Pillar: FSD Africa Investments

How regulation hitches are limiting carbon trading

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As countries around the world race to combat the effects of climate change, carbon trading continues to gain traction.

Carbon trading is the buying and selling of permits of carbon credits that allow the holder to emit a certain amount of carbon dioxide and other greenhouse gases (GHGs).

Financial site Investopedia defines a carbon credit as the equivalent of one tonne of carbon dioxide or any other GHGs that an organisation can emit into the atmosphere.

Essentially, companies are awarded credits to allow them to continue to pollute up to a certain limit, often on a reducing basis.

What happens when a company exceeds its limits?

While some businesses are able to cut their emissions, others are not able to do so. For some, their emissions might even increase in the course of a given period.

Those that cannot reduce their emissions are, however, allowed to continue operating, but usually at a higher cost.

In some instances, businesses are unable to exhaust their credit limits even after operating for the marked duration. These are called ‘‘surplus’’ or ‘‘excess’’ credits.

When a business is left with unutilised credits, it can sell them to other businesses. The business may also choose to keep the surplus credits for future use.

What is the difference between carbon credits and carbon offsets?

While carbon credits and carbon offsets are sometimes used interchangeably, they are different commodities with the same goal of reducing the emission of carbon and other GHGs into the atmosphere.

Carbon credits are limited to within an area and are regulated by a governing body. It is this governing body that is also responsible for creating and distributing them to companies operating within that jurisdiction.

Carbon offsets are neither created by a specific entity nor distributed by a particular body. Instead, they are traded freely on ‘‘voluntary markets.’’

Read: Northern Kenya conservancies eye pie of carbon credit billions

While carbon credits ‘‘cap’’ emissions, carbon offsets compensate an organisation for investing in carbon projects, also called green projects, that help to cut down emissions.

Carbon offset projects can be realised through activities that either reduce the emission of greenhouse gases or those that increase carbon sequestration.

Some of these activities may involve investment in renewable energy forms to displace fossil fuels that emit carbon and reforestation to increase the number of trees that serve as carbon sinks.

Does Kenya have a history of carbon trading?

This trade dates back to 2014. A group of 60,000 smallholder farmers in the Western region under the Kenya Agricultural Carbon Project (KACP) earned carbon credits for sustainable farming.

The credits had been issued worldwide under the sustainable agricultural land management (SALM) carbon accounting methodology.

The programme supported the farmers to grow crops in a productive, sustainable and climate-friendly manner.

With its forests, expansive grasslands and wetlands, Kenya is considered a rich carbon offset sink. This is expected to improve even further once the country attains its target of planting 15 billion trees in the next 10 years.

How is carbon trading regulated in Kenya?

One of the functions of the National Climate Change Action Plan under the Climate Change Act of 2016 is ‘‘to guide the country toward the achievement of low-carbon climate-resilient sustainable development.’’

It does not, however, address specifically how trading in carbon credits, as a climate change response, will be regulated in Kenya.

Environment lawyer Stella Ojango acknowledges the gaps, noting that Kenya’s limited regulatory framework and absence of requisite laws make carbon trading in the country an almost opaque undertaking.

‘‘We have the Climate Change Act of 2016, but it does not address carbon trading sufficiently. We need to amend that Act so that we can introduce regulations for trading carbon. Enriching our laws will help to regularise this business.’’ Ojango says.

Last year, the Nairobi International Finance Centre (NIFC) said Kenya lacks a clear framework for buying and selling carbon credits locally.

The body noted that this unregulated sale of carbon credits costs the country billions of shillings in unrealised revenues.

The organisation is planning to establish a carbon trading exchange in the country to allow small-scale trade-in credits.

‘‘We need to have in place mechanisms that measure how much carbon is being absorbed through reforestation. This way, we will have created a market. Regulating the pricing aspect will then become easier,’’ Ojango adds.

How are carbon markets regulated elsewhere?

Kenya is not alone in lacking proper regulation for carbon trading. Most of the carbon credit markets in the developing world are unregulated by law. There are no agreed prices for carbon credits.

Plans are underway to establish a global carbon credit and carbon offset trading market. This was agreed on by negotiators at COP26 in Glasgow in 2021. Carbon credits also exist within markets with Cap & Trade regulations.

