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/

Time is running out to fulfil the United Nations Sustainable Development Goals (SDGs) and ensure an equitable world for the next generation. Success will require an eye-watering amount of money – between US$5-US$7 trillion a year, according to a World Bank report.

In more positive news, there has been an increasing shift in mindset as investors adopt SDG-aligned impact investing strategies, which means more private capital is being allocated towards these 17 global targets. Encouragingly, 85% of 440 impact investors assessed by the Global Impact Investing Network (GIIN) in 2021 said their impact investment strategies focus on SDG-alignment.

But the next step is more difficult. How do investors measure the extent to which their capital is making a real-world difference?

Impact investing is when investors funnel capital into companies that are having a positive effect on the environment or society around them. To qualify as an impact investor, investments must have a measurement system in place, the International Finance Corporation (IFC) noted in a recent report. Worringly, the IFC highlighted that just a quarter of the US$2.3 trillion impact market in 2020 operated under a clear impact management system.

This is because understanding of how to quantify real-world outcomes of financial contributions to SDGs is still in its infancy.

“Investors want to stop guessing on impact,” says Lissa Glasgo, Senior Manager of impact measurement platform IRIS+ and Impact Measurement and Management at GIIN. “They want to be making impact-based decisions with the same rigour and quality of evidence as they do for risk and return-based decisions.”

Pressure is mounting for those tracking climate-related SDGs, as 2030 is also a significant milestone for investors, companies and governments that have set ambitious decarbonisation targets on the way to net zero greenhouse gas (GHG) emissions by 2050.

To accelerate action, policymakers are beginning to ask companies and investors to disclose their impact on society and the environment, adopting a double materiality lens.

Standardised, high-quality impact reporting is still a long way down the road, experts say. Getting there will require further collaboration between investors, standards-setters, data providers and policymakers to navigate the complexities surrounding impact measurement.

As reporting requirements yield the required data, investor demand will increase for comprehensive impact measurement methodologies, tools and frameworks. This is where organisations and initiatives such as GIIN, the Impact Taskforce (ITF) and Impact Management Platform (IMP) come into play.

Metrics and models

There are a number of barriers preventing impact investors from accurately measuring and modelling their contributions to the SDGs. Most obviously, these goals were not designed primarily with investors in mind and so aren’t easily quantifiable.

For example, SDG 13 (climate action) can be measured according to the number of investee companies that have made net zero commitments, but how do investors track their impact against SDG 16 (peace, justice and strong institutions)?

Even when metrics are straightforward, impact still isn’t so cut and dry. After all, how does the investor know an investee company set a net zero target as a direct result of its influence? If the company was under pressure from multiple investors, the public and its domestic government (as is most likely the case), who’s to say who had the biggest impact?

“Investors are currently trying to understand what kind of information they need, what relevant information is already being reported, and how impact-related information should inform decision-making,” says Peter Paul van der Wijs, Chief External Affairs Officer at the Global Reporting Initiative (GRI). “It’s definitely challenging.”

An unsurprising hurdle is the inconsistencies in third-party sustainability data, says Nick Parsons, Head of Research and ESG at specialist infrastructure investment firm ThomasLloyd. “A lot of asset owners and managers are trying to measure their impact at an arm’s length by relying on third-party vendors, which simply doesn’t work with this kind of strategy,” he says.

“Being a direct investor means we owns a stake in companies, so we can more easily get hold of proprietary data. As we have tracked SDG-related data since 2015, we know our impact over time.”

A number of asset owners and managers measure contributions to SDGs through investee companies’ revenues, according to a GIIN report. However, interviewees admitted that “the SDG revenue-alignment approach is […] insufficient in speaking to the outcomes or impact associated with the investments”. Instead, there is a demand to shift to more “standardised metrics”.

