Funding new models of green finance for the African continent creates channels for private finance to flow into previously neglected areas of climate action and conservation.
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Campaign: Climate
04 October 2022, CAIRO – Today, the British Embassy in Egypt hosted an event marking “One Month to Go to COP27”, celebrating the UK and Egypt’s growing green partnership.
The event marked the launch of the UK’s Climate Finance Accelerator in Egypt, a new programme which will help low-carbon projects access the funding they need. Attendees also witnessed the signing of a Memorandum of Understanding (MoU) between FSD Africa and the Egyptian Financial Regulatory Authority (FRA), to help make the financial sector in Egypt more sustainable.
The event began with opening remarks from British Ambassador to Egypt Gareth Bayley, followed by a keynote speech via phone conference from Minister of Environment Dr Yasmine Fouad, who said that the Climate Finance Accelerator is essential and critical mechanism for financing climate change.
The event also included a panel discussion on climate finance moderated by the CFA team. Panellists included Dr. Dalia Abdel Kader, Chief Sustainability Officer CIB, as well as other experts in the field.
The Climate Finance Accelerator is already making a difference elsewhere in Africa and around the world. It is great news that Egypt will now feature as part of this innovative approach to help low-carbon projects secure investment. Climate financing is one of the key demands for COP27, and with the introduction of such a programme in Egypt, we show that we are not only listening, but also taking action. I am also particularly proud to witness today the signing of the Memorandum of Understanding between FSD Africa and the Financial Regulatory Authority to help make the Egyptian financial sector more sustainable. Such achievements showcase the real strength of the UK and Egypt’s growing green partnership.”
Gareth Bayley, British Ambassador to Egypt
NAIROBI, Kenya, April 22, 2022 – Today BFA Global and FSD Africa announce the creation of a first-of-its-kind venture launcher, TECA (Triggering Exponential Climate Action). The launcher will create fintech startups with solutions that enable climate resilience in the most vulnerable communities around the world, with an initial focus on Africa. With FSD Africa’s $3.3m investment over 4 years, TECA will support pioneering entrepreneurs from idea stage to launch, expanding the pipeline of investable opportunities in the fintech for climate resilience space. FSD Africa’s support will also accelerate the ecosystem around the ventures by engaging with multiple stakeholders to unlock capital, attract talent and create proof points to spur more innovation for climate resilience.
At FSD Africa, we believe that a strong, fair and accessible financial system is crucial to a sustainable future for Africa’s people and its environment. In particular we believe that finance can play a major role in tackling climate-vulnerability and that by harnessing the power of fintech innovation we can help address market barriers to building out much needed climate resilience solutions. The challenge for Africa is that this innovation is stifled by a weak ecosystem, reflected in low early-stage investment. Our partnership with BFA Global on TECA aims to address this by originating, investing in and growing a pipeline of climate resilience ventures, while helping to influence and expand the pool of investment into this space
Juliet Munro, Director, Digital Economy at FSD Africa
TECA will help to create pipeline at the nexus of fintech and climate resilience by backing entrepreneurs with bold ideas that build the resilience of vulnerable communities and natural ecosystems. We are looking for top talent that can push the boundaries in solving these large systemic challenges. By helping to launch new ventures responding to these emerging issues, our vision is to help create an ecosystem abundant with innovative solutions fortifying the climate resilience of vulnerable populations and the planet.”
David del Ser, Chairman and Chief Innovation Officer at BFA Global
When it comes to the big debates about climate change, Africa is the forgotten continent. It receives less than 3% of global climate finance and yet 30 out of the 40 most climate-vulnerable countries in the world are in Africa. It contributes the least to global warming and yet extreme weather events are growing in both frequency and severity with a shocking knock-on impact on biodiversity loss.
However, while we tend to see Africa merely as a victim of climate change, this ignores the fact that could be a large part of the solution as well.
From the forests of Gabon to the Congo Basin in Central Africa, the continent is rich in natural capital while countries like Kenya have been leading on the shift to green energy with 90% of its energy production already in renewables. Although progress has been too slow and fragmentary, African countries have been getting themselves ready to receive a much bigger share of global climate finance. Once this is invested in green projects, it will benefit the whole planet.