Who is trading in carbon credits in Kenya?

A number of businesses and organisations are already making money from either carbon credits or carbon offset programmes.

In Northern Kenya, conservancies are increasingly moving away from tourism as their mainstay to now invest in carbon projects as a source of revenue.

Northern Rangelands Trust (NRT), for instance, has put 4.7 million acres of grassland under a carbon project.

NRT is a group of 39 marine and land conservancies that cover, among other counties, Laikipia, Samburu, Tana River and Lamu. Out of these, 14 are under the project.

The Northern Rangelands Carbon Project will focus exclusively on the removal of carbon from the soil, with a target of 50 million tonnes of CO2 in 30 years. This effectively makes it one of the few projects of this scale in the market globally.

Last year, Kenya Forest Service (KFS) signed a deal with global audit firm BDO that would see the government agency earn millions of shillings for offsetting carbon dioxide.

According to the deal, KFS will rake in $15 (Sh1868) for every tonne of carbon dioxide removed from the atmosphere by government forests.

In villages in coastal Kenya, communities living near the sea are selling ‘‘hewa kaa’’ to international corporations to help them reduce their carbon emissions.

This carbon project is promoting the conservation and sustainable use of mangrove resources by the villagers.

Controversy of trade

While widely adopted around the world today, carbon credits still divide opinion. Those in support say carbon trading is a ‘‘measurable and verifiable’’ emissions reduction strategy through climate projects.

Those opposed to carbon offsets call the trade ‘‘a scammer’s dream scheme’’ and the next big thing in greenwashing.

Climate change advocacy organisation Greenpeace dismisses carbon offsets as a bookkeeping trick ‘‘intended to obscure climate-wrecking emissions.’’

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Africa getting little of $382m renewable energy projects cash

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Renewable energy projects attracted investments worth $382 billion globally in 2021, according to the International Energy Agency, but only $13 billion, or three percent of that, funded projects in Africa, highlighting a major funding gap foiling green transition and energy access on the continent.

With only 48 percent of African population having access to electricity, experts say investment in the continent’s renewable energy sector could both leapfrog the green transition efforts and connect more people to the grid.

Despite this, it has been established that investors with the capacity to invest in this sector shy away from the African market, a problem which brought together several stakeholders in the energy sector in Nairobi this week, attempting to change the narrative.

At a forum convened by the World Resources Institute (WRI) and the Children’s Investment Fund Foundation, participants drawn from the private sector, government, civil society organisations from Kenya and beyond deliberated on how investors can be mobilised to support Africa’s green transition through investments.

Reluctant to invest

Rebekah Shirley, WRI’s deputy regional director told the forum that private sector players are reluctant to invest in this sector, creating a funding gap of billions of dollars every year, despite the wide access gap.

“Even in other regions of the world where energy access is still a challenge like the Southeast Asia, we don’t see funding gaps of this magnitude, why Africa?” she posed.

Alex Wachira, principal secretary for the state department of energy, said that there is a list of challenges contributing to the energy gap, even in Kenya, which slow down economic growth in the country.

“We (the Ministry of Energy) are aware of the many challenges attributed to this, including limited incentives to attract private sector investors,” he said in a speech read by a representative.

Lack of political will

Another challenge identified is the lack of political will for appropriate legislation and implementation of policies to incentivise private sector investment in renewable energy projects, especially in rural areas.

For instance, only two of Kenya’s 47 counties have drafted energy plans that would give way to appropriate energy policies, deprioritising renewable energy projects at the local governments.

This, according to Eva Sawe – a senior programmes officer at the Council of Governors, is because lawmakers have not been sensitised on why renewable energy projects should be a priority.

But even with the right policies and incentives to support private sector investment in renewable energy on the continent, investors said there is a still a shortage of talent in Africa limiting the production capacity of companies investing in the sector.

“If an investor is coming into the country to do any renewable energy project, the first hurdle they will face is the lack of skilled people,” said Andrew Amadi, the chief executive of Kenya Renewable Energy Association.

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Is nature-based investing ready for take-off in Africa?