But a number of the impact measurement tools introducing standardised metrics are still in the “early stages of development” and therefore not yet useful to investors, according to a report by the World Wide Fund for Nature (WWF). In theory, investors can already compare their own portfolio impacts to benchmarks and other portfolios, WWF noted, adding that company laggards can be identified by comparing their SDG commitments and progress to competitors, i.e., identifying how many of the company’s direct competitors have publicly committed to the SDGs and outlined which goals are their priority.

Of course, this is assuming companies are providing investors with decision-useful information in the first place.

Standards-setter GRI recently published its findings following analysis of 200 companies’ approaches to SDGs. While four in five committed to the SDGs within their sustainability reports, less than half set measurable targets outlining how their actions are contributing to the goals, the report said.

In response, the GRI has outlined a series of recommendations for companies making commitments to the SDGs, including meeting stakeholder demands for transparency on negative impacts, making SDG performance data accessible by using recognised frameworks, and disclosing targets outlining how they plan to support the SDGs.

Asset managers are continuing to struggle to analyse data from investee companies using different disclosure frameworks, meaning they cannot accurately work out the overall impact of the fund, Cliff Prior, CEO of the Global Steering Group for Impact Investment (GSG), tells ESG Investor.

“Likewise, an asset owner using multiple asset managers across its impact investments – who are likely all providing differing data – has the same problem,” he adds.

Too many options?

Nonetheless, there are a number of platforms and initiatives offering guidance to help investors get started on their journey towards aligning their impact strategies with the SDGs.

“Investors are coming to us every day, saying that they want to drive impact and they need XYZ data to be able to understand what their impact even looks like and what targets they need to set moving forward,” says GIIN’s Glasgo.

The network’s COMPASS methodology gives practical examples of how investors can measure their impact across the SDGs. For instance, investors tracking SDG 6 (clean water and sanitation) can measure the percentage increase (or decrease) in the number of people accessing clean drinking water compared to the previous year. This can then be compared to the rate of increase in access to clean drinking water that is required to achieve SDG 6.1: universal access to clean water.

IRIS+, also run by GIIN, was originally set up as a “dictionary of impact metrics”, explains Glasgo. However, recognising investors’ growing need for a single source of information and guidance on assessing impact, the platform evolved and began aligning with multiple frameworks, generating over 700 metrics covering a variety of standards – including the SDGs.

“If an investor is tracking the SDGs, they can select the specific goals they are focused on and then IRIS+ outlines the recommended metric approach for them,” she says.

For private equity funds, bonds and enterprises, the UN also offers the SDGs Impact Standards framework, which provides best practice guidance and self-assessment tools to align internal processes and practices with contributions to the SDGs.

With funding from the Swedish International Development Cooperation Agency (SIDA), the GRI also updated its disclosure standards, outlining how corporates can align their GRI disclosures with the SDGs.

Building on the work of the Impact Management Project, in 2021 the 2° Investing Initiative (2DII) consulted on and created an impact investment framework. Finalised in November, its Climate Impact Management System provides investors with guidelines on how to devise, refine and communicate about impactful climate strategies.

Further, advisors and consultants are working with impact investors on SDG alignment. Pensions for Purpose, an impact-focused advisor to pension funds uses SDGs as a framework for discussion with clients on their sustainable investment beliefs and priorities.

Despite impact data remaining unstandardised, investors are proving they can partially measure SDG contributions for themselves.

The Sustainable Development Investments (SDI) platform is run by asset owners and supported by index provider Qontigo. Powered by AI-driven technology, SDI has so far analysed over 8,000 companies globally on their existing contributions to the SDGs. It identifies which SDGs companies within an asset owner’s portfolio have committed to, mapping the portfolio’s overall exposure to the 17 goals according to companies’ reported areas of focus. Asset owners involved include PGGM, AustralianSuper and APG.

Bespoke approaches proliferate among asset managers, too. Morgan Stanley Investment Management (MSIM) identifies one or two relevant SDGs it believes are relevant to an investee company’s business model, according to Vikram Raju, Head of Impact Investing for MSIM AIP Private Markets. From there, the firm creates a contractual obligation for this data to be reported by the company in question at a reasonable periodic interval so MSIM can capture any meaningful changes.