Kenyan President Uhuru Kenyatta’s visit to London has highlighted Kenya’s role as a leader in green finance. The country has already removed tax on interest on green bonds. It has drafted a green fiscal policy incentives framework covering the entire whole economy and is now considering a carbon tax as well. In addition, Kenya’s inaugural sovereign green bond is now imminent.
This is significant in several ways not least that it is about a new type of relationship between sub-Saharan Africa’s 3rd biggest economy and the UK; one based on investment rather than aid, whilst at the same time showing how smart, targeted British support, which has been crucial to the development of the green bond, can help unlock that investment.
There can be no better symbol of that new relationship than the agreement, announced between the City of London and Nairobi’s International Financial Centre (NIFC), backed by one of the UK’s biggest financial institutions. NIFC has been established to make it easier and more attractive for firms to offer financial services and related activities in Kenya and the region, reinforcing Kenya’s position as a hub for investment in the region. The hope is that the NIFC will provide a huge boost to investment in Kenya, and it is expected that an increasing amount of this will be from the UK and green.
For UK investors who may have shied away from what they regarded as risky investments, green bonds offer an attractive route to investing in developing markets because of the greater transparency requirements they need to be verified as genuinely green.
For Kenya and other developing countries, green finance is attractive because of the huge growth in ESG funds chasing investment opportunities. This is particularly important at a time when these countries are having to deal with the financial impact of the Covid pandemic.
If they are to truly capitalise on this opportunity, they will need to provide assurance to investors that they can offer a stable, regulatory environment. Having a clear tax and contract enforcement framework is vital. But they will also need to demonstrate their commitment to a green economic development pathway.
One of the biggest challenges for Kenya and other African countries is to create investment grade projects that are large enough to absorb the capital that is already available. For instance, a large institutional investor in the UK might look for a minimum investment size of $50-150m but they might only be allowed to take a small proportion of the total capital being raised. These two factors together would imply a total deal size that is huge by African standards.
So more effort needs to go into, first, supporting green project transaction development, and, secondly, creating the guarantee structures that will help to get the project financing over the line.
We also need different conduits to pool institutional capital and give big investors diversified exposure to a basket of green projects, so that Africa can get the capital it needs to build a sustainable future. That is where initiatives like the NIFC can play a big role in ensuring that Africa is no longer the forgotten continent but a leader in the green finance revolution.
This opinion piece was originally published in the print version of the East African on 30 July 2021.
Th first-of-its-kind partnership will equip Africa based policymakers, regulators, academics, and business leaders with the knowledge they need to secure financing and tackle the climate crisis.
NAIROBI, 29 June 2021: FSD Africa has launched a first-of-its-kind climate finance training programme, designed to expand access to funding for climate mitigation and adaptation on the continent.
Developed collaboratively with the National Treasury and Planning – Kenya, the training will be delivered through a coalition of global partners, including the University of Cambridge Institute for Sustainability Leadership (CISL), the International Institute for Environment and Development (IIED), and the Eastern and Southern Africa Management Institute (ESAMI).
The training is focused on giving regional policymakers, regulators, academia, business leaders and financial market professions the knowledge needed to access climate finance from global sources and fast-track capital mobilisation for projects across Africa.
The training programme will target 100 trainees annually with the first cohort of 50 joining in August. A subsequent class will be held in September. Through a combination of knowledge building and targeted investment, FSD Africa aims to help firms, regulators, and government ministries in Africa and beyond to better identify, understand, manage, and monitor key climate and environmental risks and opportunities.
“This is an exciting opportunity to partner with decision-makers in financial markets from the public and private sectors. Committing to raising awareness for the development of appropriate policies and financial products is crucial if we are to reduce the cost and impact of climate change in the region.”
Mark Napier, CEO
Enrolment is open. To learn more visit https://esami-africa.org/climatefinance
We have supported the Moroccan Capital Market Authority (AMMC) to publish best practice guidelines on gender bonds. The work is the initial phase of a wider cooperation agreement between the two institutions to support projects advancing gender equality and climate change. Through the support and technical expertise of FSD Africa, the AMMC built on its previously published guidelines for green, social and sustainability bonds to develop specific guidelines on gender bonds – a first for the North African region.
