NATURE INVESTMENT: “We started a $2-billion fund to rehabilitate and reforest 126 million hectares stretching over 34 African countries”

Exclusive interview with Frannie Léautier, Senior Partner and Chief Executive Officer at Southbridge Investments. Dr Léautier is a Tanzanian national, residing in the USA. She is one of the keynote speakers in the opening session of the upcoming Africa’s Green Economy Summit from 21–23 February 2024.

Let’s start with some background on you and your work at Southbridge Investments.
Hello everyone, I’m Franny Léautier. I’m a senior partner and CEO of Southbridge Investments. I came to Southbridge by way of a long career in the multilateral development banking business, starting at the World Bank where I spent 15 years, and then working at the African Development Bank, then at the Trade and Development Bank, and then at Southbridge Group where I lead Southbridge Investments.

In between I launched my own fund to invest in small and medium enterprises and I also had a firm that was involved in risk management. It’s a real pleasure to be here today because my journey to Southbridge Investments really in a way is very similar to what we on the continent are going through in terms of transformation and the importance of the green economy and nature finance.

Please tell us more about the green investment projects that you are currently involved in? What are the main challenges and opportunities?
Green investment plays a very important role in our firm. And we actually range from what we would call climate finance to what we are now also engaging in, nature finance. And therefore, green investments are straddling those two spaces.

The first area that I’m very excited to talk about is our activities in partnership with the World Resources Institute with anchor investments from the Bezos Earth Fund to actually rehabilitate, reforest, and improve the quality of land and soils in Africa at the tune of 126 million hectares, stretching over 34 countries. We are starting with three priority landscapes: the Rift Valley, which includes countries like Kenya, of course, Ethiopia, Tanzania, all the way to Mozambique; the Coco Belt, which includes countries like Ghana primarily, but also the neighbouring countries of Burkina Faso and Togo and others who grow cocoa, like Côte d’Ivoire; and then the Ruzizi Valley, which includes countries like Rwanda, Burundi and the Democratic Republic of Congo.

This is a $2 billion fund, and what is unique about it is the way in which it leverages philanthropic capital to attract market capital. That’s one of the exciting features is innovation in finance. The other exciting feature is the impact on the community. Even though we’ll be working with private sector, governments and commercial enterprises etc., because when you look at the pipeline that we’re developing is targeting, we will be targeting impacts at the community level. These impacts include, first of all, reforestation and land restoration, which brings value not only to agricultural productivity and soil preservation, including preserving soils from erosion and other factors, but also delivers carbon sequestration value, which is important for the whole world.

Second, the activities we invest in generate jobs, because these are labour-intensive activities like tree planting, rehabilitating forests and taking care of the soils. But one element that I’m very excited on the labour-intensive side is for the higher-end skills as well, which is capturing the carbon sequestration value tree-by-tree and uploading that information through satellites and combining digital devices, handheld devices, with satellite data, doing data analytics, and coming up with a trend and capability of carbon sequestration at the tree level. This generates jobs for young people who are interested in technology and data analysis but also gives value to young people who would go around collecting information and engaging with the communities and nature in doing so.

The third aspect that is highly innovative is the way in which it is targeting country-wide solutions, but at the same time bringing sustainable businesses that would be able to go beyond the startup environment, because Africa overall needs $10 billion in order to deal with all its reforestation and land restoration needs. We’re starting with a small portion of $2 billion, even though that’s a big number, we’re raising it in a sequential manner, working with development partners.

The one development partner I’m very happy to say we are working with is the Arab Bank for Development in Africa (BADEA), who are willing to leverage their balance sheet in order to raise capital from the markets to be invested in these 34 countries for restoration and reforestation. Another partner that we’re working with brings the ability for Africa to connect itself with similar investments in Europe and that’s the company called Euraseo, and with them we are building a private sector fund that will crowd in investors from Europe and other regions of the world to bear into a portion of Africa’s land restoration and reforestation needs.

Finally, we are partnering with entities that are focused, for instance, on mangrove restoration, including the World Economic Forum and the Africa Carbon Markets Initiative, because once we preserve those forests, mangrove forests are key in their value for sequestrating carbon. And likewise, we have to evolve along with the development of carbon markets in Africa. So the Africa Carbon Market Initiative is very critical within this.

Another green investment I just wanted to talk about briefly is the investment in a fund that we recently launched called the Energy Go-Getters Fund. This is a fund that’s focused on bringing renewable energy solutions and straddling between the venture capital space and the private equity space, because that’s the hardest jump for opportunity within Africa where you find a lot of VC type investment taking place, but you also have private equity at the higher scale, but the stretch between venture capital and private equity is still quite narrow and we are then bringing the solutions to bridge that gap. We are looking at companies that are delivering unique value in the renewable energy space, stretching from energy generation, metro grids and mini grids, but also looking at e-mobility and other solutions that provide supply-side solutions have a big impact in generating and responding to demand for energy and do so in a way that generates jobs, reduces carbon and provides access to energy for different productive uses. We’re very excited about that fund.