“The key is avoiding overcomplicating the reporting ask, bearing in mind that smaller companies with limited resources will struggle to comply with onerous data tracking and reporting requirements,” he notes.

Having financed and developed five utility scale solar plants in Negros, in the Philippines, as well as three biomass energy plants, ThomasLloyd measures the impact of its investments independently, says Parsons. For example, the investment firm measures its contributions to SDG 7 (affordable and clean energy) by annually recording the number of houses in the local area that have access to electricity provided by the plants.

The firm also reports on the indirect contributions its investments are making to other SDGs. “In the Philippines, we contribute to SDG 11 (sustainable cities and communities) when paying local taxes,” says Parsons. “We look at how much tax we pay in the region every year and compare that to how total tax revenue is being generated and spent locally.”

Global standardisation

Of course, the most certain way to ensure companies are all providing the accurate and comparable impact-related data in the future is to mandate standardised reporting requirements and, ideally, a common methodology for impact assessment.

“Investors do have a role to play in asking for SDG impact-related information from corporates, but governments can have a lot of influence here – more are going to be asking for companies and investors to disclose their social and environmental impact,” says GRI’s van der Wijs.

The shift to double materiality-based sustainability reporting in the EU and the UK will increase the need for an alignment in existing impact and SDG standards, he notes.

The ITF – an independent, industry-led body of more than 100 businesses, investors and public policy institutions – recently called for the Group of Seven (G7) nations to mandate impacting accounting. The report outlined the importance of policymakers leading multilateral efforts to improve the transparency and integrity of disclosures around impact investment outcomes.

“The Taskforce has found that companies and investors are really interested in aligning standards around impact reporting,” says GSG’s Prior. “Ultimately, they recognise that there are investment opportunities in impact investing, and standardised reporting will help to unearth them.”

ITF further outlined proposals to stimulate the development of policies that would channel more capital into the SDGs, including increasing the supply of investment vehicles suitable for institutional investors and promoting the use of just transition principles to better integrate social and environmental objectives.

The WWF report also called on regulators and policymakers to mandate sustainability disclosures, and called for impact disclosures for financial products to better encourage financial institutions to adopt “robust and credible impact assessments”.

Other initiatives are working to improve interoperability. Launched in November 2021, the Impact Management Platform was developed to improve cohesion between existing standards as well as support industry impact-related dialogue with policymakers.

“IMP is ensuring that everybody – investors, standards-setters, regulators – are using the same language around impact, which is pivotal to driving improvement and growth,” says van der Wijs.

Coordinated by the Impact Management Project, a five-year consensus-building forum that ended in 2021, the platform hosts impact measurement and reporting resources provided by standards-setters and frameworks, such as the SDGs. Currently, the Organisation View for companies is now live, with the Investment View for asset owners and managers expected later this year.

“As the world moves towards greater cohesion on how to deeply and thoughtfully measure impact, we will see an emergence and strengthening in the impact-related data sources we need for investors to be able to make smarter SDG-oriented decisions,” says Glasgo.

By Emmy Hawker

Verdane, the European specialist growth equity investor, has announced that it has held a final close on Verdane Idun I (“Idun” or “the Fund”), an impact focused fund investing in technology-enabled businesses based out of Europe. The Fund is classified as “Article 9” under the European Union’s Finance Disclosure Regulation and closed at its hard cap of €300 million, over its target fund size of €225 million. With Idun, Verdane continues to demonstrate its commitment to driving positive impact through investments in ambitious companies whose impact scales with business growth.

The Fund has already made three investments: in Auntie, a digital provider of workplace wellbeing services; in Spond, a digital enabler of grassroot sports and physical health; and in a third business that contributes to a low-carbon society, to be announced in the next few weeks.