The wider FSD Africa-AMMC partnership will see FSD Africa support the AMMC to roll out initiatives that facilitate the issuing of gender and green bonds. Gender bonds are bonds that support women’s empowerment and gender equality by financing activities supporting these causes, while green bonds finance projects addressing climate change and sustainability.
Women’s empowerment and climate change are priority pillars for Africa’s sustainable development, which are both in need of additional fundingnvestment. Mobilizing greater global financial flows through green bonds and channelling these towards green investments in Africa is critical.
This year marks an especially pivotal year for FSD Africa’s green finance work in the lead up to the flagship COP26 Climate Change Conference in the UK this November. Here, the world’s decision-makers will convene to discuss climate change globally and in Africa, presenting an opportunity for Africa to play a more important role in addressing global climate change and to secure much needed green finance flows to achieve this.
To support the AMMC’s capacity to issue green bonds in Morocco, the FSD Africa partnership will provide Moroccan regulators and green bonds stakeholders with training on the ins and outs of green bonds and also advise a pipeline of green finance transactions in consultation with financial sector stakeholders.
Morocco is a pioneering financial market in North Africa that has already issued five green bonds. Building capacity to issue more green bonds can therefore play a crucial role in demonstrating the viability for green bonds in North Africa and the wider continent. This initial phase of work is expected to catalyse the issuance of more gender and green bonds in North Africa.
Africa’s support under the partnership will be jointly funded and delivered by the FSD Africa Capital Markets and Strategy Teams.
Nairobi, 3 October 2019: Acorn, a Kenya-based real estate development company, has successfully issued the country’s first certified green bond, raising KSh 4.3 billion bond for the construction of environmentally-friendly student accommodation in Nairobi.
The five year bond will fund the construction of purpose-built accommodation for almost 5,000 university students across Nairobi. The construction will meet international green building standards for water, energy and construction materials, ensuring lower operation costs and a low-carbon impact over the long-term.
Today’s announcement is a landmark moment for the Green Bonds Programme Kenya, a partner initiative between Kenya Bankers Association, Nairobi Securities Exchange, Climate Bonds Initiative, FSD Africa (funded by the UK Aid from the UK Government) and the Dutch Development Bank FMO.
Launched in March 2017, the Green Bonds Programme Kenya encouraged the private sector, regulators and donors to work together to lay the foundations for a robust green bond market in Kenya; developing policy, conducting market research and providing critical technical training for issueinvestors and regulators.
A key focus for the programme has been to instil investor confidence by developing frameworks to ensure local green bonds meet international certification standards, while investing in projects which provide sustainable solutions for local challenges around food security, waste management and energy. The Acorn bond is certified under the Climate Bond Standard, which ensures it genuinely contributes to reducing carbon emissions. It is also the first Kenyan corporate bond rated by an international ratings agency and the first with a guarantee.
Research funded by the Green Bonds Kenya programme, which was released last year, revealed US$1 billion of green investment opportunities across Kenya’s agricultural, manufacturing and transport sectors alone, over a five to 10-year period.
Global appetite for green bonds continues to increase, with the market expected to grow by 20 per cent this year to reach US$200 billion in value, according to Moody’s. This is the third green bond to be launched on the continent this year; in April Nigerian-based Access Bank bond raised US$41 million to fund mitigation projects and in May Nedbank raised a green bond focusing on renewables.
In addition to tapping into growing international and domestic demand for green investments, the bond represents an important milestone in Kenya’s transition to a low-carbon economy and national vision of being a centre of financial excellence in the region.
Speaking at an event celebrating the bond closing, British High Commissioner to Kenya Jane Marriott said:
‘I am delo help mark the arrival of East Africa’s first ever green bond here in Kenya today, which has been delivered with support from the UK.
This brings together two of the UK and Kenya’s partnership priorities: strengthening our economic partnership and working together to respond to climate change.
