their respective capacities for mutual partnerships towards a common end. The solutions are known and we have the means to implement them. Let’s rise and act in the best interests of Africa’s present and future generations.

The Main Objectives

Among other goals, such projects aim to achieve biodiversity conservation, sustainable water management, and clean transportation. The market reached a turning point in 2013 as the first corporate green bonds were issued, increasing the market size to $11bn. In 2016, over $81bn in green bonds were issued, driven in part by an increase in issuers, issue types, structures and investment vehicles.

Moody’s suggested that the global green bond issuance may rise to approximately $208bn in 2017.

This is indeed a very likely outcome as the expansion of green bond types and structures continues to attract multiple potential issuers, including China. The country is expected to contribute around $60bn in green bonds issued in 2017.

Other Players

In recent months, France and Poland became the first countries to issue sovereign green bonds. Countries likely to follow suit in 2017 include Bangladesh, China, Luxembourg, Morocco, Sweden, and Nigeria. Africa’s powerhouse, Nigeria, plans to be one of the first African states to float sovereign green bonds to fund sustainable projects in the economy.

At the Green Bonds Capital Market & Investors Conference, the acting President of Nigeria, Professor Yemi Asinbajo, stated that arrangements were being made for the inauguration of the first African Sovereign Green Bond, worth some 20 billion nairas, to address climate change and environmental projects.

Some of the projects to be financed include a solar unit distribution program for 20 states of the federation and a reforestation program for 26 states. With solar power becoming the world’s cheapest source of energy for electricity, this presents opportunities for investments and diversification, which could cut significant costs for organisations as the nation works towards bouncing back from recession. Whether or not the green bonds will be oversubscribed may depend largely on incentives and regulation of the bonds.

Putting the Money to Good Use

In November, Masen (Morocco’s Agency for Sustainable Energy) issued Morocco’s first ever green bond of €106m. The proceeds from the bond issue will be used to finance the development of 170 MW in the NOOR PV1 project, providing solar power through three plants.

Other African states, including Kenya, are gearing up to take be active in the green bond markets as they work towards supporting the 2015 pledge by world leaders to limit global warming to below 2 degrees Celsius this century.

A Positive Outcome

Apart from potential tax incentives, African states may be able to achieve more sustainable growth in relatively early stages of development in contrast to more developed states. The introduction of the issuance of green bonds increases the priority for sustainable development on the continent, thus encouraging African countries to avoid the mistakes (in sustainable development) that developed economies made in their infancy.

A potential challenge for African states hoping to attain finance for funds through green bonds is the size of the projects and their financing needs. The size of the projects may need to be increased in order to ensure that they are more attractive.

Although the issuance of green bonds is growing fast, it is still less than $1trn, a tiny fraction of the $90trn global bond market. OECD studies suggest that the global annual green bond issuance will need to rise by between $620bn and $720bn for the G20 to meet its climate change targets.

Other Considerations

The standards set for issuers of green bonds should also be considered. Higher standards may direct the efforts made by countries and organisations that hope to become issuers in the green bond market. They will encourage accountability and transparency that will promote more suitable allocation of capital to funding projects.

Critics cite the relatively weak reporting in the green bond market. Coupled with uncertainty on what constitutes a green bond, this may be a deterrent to investors.

Nevertheless, progress is being made in this regard. China and India have already led the way with unique guidelines to support the issuance of green bonds. Similarly, African states will benefit greatly from policy frameworks based on their distinct markets.

Conclusion

Sentiments regarding the sustainable development of economies continue to set the pace for organisations and policy makers in various countries across the globe who hope to remain competitive for investors and other stakeholders.

The numbers do not lie and a shift of winds has already taken place. Individuals and groups must adjust with urgency. Recently, the S&P Dow Jones Indices, the world’s leading provider of index-based concepts, data and research, announced the launch of the S&P Green Bond Select Index. It will measure the performance of green-labelled bonds issued globally.

The wave of change is here, but the real question to consider in the midst of this change is: who will ride it with grace?

By Calvin Ebun-Amu, Sector Specialist

The funds will be used to finance 13 large-scale PV projects being developed from both public and private companies.

Mouayed Makhlouf, IFC Director for the Middle East and North Africa said: “This landmark investment demonstrates that when you have the right reform policies, and a government willing to allow greater involvement by the private sector, you can attract investors in every sector, including infrastructure” adding “Investments like these are the nucleus for economic growth, which is needed in Egypt”.

The projects will be part of the 2GW national goal through Egypt’s landmark solar Feed-in Tariff (FiT) programme, aiming to harvest the country’s rich solar potential and develop the largest solar photovoltaic generation park in the world.

The 2 GW goal will be achieved through the development of 40 individual solar projects of approximately 50 MW each and help Egypt meet its target to source 20% of its energy from renewable sources by 2020.

Egypt’s solar FiT programme, will include projects financed by several development institutions like the European Bank for Reconstruction and Development (EBRD) and Proparco and is expected to be one of the largest foreign direct investments in years.

Last June, the European Bank for Reconstruction and Development (EBRD) approved a $500m package for 13 large-scale PV projects, as part of a 16-projects plant of 750MW total capacity.

Harry Boyd- Carpenter, Head of Power and Energy at the EBRD “We have been working with the Egyptian authorities since 2014 to help them fulfil their ambitious goals in this area. We are delighted now to be in a position to commit very significant financing to projects, which we expect to start construction before the end of 2017”.