Bjarne Kveim Lie, Co-Founder and Managing Partner at Verdane commented: “We are delighted and humbled by the strong support from existing and new investors for Idun and would like to thank them for putting their trust in us. Today more than ever, there is a growing pool of opportunities to combine technology and sustainability, and we believe that investors like Verdane can take a leading role by supporting founders and management teams who can truly integrate sustainability into their business models and create value through impact. The success of the Idun fundraise reflects the continued development of the firm, and we are excited by the unique opportunities available to us on this journey to drive positive impact with our investments.”

The Fund counts leading institutions among its investors, including Nysnø Climate Investments, Norway’s state climate investment fund, AP3, one of Sweden’s main national pension funds, Adams Street Partners, a private markets investment management firm, and clients advised by Mercer.

Building on Verdane’s proven track record of investing in European tech-enabled sustainable businesses, Idun will make investments focused on driving impact in three clusters: energy transition; sustainable consumption; and resilient communities. The Fund will leverage technology to significantly scale portfolio companies’ impact, and Verdane’s background as a growth investor means the firm is uniquely positioned as a leader in this space.

Every investment that Idun makes will have to meet both financial and elevated impact criteria, with impact defined as addressing at least one of the Sustainable Development Goals (SDGs) and qualifying inside Verdane’s proprietary impact framework, built on the Impact Management Project. At the portfolio level, each Idun portfolio company will regularly report on bespoke sustainability KPIs and both the Fund’s ‘carried interest’ and credit facility are linked to goal attainment. The credit facility is issued by Nordea.

Idun received strong investor support from Verdane’s existing pool of LPs and is made up by a majority of institutional capital, including endowments, family offices and pensions funds.

Idun’s dedicated team combines entrepreneurial and impact investment experience and will be integrated with Verdane’s wider platform of over 90 investment professionals and its team of operational experts, Verdane Elevate, to create value and drive impact in the portfolio. The Fund is headed by partners Christian Jebsen and Erik Osmundsen, who will work alongside directors Reed Snyder and Karin Kans, and Sustainability Lead Axel Elmqvist.

Christian Jebsen, Partner at Verdane commented: “As we enter 2022 and announce the final close of Idun, we are seeing a very strong pipeline of potential investment opportunities across Northwestern Europe, as demonstrated by the Fund’s early deployments into three compelling and ambitious new portfolio companies. We believe that sustainability is an increasingly competitive strategy, especially as the growth and private equity industry is steadily moving towards a more impact-driven mindset. As both a technology and sustainability growth partner, Verdane is strongly positioned to add value and scale its partner businesses, and we look forward to working alongside management teams to drive positive impact.”

Verdane is one of the most active growth equity investors in Northwestern Europe, having completed 17 investments, of which four were portfolio deals, in 2021. Idun will sit alongside Verdane’s existing strategies, Capital and Edda, and represents an important initiative for the firm. The Fund will develop leading-edge, best practice frameworks and toolkits within the impact space that will help Verdane’s teams drive value across all of its strategies.

This independent, third-party funding will accelerate the expansion of Bowery’s network of smart indoor farms beyond the East Coast and brings its total debt and equity capital raised to more than $647 million — representing the strongest institutional backing in the Controlled Environmental Agriculture industry. KKR’s credit investment follows Bowery’s $325 million Series C funding in 2021 led by Fidelity Management & Research Company LLC.

The Company also announced today that it is building two new state-of-the-art farms serving the Atlanta, Georgia and Dallas-Fort Worth, Texas metro areas. The farms will create more than 200 year-round green jobs across both markets and provide locally grown produce to a population of 20 million and 16 million within a 200-mile radius of Locust Grove, Georgia and Arlington, Texas, respectively. Both farms are expected to open in the first quarter of 2023.

The two new farms, leveraging billions of data points collected from previous farms, will feature industry-leading tech innovations resulting in efficiency improvements to all elements of the grow environment, from LED lighting to water recapture to climate control, ultimately improving quality and yield. These farms represent a recommitment to Bowery’s sustainability goals; the company plans to use power from 100% renewable sources.