This bond will result in Ksh 4.3 billion supporting a Big 4 Agenda priority, investing in affordable, environmentally friendly housing for 5,000 students in Nairobi. This is great news for young Kenyans continuing their educations, and good news for the planet we share.’
UK Secretary of State for International Development Alok Sharma said:
“The UK is mobilising private sector investment to help African nations make the most of their enormous potential. We are leading the way in the listing of green bonds, with over 100 bonds listed on the London Stock Exchange.
“The growth of the green bond market in East Africa is supporting vital climateinfrastructure and helping provide 5,000 students in Kenya with environmentally-friendly, affordable housing. I look forward to building on this success at the UK-Africa Investment Summit next year.”
CEO of Acorn Holdings Ltd Edward M. Kirathe said:
“Acorn is delighted to have successfully pioneered the issuance of Green bonds in Kenya. We are truly grateful for the unprecedented support we have received from UK DFID supported entities – especially GuarantCo and FSD Africa without which it would not have been possible to bring this bond to Market.”
Mark Napier, Director, FSD Africa said:
“FSD Africa congratulates Acorn and all those involved in the Green Bonds Programme Kenya on this achievement. We are proud to have played our role in creating the standards that will enable Kenya to contribute to the massive growth in sustainable investment that we have seen across the gl
There is much talk lately about blended finance, the use of capital from public or philanthropic sources to increase private sector investment for sustainable development. I was on a panel earlier this year when one of the speakers described it as ‘the trampoline that can give you the bounce needed to launch.’
Smart deployment of blended finance not only provides early capital to sustainable solution but can guarantee long-term financing by attracting private and institutional investors.
FSD Africa Investment’s form of blended finance, development capital, is designed to invest in untested, breakthrough ideas that we believe can have a transformative impact on the continent’s sustainable growth. Our investment works to take early stage risk, allowing other sources of risk capital to invest in high-impact financial sector intermediaries and business, alongside us. Why is this important?
Africa needs investment capital with different risk/return profiles
Reaching the S require private and institutional capital to invest in structures that achieve development outcomes in a financially sustainable way.
We invest in high-potential businesses that are often deemed too risky for commercial investment. The ‘trampoline effect’ makes it easier for commercial capital to flow to ventures that now match their risk/return profiles. For example, our investment in <a”https://fsdafrica.org/programme/mfs-africa/”>MFS Africa, a remittance payments provider, enabled them to close their Series B round, and grow to raise capital in future funding rounds.
African SMEs need early stage risk capital
For investors seeking returns, Africa is a continent of opportunity, but also high risk. Medium and SMEs account for 90%1 of Africa’s businesses and contribute to 40% of GDP, as well as creating 80% of the continent’s employment. The reality, however, is that the majority of African SMEs are in the early stages of their development, with investment needs between USD 50,000 and USD 500,000, but struggling to access capital to expand and grow into larger and more sustainable companies as they are deemed to high risk.
Our mandate is to change this perception, by testing new and alternative financing structures that can make investing in Africa’s SMEs more attractive to investors.
Africa needs investments in businesses that will increase access to basic services
The majority of people in Afrnot have access to affordable health services, opportunities to save for old age, safe water and clean energy or housing. With a projected population of 2.4 billion by 2050, the need has already surpassed the ability of governments and development finance institutions to address this crisis.
FSD Africa Investments development capital is critical to engaging the private sector, as well as institutional and impact investors, to fund businesses and products that can expand access to basic services for everyone. For example, we are already investing in an affordable housing finance company and a micro-pensions start-up.
Africa needs more private sector solutions for climate change
Millions of vulnerable people are falling into poverty as a direct consequence of climate change. Extreme climate conditions are affecting livelihoods – with loss of property, income, access to clean water and a safe environment. Trillions of dollars of investment are needed to combat climate change. We need to move quickly towards renewables, sustainable agriculture and energy efficiency.
We deploy development capital to mobilize financial resources into financial platforms and solutions to mitigate the causes of climate change and to adapt to its effects, reducing its impact.
