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Financial profit and nature-based economy—family, friends or foes?

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We are the first generation to feel the sting of climate change and we are the last generation that can do something about it.”

– This statement was quoted several times by speakers during AGES, sometimes attributed to President Barack Obama or Vice-President Al Gore, but it was in fact first said by the US Governor of Washington State, Jay Inslee.

The role of the private sector is key in catalysing investments across local and international stakeholders to enable Africa’s transition to a green economy in a just and inclusive way. This was an important take-away from the recent Africa’s Green Economy Summit (AGES) in Cape Town.

The term “impact investment” was used often during discussions, with many experts mentioning how it influenced their broader strategies. More than 40 financial institutions were represented this year, with some 30 projects on the “pitch stage” adding to the palpable energy of the second edition of the summit.

Not every dollar is green
There were several sessions focusing on how “green deals” are put together and Dr John Roome, World Bank Director and well-known sustainability expert reminded the audience that “not every dollar is green.”

He added: “How do you blend it? In the end you need people and institutions to develop finance, policy and deals.” Many experts reported on the successes of PPPs, “as no one stakeholder will solve problems independently.” [Read full article of summit highlights here.]

“It’s our responsibility”
Carl Roothman, Sanlam Investments CEO highlighted the importance of social impact in investment and said FDI on the continent would only happen if potential investors understood the context of where they are investing.

He explained: “It’s very important these projects create jobs, build growth, build schools and invest in communities. We started on this journey of impact investment a few years ago. Everything we do in South Africa, and indeed Africa, we measure the impact, the jobs we create, our impact on climate, it’s incredibly important. It’s our responsibility.” [Read more here.]

“Finance gap no small figure”
The African Union also emphasised the role of the private sector in climate change investments. According to Harsen Nyambe, Director, Sustainable Environment and Blue Economy Directorate at the African Union Commission, “To be able to attract private sector finance, which is what we need to be able solve the issues of climate change, we need to create conducive environments” Nyambe delivered the keynote address on the opening day.

He added: “According to the Africa Development Bank (AfDB), private sector financing for climate action and green growth in Africa will require approximately $230-billion annually to be able close the financing gap by 2030. That is no small figure.”

Nyambe said the continent had to ensure that policies were in place “that have stable, economic conditions that will be able to guarantee security to these investments.” [Read full article here.]

Derisking to bring capital markets in
Junaid Ahmad, VP of Operations at the Multilateral Investment Guarantee Agency (MIGA) at the World Bank explained how the agency, which was created in 1988, focuses on green economy financing solutions, specifically the role of contingent liability. “What we need to do is figure out how to leverage capital markets, how to bring in FDI into development and into the green transition.”

“And that is what we, MIGA, do. We derisk, and by derisking, we bring in private capital markets into development. We derisk political, policy, regulatory and contractual uncertainties. We derisk for equity and debt finance.”

“How effective have we been? For every dollar that we guarantee as MIGA, we bring in $16 of private finance into development.” [Read more here.]

Cannot win if you leave people behind”
Zambia’s minister of Green Economy and Environment reported that the country was already seeing the benefits of implementing a “green strategy.”

He said the country not only needed to transition its economy to a greener one, but “also to an economy that is socially inclusive, you cannot win this war if you leave your people behind.” The minister added that “thus far, the overall performance of the country has grown from 1–2% to about 4–5%.” [Read more here.]

Local and global partnerships
During a fireside chat between Cape Town’s Executive Mayor Geordin Hill-Lewis and Todd Gartner, Director: Cities4Forests and Natural Infrastructure at the World Resources Institute (WRI), the mayor explained that the city was determined to beat loadshedding, including through partnerships with local businesses and residents. Said Hill-Lewis: “Businesses in the city have been able to get cash for their power since June of last year, and we have just opened applications to residential users too. Already we’re seeing a very encouraging take-up.”

Gartner stated that partnerships are key “to meet the ambitions of a thriving and resilient economy across Africa is going. And those are not just global partnerships and partnerships with investors, it is about inclusive opportunities with local communities and local cities.” [Read the full article here.]

Impact of blended finance
Can blended finance deals be profitable for private sector investors, while at the same time having the impact on communities with purposeful and sustainable development? And does this affect the ability to raise capital? This were some of the questions that were asked in the session on Unlocking Right-Priced Capital.

“I think before I went to business school, I was a bit of a crazy idealist. Then I went to business school and I became more of an idealist,” was the reply of Baafour Out-Boateng, Investment Director at KawiSafi Ventures in Ghana.

He added that when he returned to West Africa to work in investment, “that’s when the rubber hit the road, right? You cannot generate sustainability without sustainable returns.”

Fellow panellist Iraj Abedian, who calls himself an impact investor and is the founder and chairman of Pan-African Capital Holdings, agreed. “I am even more of a hardliner than Baafour. I say business must be business. In the course of doing business there must be a positive, measurable and collectable impact.” He said that securing profitability impacts job security and job creation.

Abedian focuses on improving the use of technology for the greenification of the agriculture sector. [Read full article here.]

PPPs for water sector
The session focusing on Uber Water Resilience heard that private-public partnerships (PPPs) are popular for accessing private capital for water projects.

Over 220 million Africans lack secure water due to insufficient investment in resilient infrastructure. Funding is far below the required annual $64 billion, as estimated by the AfDB for water security by 2025.

“Why is water being underinvested?” asked Kerry Max, Deputy Director Partnering for Climate, International Development Partnerships and Operations, Global Affairs Canada. According to Max it is because both water and climate change adaption are seen as non-income generating.

“Water is seen as a public service. So, it is very hard for private investors outside of the PPP structure to get a line of sight on an income stream.

“That is why I am thumping this nature-based solutions bible in this room right now, because I think if you marry what you do in water with other climate agendas, such as pollution and biodiversity, and you add nature-based solutions into the mix, you end up having revenue streams that might make it far more appealing as an investment.” [Read the full article here.]

  • This article first appeared in the GREEN ECONOMY EXPRESS, issued by Africa’s Green Economy Summit.

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