“We’re thrilled to announce our expansion beyond the Northeast and Mid-Atlantic regions,” said Irving Fain, CEO and Founder of Bowery Farming. “KKR’s support is a testament to the proven success of our business model and a strong vote of confidence in our technology leadership and ability to address critical challenges in the current agricultural system. There is enormous economic opportunity that comes with supporting our mission to democratize access to local, pesticide-free Protected Produce, and now we are ready to continue our growth more rapidly.”

The new financing will also provide resources to accelerate advancements in farm design and the BoweryOS, giving more communities access to a reliable supply of locally-grown produce, year-round. Bowery’s proprietary farm design and technology have been a key priority since the Company was founded and are at the heart of its efficient and scalable business model. The BoweryOS, the central nervous system of the business, integrates software, hardware, sensors, computer vision systems, AI, and robotics to orchestrate and automate the entirety of operations. Each new farm comes online in record speed, collectively benefitting from the power of the network and its billions of data points.

“We are excited to support Bowery’s pioneering efforts in vertical farming, which are directly contributing to the resiliency of our food supply,” said Michelle Hour, Director at KKR. “We believe that Bowery has the right commercial model, technology and team to capitalize on the rapidly growing consumer demand for sustainably-sourced food, and we look forward to helping the Company continue to innovate and scale to benefit communities across the United States.”

Bowery has continued to grow at a significant pace in 2021 and achieved a number of milestones; highlights include:

• More than doubling revenue
• Opening Farm X,  a state-of-the-art innovation hub for plant science in Kearny New Jersey, expanding R&D capacity by nearly 300%
• Transforming an industrial site in Bethlehem, Pennsylvania into a technologically advanced smart farm
• Breaking ground on two additional large-scale commercial farms in Locust Grove, Georgia (located in Henry County near Atlanta, home to rapid population and job growth) and Arlington, Texas (located in the center of the Dallas-Fort Worth Metroplex, a rapidly growing technology and manufacturing hub)
• Expanding our reach to more than 800 stores through a partnership with Wakefern, the nation’s largest retailer-owned cooperative, including brands such as Gourmet Garage, Shoprite, Fairway, The Fresh Grocer, and Dearborn Market

Pay-As-You-Go solar power

In her thesis, Moncayo notes that harnessing solar energy and converting it to off-grid battery power is not a new idea in Africa. She reports that the United Nations Environment Program claims that off-grid lighting solutions are “a multi-billion-dollar market”. At present, reliable and cost-effective Solar Home Systems (SHS) with 20-50 W solar panels that can power LED bulbs and charge a battery are widely available in the region. How are these affordable to the poor Sub-Saharan African population? Moncayo notes that off-grid energy enterprises have adapted their business models to suit their customers. These include Pay-As-You-Go (PAYG) or rent-to-own schemes that allow flexible access to solar energy for as little as 50 US cents per day. Moncayo reports that one of the best-known providers is BBOXX, a start-up founded in 2010 that has now sold over 85,000 systems, reaching 425,000 people, in over 35 countries. Such access to Solar Home Systems has been welcomed as they enable the poorest to save both time and money. Moncayo states in her paper that before they had access to these systems, the typical customer had to spend more money on kerosene for less lighting quality and travel nearly twice a week to charge their phone.

Lack of initial finance

The problem with the schemes currently in place is that they need initial finance.  Moncayo reports payback periods of about 18 months for each system. For a company to achieve financial stability, they need to sell fast and grow fast. However, even when they are able to expand quickly, they have difficulties to pay back short-term loans with their business proceeds. According to Moncayo, philanthropy, public financing, banks, private equity and venture capital have proven unable or unwilling to match Sub-Saharan Africa’s demands to finance off-grid energy. She investigates how impact investments are stepping up to contribute to fill the gap and help to get off-grid power to the masses. Impact investments are investments made in companies, organizations or funds that intend to create positive social and/or environmental impacts, while also attaining a financial return. Moncayo reports that in 2015, from the $16.1 billion supplied by impact investors in West and East Africa, $4.2 billion were dedicated to energy. She notes that most of these did not invest in off-grid options, but those that did are largely multilateral development banks, Development Financial Institutions (DFIs), impact investing funds and corporate impact investors. The support offered by these actors is now also getting ordinary investors interested in off-grid opportunities.