What can African governments be doing with regards to enabling green economy investment?
In order to succeed in green investing in general, and particularly when it comes to climate and nature finance, African governments have a big role to play. If we start, for example, with the Vumbuzi Impact Fund, as I mentioned, which looks at reforestation and land restoration, we have created a foundation called Vumbuzi Impact Africa Foundation that is registered in Kigali in order to give a 20– to 30-year view on reforestation and land restoration, whereas the investment cycle will be 5 to 7 years. So matching this with the 5- to 7-year investment cycle with a 30- to 40-year vision on the longer term impact that the foundation would focus on also relies on actions of governments in order to first of all secure land rights, because you’ll be growing trees and restoring forests on land that has to have its land rights be well-defined and stable and being able to have the ability to trade carbon, which is also a decision that governments have to make, including on the regulatory side. In addition, being able to get benefits that impact directly on communities, which has to do with transfer of revenues and profits within a country setting and has an impact also on the way taxes are set and other factors.

Also governments themselves have a big role in bringing end-to-end solutions in their own countries. For example, at COP28, we will be talking to countries that are within these three priority landscapes and we anticipate some announcements to be made by the countries that are in those landscapes, because they are coming with country-wide solutions which we are supporting through this fund to deliver. So African governments have to be there on the policy side. They have to be there on the support to different levels of investing that impact communities, commercial entities and public sector entities. They have to also provide country-wide perspectives and visions for their own view on how reforestation, land restoration has to take place. And finally, they have to ease the way and pave the way for carbon markets to evolve.

So there’s a big role for governments in that space and we have a lot of governments that we are already working with but we look to engage even more because one of the features of this Vumbuzi Fund is that it’s actually meeting the targets set by 34 countries and their governments called the AFR100 Initiative, this is an African Union initiative, that really provides the platform for us to be able to successfully run a fund that then targets and impacts in those priority landscapes that I mentioned.

What keeps you excited about this industry?
I’m very excited about green investing because it is evolving fast and becoming even more exciting. For example, we’ve gone from talking about green investments, we talk about climate finance, and now we’re talking about nature finance. The advantage then of looking at nature more broadly is the ability to bring in not only innovation in finance, but also innovation in execution and creation of assets that then can be brought to the market for trading.

So through this space you are really activating economic systems very broadly through the financial sector, but also through trade, because carbon trade is one of the key elements. And then finally, you get innovation in technology because we’re using digital technologies for getting to reach the very small holders, but also for assessing the carbon sequestration value and keeping track of the sequestered carbon over time so that investors in the space can actually know how their assets are doing, and that all depends on technology, whether it’s handheld technology, data analytics and AI, satellite-based technology, digital platforms and so on.

Then the other reason that I’m very excited about this space, it also is open to innovative business models and models that allow you to execute in an effective way. The business model side, for example, the ability to buy down the cost of capital by properly blending philanthropic capital with commercial capital, and through a business model that allows you to do that, you are able to stretch and access more sources of funding than you would have otherwise.

On the execution side, the ability to structure execution that taps into the tremendous value that indigenous people and communities bring in terms of caring for forests and caring for land, but also with the investor mindset that looks at this as an asset that can improve in quality and value and therefore deliver returns to those who are willing to take a risk in the sector. That excites me a great deal.

You are a keynote speaker in the opening session of the next Africa’s Green Economy Summit in February 2024. What will be your message at the event?
I will be doing a keynote speech at the next Africa’s Green Economy Summit in February 2024, and I hope that during that summit I would leave the participants with three key messages. First, Africa is a wonderful place to be innovating around green investing, because there are many untapped opportunities and those present a space in which different types of innovations can come in to deliver on the solution.

Second, I’ll be sharing a message that this is not just wishful thinking, it’s actually happening on the ground and share some examples of what’s happening in Africa, not only through work we are doing at Southbridge Investments, but also work that’s happening in other areas. For example, I chair the board of FSD Africa and FSDAi, which is the investment arm of FSD Africa. Nature finance and green finance from that organization is really terrific and I’m very much looking forward to sharing some examples from that. But equally, I chair the investment committee of GEAPP, the Global Energy Alliance for People and Planets, that is really focused on renewable energy solutions across the world, Africa, Asia and Latin America, and I’ll be bringing solutions that GEAP has brought to the space to that conference.

So those are the major areas and messaging that I would like to bring with concrete examples. And finally, I’d like to excite investors to look at Africa in a new way and look at this space of nature finance and green investing in Africa because it is a hot area and I think it has great opportunities. So those are the three key messages I hope to bring to in February 2024 at Africa’s Green Economy Summit.

Anything you would like to add?
I’d only like to add a couple of things now, because I think I have given you a sense of what we are doing, where Africa is and what is exciting in the space, and to say that I am very hopeful that COP28 will deliver innovation, will deliver financing and will deliver partnerships that will take Africa even further forward in green investing, climate finance and nature finance. And I hope that the work that we are doing in Southbridge Investments and how we are featuring it, including one of the very exciting things that we’re doing when people come to the space that we will be co-offering in the green zone at COP28, you will be able to participate in virtual reality that puts you in an African forest. And I hope people come visit our space and be able to see and feel for themselves to virtual reality what it means to restore a forest, what it means to preserve a forest and the value that these assets bring, not only to Africa, but to the whole world, and to do that in a fun way that will be memorable. So thank you very much for this opportunity. And I look forward to seeing you on the internet waves, on the radio waves and podcasts, but also at COP28.