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Thousands of delegates gathered for the 2022 United Nations biodiversity conference (Cop15) in Montreal in December, tasked with finding a pathway to halt the alarming decline in global biodiversity. The negotiations eventually produced a landmark agreement to protect 30% of the Earth’s land and oceans by 2030, along with a host of other targets to reduce the loss of biodiversity.

While the agreement was signed by national governments, private sector representatives were conspicuous by their presence at the conference. But financial institutions have increasingly been making commitments to protect and enhance biodiversity in recent years, giving rise to a plethora of new jargon.

“Nature-based investing” – where investors provide benefits to nature and ecosystems, alongside achieving a financial return – is the latest buzzword. At the heart of this approach is the acknowledgement that “natural capital” – in other words, the Earth’s biodiversity and natural resources – provides benefits, often defined as “ecosystem services”, to the human population.

Nature is clearly indispensable to many economic activities. In Kenya, for example, tourism is making rapid progress in recovering to pre-pandemic levels, when it generated over 8% of GDP, and the tourist trade depends heavily on the lure of the country’s wildlife. Threats to biodiversity and ecosystems in Africa and around the world are therefore an issue of profound importance for investors, as well as governments.

“We have been losing natural capital at such an incredible rate over the last 60 or so years, and the pressure from consumption and demographics is so huge, we are now at that point in time where there’s just not enough resources to go around,” warns Alejandro Litovsky, CEO of consulting firm Earth Security. “There’s a real question around the operating conditions for companies and assets that depend on the services that have been free for a very long time.”

The sixth extinction?

The gravity of the crisis facing nature has sometimes been overshadowed by the climate crisis (which is itself one of the main drivers of biodiversity loss). But the data on nature makes for grim reading. Over 6,400 species of animals and 3,100 species of plants in Africa are at risk of extinction, according to the International Union for the Conservation of Nature.

Globally, the scale of the disaster is such that many scientists argue that the Earth is entering its sixth period of mass extinction. This puts the current biodiversity crisis on a par with the asteroid strike that wiped out the dinosaurs 65m years ago.

The destruction of vital ecosystems across many parts of the world is the consequence of prevailing economic models prioritising short-term gain at the expense of long-term sustainability. “I spend a lot of time with African leaders,” says Kaddu Sebunya, CEO of the African Wildlife Foundation, “and they’ll tell you frankly that ‘the global economy doesn’t pay or reward me if I secure forests. But they reward me if I cut down the forest and export sugar.’”

But when habitats are lost or damaged, it is often humans who pay the ultimate price. The devastating mudslides that hit Freetown, Sierra Leone, in August 2017, killing over 1,000 people, were partly caused by deforestation on hillsides around the city. As the city grew, its surrounding hills lost much of the tree cover that had held soils together and provided a natural drainage mechanism.

In the aftermath of the tragedy, Freetown has become one of the pioneers of nature-based investing in urban areas in Africa, according to John-Rob Pool, senior manager at the World Resources Institute. Among other initiatives, the city is establishing a ‘water fund’ as a public-private partnership to protect nearby areas of forest that provide Freetown with its water supply.

Other African cities can benefit from following Freetown’s example, says Pool. “Nature-based solutions, when implemented and deployed properly, can be really useful in improving air quality, in reducing extreme urban heat, improving the quality and the supply of water, in reducing the risk of landslides and flooding, and so on.”

Chinese minister of ecology and environment, Huang Runqiu (L), shakes hands with the DRC's environment minister, Ève Bazaiba Masudi at the 2022 UN biodiversity conference in Montreal
The Chinese minister of ecology and environment, Huang Runqiu (L), shakes hands with the DRC’s environment minister, Ève Bazaiba Masudi at the 2022 UN biodiversity conference in Montreal, Quebec. (Photo: Lars Hagberg / AFP)

Financing dilemmas

The 2022 UN biodiversity conference produced a historic agreement on biodiversity – but the conference concluded in controversial circumstances. In declaring the text of the agreement to be final, the Chinese president of the conference ignored the objection of the Democratic Republic of the Congo, which was continuing to seek additional financial commitments from wealthy nations.

“We didn’t sign the agreement,” Ève Bazaiba, the DRC’s environment minister, said. “It is not possible for us to implement it. We cannot accept the level of ambition without more finance.”