Impact investments are more than finance

Moncayo is also keen to highlight the main non-monetary contributions of impact investors. The first is their obvious contribution to the development and availability of off-grid energy systems. They attract new investors and connect them with providers, including those that are social-neutral. As impact investing is a cooperative, rather than a competitive sector, capital can be aggregated for co-investment, cutting transaction costs. In addition, impact investors can provide off-grid companies with technical assistance and help them grow their networks. Investors get involved in the governance of companies to help preserve their social objectives. Through the impact assessment of their investments, they have the information at hand to further improve the value proposition of enterprises. Overall, the introduction of impact investor capital and management practices strengthens and endorses the entire off-grid sector.

Energy for all by 2030

To attain access to clean energy for all, globally, by 2030, the OECD and the EIA, Energy For All- Financing Access For The Poor report (2011) stated that $48 billion needs to be invested each year. Moncayo notes that, if Sub-Saharan Africa requires 80% of all off-grid electrification, it would need investments of $5.6 billion a year. Based on figures supplied by Bloomberg New Energy Finance, Moncayo estimated that $188 million in impact investments were made in the Sub-Saharan African off-grid energy sector in 2015. This is just 3.3% of that required by the OECD Energy for All Case for that year. Based on projections for the increase in impact investments in the coming years, she predicts that by 2030, the impact investments dedicated to the off-grid energy sector in Sub-Saharan Africa will have the potential to finance 44% of the OECD Energy For All Case annual budget. Moncayo concludes that this is likely to be less than 1% of the estimated multi trillion-dollar impact investments predicted for 2025 by the Global Impact Investing Network. However, she notes that her analysis highlights the power of impact investors, who are emerging as engine for the global economy and key players in tackling the challenges that the world faces today.

By Mónica Moncayo Escobar – “Role of impact investing in financing access to energy for off-grid populations in Sub-Saharan Africa.

Join His Excellency Dr. Bashir Ifo, President, ECOWAS Bank for Investment & Development, Ben Good, Chief Executive Officer, Energy4Impact and other impact investors to discuss how to deliver affordable, reliable and clean energy to over 600 million Africans, faster, at the 3rd Africa Impact Investing Leaders Forum taking place on 25th – 26th October, 2018 in London. Register interest here

One of the stamps of approval to this framing of important social and environmental issues has come from the investment world, including major institutional investors such as Dutch pension funds now proclaiming that a major portion of their assets will require investment returns as well as a direct link to specific SDGs.

Mainstreaming ESG and impact investing

This endorsement by major global investors is laudable. In our view it represents another clear example of the mainstreaming of ESG (environmental, social and governance factors) and impact investing. However, it also presents a direct risk for cynicism by the beneficiaries of their assets if investors dilute the SDGs too much in their approach in order to link their investments to specific outcomes.

Therefore, we applaud and at the same time remain cautious as we look across asset classes and how to best link them to the specific goals identified by the UN. The most tangible asset classes to achieve demonstrable social and environmental outcomes thus far have been in alternatives as evidenced by green real assets or social impact investing in private equity.

Growing investor demand further driven by the SDGs

While impact investing and SDGs are still new on the horizon, investor demand is quickly growing and moving into larger, more liquid asset classes. For example, green bonds have provided larger tickets and liquidity for the measurement of SDGs such as Clean Water (6), Clean Energy (7) and Climate Action (13). The direction of travel is clear and the next phase of responsible investment evolution is impact investing.

The traditional area for ESG investors has been in public equities. For impact investing, it has been in alternatives. The demand for SDGs in public equities is now starting to emerge and will bridge these two worlds. In order to maintain integrity, products and services should be considered that go beyond a simple analysis of a carbon footprint compared to a benchmark. This will become the standard for client expectations, but will not necessarily meet the needs of sincerity around SDG outcomes.