Africa’s needs to harness its own sources of capital
Foreign Direct Investments to Africa have been on a downward trend over the last five years, falling from USD 74 billion in 2013 to 42 billion in 2017. Yet, Africa has large pools of its own capital through savings, insurance, pensions contributions but very little of thisoney finds its way back to the real sector or into alternative asset classes, such as private equity funds. Finding investment platforms that use blended finance structures to manage the risk/return profiles would support a better allocation of this capital to the real economy.
Unlike many development finance institutions, we have a primary mandate to drive impact, which is secondary to the need to create return on our investments. We invest in order to drive impact and create solutions to the most pressing challenges facing Africa’s financial markets.
By stimulating and increasing the flow of commercial and institutional capital into financial firms and funds, we’re ensuring that Africa’s financial sector can serve its local communities and economies in the long-term, reducing the need for development funding in the future.
<cite”blockquote-source”>1The Challenges and Opportunities of SME financing in Africa, London Stock Exchange Group,
Opinion article originally published on Devex.
One of climate change’s great injustices is that the worst affected countries are the ones that have contributed least to the problem.
In 2015, the world coalesced behind the Paris Agreement on climate change in an effort to transition to a low carbon future. And while much attention has been on the United States’ decision to withdraw from the agreement, many African governments have been stepping up.
Following the African Union’s lead, Ghana, Ethiopia, and Kenya, among others, have all factored climate change into their national development plans. And it is easy to see why these African nations are approaching climate change with earnest given the danger climate change presents to the continent. Cyclone Idai, for example, left incalculable destruction across three countries last month, an unfortunate reminder of the devastation climate change could have on the continent.
Trillions of dollars of investment are needed to combat climate change. And while the Paris Agreement does have funding mechanisms to support developing countries, these funds can only go so far.
Moreover, unlike the world’s primary greenhouse gas emitters, developing countries in sub-Saharan Africa need to encourage growth without fueling emissions.
Take electricity: Sustainable Development Goal 7 states that everyone should have access to affordable and reliable electricity by 2030. Yet, in a region where more than half the population still does not have access, governments need to improve access and reliability without turning to high-emitting power sources such as coal.
The role of green bonds
A solution to the crisis may lie in green bonds, which allow issuers to raise money specifically for environmentally friendly projects, such as renewable energy or clean transport.
This year, analysts predict the green bonds market will grow to $200 billion, a 20% increase from last year and a significant jump from 2016, which saw $87 billion raised. But while the global market continues to grow, there are fewer bonds available across Africa.
Most of Africa’s green bonds have been issued by the African Development Bank, which has raised over $1.5 billion since 2013. While Nigeria issued a $29.7 million bond to fund solar energy and forestry projects in December 2017, no other countries have followed suit.
African governments have historically relied on development finance institutions to fund green projects such as irrigation initiatives and solar energy. However, this is unsustainable and ignores potential capital that could be raised from pension funds, the diaspora, and the middle class. For example, Kenya’s pension sector is valued at about 1.2 trillion Kenyan shilling, or $11.9 billion.
If national governments want to unlock more capital, structures are needed to give investors the confidence to invest.
Kenya, Nigeria, and South Africa are leading the charge in sub-Saharan Africa. Since 2017, these countries have been working with a range of partners, including FSD Africa, to develop a robust framework for the issuance and listing of green bonds. Now, Nigeria and Kenya have joined India, China, and Indonesia in turning their frameworks into official guidelines — and the market is responding.
Last month, the Nigerian-based Access Bank issued Africa’s first certified corporate green bond, unlocking $41 million to protect Eko Atlantic City, near Lagos, from rising sea levels. This bond will also support a solar energy project. Notably, the bond was fully subscribed, highlighting the fact that if the frameworks are built, investors will come.
While development finance will always play a critical role in supporting development on the continent, countries are recognizing they need to unlock funding from other areas. Kenya and Nigeria have heard this call and global markets have responded. This should give other countries confidence to follow suit.
Given the nascent nature of capital markets in Africa, we have the unique opportunity to build them from the ground up and respond to pressing priorities including climate finance. This is particularly critical as governments start to pursue infrastructure development at a larger scale.
Green bonds may still be a small piece of the global bond market, but they are showing real potential for helping developing countries move to greener, more equal economies.