The trust of Development Institutions to Egypt is expected to catalyse a further debt and equity inflow of $2 billion, highlighting Egypt’s re-emergence as an attractive investment destination.

The news came along despite Egypt’s announcement last December to reduce the FiT rate for PV projects to US$0.084 and US$0.078/kWh.

At the time, several power project developers claimed that the new rates would put in question the viability of several projects, although the new FiT price level is in line to rates seen in other regional markets.

“I am pleased to inform this distinguished assembly that the federal government will be launching the first African sovereign green bond in December 2017.

“The bond will be used to finance renewable energy projects. We are very excited about this development as it will go a long way in solving many of our energy challenges, especially in the hinterland,’’ Buhari said.

According to the Premium Times, the President said this in Abuja on Tuesday while presenting the 2018 budget proposal to the National Assembly.

This development follows  Vice President, Prof. Yemi Osinbajo, announcement in February stating that the government was making arrangements to inaugurate the first African sovereign green bonds.

Osinbajo had also indicated that the federal government was planning to allocate $63 million under the green bonds initiative.

Green bond evolution in Africa

Green bonds are gaining traction across the continent, last month the South African stock exchange (JSE), also celebrated the launch of its Green Bond Segment, which provides a platform for companies and other institutions to raise funds ring-fenced for low carbon initiatives.

Donna Nemer, Director of Capital Markets at the JSE said the introduction of the green bond provides companies with an effective tool to raise capital for investments into sustainable projects that would have been funded internally.

“Issuing a green bond can help companies to strengthen their credentials as sustainable and responsible organisations. At the same time green bonds allow investors to mitigate the effects of climate risk as a part of their investment portfolio, while these bonds also satisfy environment, social and governance requirements and green investment mandates,” Nemer said.

To help close the gap, new sources of capital, especially private, need to be tapped. One key to investing at scale for impact is to attract deeper pockets of private capital by leveraging limited public funding through blended finance. Capital alone, however, is not the only challenge to be tackled.

Professional intermediation and capacity to do so is a considerable bottleneck. This ranges from identifying or even developing investable opportunities, designing investment vehicles, raising capital or matching investors with investments, and managing these impact assets with developmental goals and returns at heart–throughout all stages of an investment cycle, starting from sourcing.

Funds and fund managers who live and breathe impact investing have been proliferating more recently. Yet, the professionals and assets under management lag far behind the numbers needed to address any significant part of the multiple trillion-dollar gap. Fund managers who are new to this space find it hard to gain credibility and traction, cover any pilot testing and ramp up periods, and source capital, for instance.

Creating the universe of future leading fund managers and investment vehicles to achieve the SDGs is as key as capital to be invested. Impact investing veterans, such as Innpact, thus work on a range of solutions to help build professionalism–capacities, competence, expertise–and ecosystems for impact investing.

One initiative is the Climate Finance Accelerator announced in June 2017 by the Government of Luxembourg and developed together with eight private actors–including Innpact, the Luxembourg Microfinance and Development Fund and leading accounting, legal and tax firms. The accelerator will address three main issues for start-up fund managers in climate finance and will be a central point of support and access for them by providing:

• early stage loans for operating capital
• bespoke mentorship in neuralgic areas such as fundraising, climate finance expertise or impact methods
• a ready-to-use toolbox for fund set-up and management, e.g. financial model, policies and procedures, impact monitoring and reporting tools
• training in core areas.

In another initiative, Innpact pursues the development of a turn-key platform for impact investing. This white-label platform will address the constraints of many, especially innovative, smaller funds. By engaging an impact fund manager and drawing on impact finance services, such as developing fund policies, systems and reporting tools, the initiators will be able to strengthen their fund management expertise while focusing on the delivery of investment advisory services.

At Innpact (www.innpact.com) we specialise in services fostering sustainable impact finance initiatives. To this we dedicate our advice and expertise in design, set up and management for impact investing, drawing on our team and an established network of partners and advisors in Africa and around the developing world.

Meet Innpact at the 2nd Africa Impact Investing Leaders Forum 2017 in London, United Kingdom.

By Innpact

Similarly, there are significant potentials in this pursuit within the infrastructure sector with estimates showing that investment opportunities in Africa’s infrastructure sector are up to US$93 billion per year.4 Available estimates show that in 2013, the annual global climate finance flows reached about US$331 billion out of which subSaharan Africa got only about 4%.5

In this context, Africa has been looking up to a plethora of concessionary, but sometimes uncertain, “climate funds” that are sourced from multilateral and bilateral donations which are seemingly hinged on international politics. Based on calculation using data extracted from the Climate Funds Update database; part of these “climate funds” that have been approved and as such earmarked for projects from 2002 till 2014 in Africa is close to US$3.4 billion. Ninety Seven percent (97%) of this is managed from multilateral sources and the ratio of grants to concessional loans is about 2:1.6

There are other emerging innovations for financing green and inclusive development initiatives. One of these is Green Bonds. Green bonds are used exclusively to fund projects that have environmental and/or climate benefits.

However, from investors’ perspective the debt recourse or financial backing, of the bond may or may not be strictly tied to specific green projects. In fact, the majority of green bonds are green “use of proceeds” bonds meaning they are backed by the issuer’s entire balance sheet. “Use of proceeds” structured green bonds therefore allow investors to benefit from investing in green initiatives without taking on additional risk of investing exclusively in specific green projects. For investors willing to have exposure to green project risk, there are green project bonds and green securitized bonds issued.7

By Uche Duru, Anthony Nyong