SDGs create a doorway to impact investing in public equities

Two illustrations come to mind in how to make public equities relevant around SDGs and in line with an impact investing philosophy. If we take quantitative equity, one can imagine a portfolio construction process which focuses on holdings that can demonstrate how they are contributing to a lower carbon future through their products and services and business operations. Metrics such as carbon emissions saved and green share of portfolios can be used for this analysis. These are steps to demonstrate that it’s not just business-as-usual portfolio construction, and not just about following a low carbon index. This is active portfolio management towards an SDG outcome while ensuring financial returns.

Kathryn McDonald, Head of Sustainable Investing at AXA IM Rosenberg Equities, commented:  “We believe that publically traded equity investing can act as complement to traditional impact investing. The breadth of the publically traded market, and the capacity offered by quantitative equity investing in particular, allows asset owners to put significant AUM to work to really move the needle on impact goals.

“Looking carefully at several of the SDGs, we believe that we can build targeted, listed equity portfolios that speak directly to specific investor goals. Importantly, compelling financial returns are a must – without those investors will not stick with ‘listed impact’ approaches for long.”

So too, in a more conviction based approach, we can imagine a portfolio that has high active share and engagement as a key basis. A focus on both environmental and social impact with metrics and information provided by companies around access to improved livelihoods, clean water and improved healthcare allows to build a concentrated portfolio in public equities, particularly with a focus on the underserved and the developing world.

Ian Smith, Portfolio Manager at AXA IM Framlington Equities, added: “At Framlington Equities, we have developed the know-how to be able to adhere to what we believe will be the common requirements of a public equity impact fund in relation to monitoring impact metrics, promoting better disclosures and aligning to the UN SDGs.

“For many companies, there can be a strong symbiotic relationship between generating tangible positive societal change and meaningful long term shareholder value – we are looking to identify the companies that have business models and strategies that extol this. We need to be thoughtful when it comes to the many grey areas in impact investment decision making and this is where our deep understanding of and relationships with businesses are critical. We like to focus on who the end beneficiaries of a company’s impact approach are and how their lives are truly being changed. This framework helps us determine which companies fit into our impact portfolios.”

All of this shows that the arrival of SDGs has created a built-in framework for investors to connect the worlds of responsible investment and traditional investment in a meaningful and measurable way.

In order to ensure SDGs, impact investing and traditional asset management prosper, integrity, care and humility are needed. The ultimate goal is for asset management to bring more colour into the equation of money and done right, SDGs can be a tool across asset classes ranging from illiquid alternatives to highly liquid public equities to truly mainstream impact investing.

By Matt Christensen, Global Head of Responsible Investment at AXA Investment Managers (AXA IM)

Nine years since its inception, Yazhari reports that Beyond Capital is impacting 2.3 million people–1.6 million of which are women–with eight investments that are helping to provide healthcare, clean water, sanitation, energy access, and agriculture tools. We asked her for a closer look at impact investing, the risks vs. the rewards, tips for success, as well as her forecast for where it’s headed.

A Q&A with Eva Yazhari

Although small-scale solar providers focused on the rural off-grid market have been the darlings of the development world, they generate just enough electricity to power more than a few basic appliances such as light bulbs, fans, and televisions. These improvements are undoubtedly an important improvement, but the vision for energy access should embrace a more comprehensive and robust potential. Improvements in quality of life and productivity should be the centerpiece of the agenda for powering Africa. A sustainable vision is required to identify feasible, durable solutions. Unless government and industry stakeholders invest in larger renewable systems, we will continue to champion an unsustainable model of sustainable development.

While African governments have increasingly framed renewable energy as the linchpin of their climate change and development strategies, solar energy still remains largely dependent on public sector capital from sources like the World Bank and the African Development Bank. At present, Africa lacks sufficient investment to fund enough energy projects to achieve universal energy access by 2030. In 2015, the African Progress Panel found that current energy-sector investments in Africa are about US$8 billion a year—less than one-sixth of the US$55 billion per year required to meet electrification targets. And even those funds won’t meet the renewable energy sector’s financing needs.

According to a recent Power for All report, only 11 percent of World Bank energy access funding and 1 percent of African Development Bank funding went to decentralized renewables between 2011 and 2014. With climate mitigation funding in flux due to the U.S. withdrawal from the Paris Agreement, Africa’s solar industry must rapidly develop more capital-efficient ways to reach consumers outside of the grant-based or subsidized rural electrification model or risk future impediments to growth.

Solar companies providing subsistence-level energy to consumers with poor economic prospects have provided an important basis for the industry’s development. Investors betting on the off-grid rural market are right about the transformative impacts of models like M-KOPA, which enables customers to repay the cost of a $200 entry-level solar system over time. These systems provide the means for children to read at night, and they improve household health by reducing reliance on dirty fuels like kerosene. However, if these investors hope to generate long-term growth and improve economic livelihoods, solar systems must be able to generate enough output to power products like refrigeration, which improve food security, or irrigation and agricultural machinery, which enable productivity in the increasingly promising smallholder-led agricultural industry in sub-Saharan Africa.

Likewise, water heating is a staple and important aspect of daily urban living. Enhanced access to electricity shouldn’t just be a stop-gap solution: it should provide a means of reducing poverty and create better conditions for healthier, more financially stable lives in the long-term. As governments and development partners work to catalyze Africa’s green revolution, energy generation must play an essential part of the story. In Kenya, for example, energy accounts for nearly 15 percent of agricultural input costs. Harnessing enough energy to enable customers to expand their discretionary income is a critical path to improving the customer experience while also helping the energy industry’s profit margins—everybody wins. Electrification efforts that focus solely on basic solutions will not uplift the continent as a whole.

For renewable energy to create scaled impact, greater focus is needed on urban and peri-urban locales, which are often neglected in the race to power Africa. The sheer number of customers in urban areas means that efforts to improve electrification among all residents will reduce marketing and distribution costs. Although the electricity deficit is most stark in rural villages, the continent’s most developed cities from Nairobi to Johannesburg also confront irregular power, which, given the rapid urbanization trends in Africa, will become an ever-greater problem as more slums spring up on the urban periphery.

According to the Honourable Akinwumi Ambode, Governor of Lagos State, nearly 86 people enter Lagos every minute of the day—a rate 10 times that of New York. As new settlements crop up, the grid has yet to keep pace with the scale of development. Because the cost of solar power has gone down by 80 percent since 2010, renewable energy solutions have become an increasingly appealing option to expand access to energy in urban environments, the primary drivers for Africa’s economic growth. In these environments, community-level mini-grids and individual solar home systems are models that can deliver higher returns for customers and solar providers alike. Expansion of solar provision in urban areas can subsidize the costs of expansion of solar power in rural communities, and translate into a more commercially sustainable approach to achieve universal and, equally as important, reliable electricity access for more Africans.

As hubs of innovation, urban areas also offer more opportunities to experiment with various types of solar solutions on a large scale. It is hard to imagine testing a scalable power system in a small village—distribution and maintenance would be expensive due to infrastructural and access issues, and piloting a scalable system in a population-limited area is difficult.

Urban settings are ideal testing grounds because research shows that innovation in urban areas grows at the same rate as populations because it increases more opportunities for personal interaction and leads to exposure to new ideas. Directing more investment towards urban energy solutions can improve local resilience by helping balance the over-stretched power grids found in most African countries, and facilitating nationwide energy efficiency.

Expanding electrification in rural Africa is an important step towards building an inclusive future, but the solar industry’s preoccupation with last-mile off-grid solutions will not deliver transformative growth for the continent. Empowering entrepreneurs at a scale that enables them to grow their businesses and generate more economic employment will require firms and investors alike to balance urban with rural concerns, and immediate energy access with a longer-term, sustainable vision.

By Ademola Adesina is the Founder and CEO of Rensource, a West Africa-focused distributed energy services company.

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