The UN Environment Programme states that the private sector currently provides only 17% of total investments into nature-based solutions. It estimates that total financing will need to more than double, to $384bn a year by 2025, in order to meet biodiversity goals.

The fact that financial institutions are lining up to express their enthusiasm for nature-based investing may be seen as an encouraging sign. Gautier Quéru, head of the Land Degradation Neutrality Fund, which provides long-term financing to projects that meet strict environmental and social standard, says Cop15 has brought “momentum” to nature-based investing.

“Public money will not be enough to meet the objectives,” he says. “We need the mobilisation of private sector actors, including finance and industry. And the good news is that at Cop15, the positive mobilisation of the business and finance sector was really striking.”

A natural fit?

While the availability of finance is one part of the challenge, investors also need to determine what, in practice, they can actually invest in when it comes to nature.

Devang Vussonji, a partner at consulting firm Dalberg, says that the difficulty of measuring and assigning value to different types of biodiversity is a major factor holding back investment in nature-based solutions in Africa.

“There’s a lot the market needs to figure out,” he says. “What do we value and not value?

“How do we set a price around it? How do you compare mangrove populations declining to elephant populations declining? How do you compare tropical areas to temperate areas and so forth?”

For many investors, a possible starting point is carbon credit schemes, which are designed to conserve or enhance forests that act as carbon sinks – theoretically enabling companies to offset emissions from other activities. Such schemes are mainly intended to contribute towards net zero targets, but nature is a possible added beneficiary.

“There’s now a recognition that if the carbon markets have proven themselves, are beginning to take off, there’s good demand for products as well as good supply of products, then the same can be replicated for broader nature-based investing as well,” says Vussonji. “The first of those opportunities we’re seeing is piggybacking on carbon credits, so as carbon credits are being created or being sold, other ‘biodiversity credits’ can be added on to them.”

While private sector finance has an indispensable role in conserving biodiversity in Africa and elsewhere, another essential element is coordination between the public and private sectors.

Sebunya emphasises that governments and NGOs must help provide a pipeline of projects that investors can adopt. Even where funds may be available from impact-focused investors, he says, “finding the bankable pipelines that are shovel-ready for investors is a huge, huge challenge”.

The African Wildlife Foundation, in an effort to meet this challenge, has been working with the Rwandan government on ways to support the mountain gorilla population in the country’s Volcanoes National Park. With the gorilla population expanding thanks to the success of recent conservation efforts, Sebunya says that thoughts are turning on how to expand their habitat.

One solution, he suggests, is encouraging local communities to grow bamboo – the gorillas’ favourite food – as a cash crop. This would potentially provide a win-win solution, allowing locals to generate income from selling bamboo to companies that could process the crop into various products, while providing a food source for the gorillas.

Will life find a way?

Conservation will have to compete with many other priorities in Africa, including the need to ensure a food supply for a human population that is set to almost double by 2050. “You do have that trade-off between protecting virgin nature and cultivating food for a growing population,” Litovsky acknowledges. Developing agricultural techniques that regenerate natural ecosystems will be “really quite fundamental” to Africa’s future, he adds.

Yet it is worth bearing in mind that Africa has in fact been more successful than most of the world in retaining its biodiversity up to now. The continent hosts around one-quarter of the Earth’s biodiversity. It contains the mighty Congo Rainforest, one of the “green lungs” of the planet. Its megafauna have remained relatively intact, thousands of years after early humans slaughtered the largest animals they encountered on other continents.

“Africa today has abundant nature in many places and abundant natural resources,” says Litovsky. “If you think about those as an asset that can be monetised in a variety of different ways, as part of a long-term economic development model, then that can really create a very exciting prospect for how Africa can develop into the future.”

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Former Climate Action Champion, Nigel Topping, to join FSD Africa as Senior Climate Adviser

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Nairobi, 17 January 2023 – FSD Africa is delighted to announce that Nigel Topping, until recently the UK’s High-Level Climate Action Champion, will be joining the organisation as a senior climate advisor to strengthen its offering in developing innovative approaches to addressing the impact of climate change in Africa.

Nigel was appointed as the UK’s High-Level Climate Action Champion in January 2020 ahead of COP26 in Glasgow, stepping down from the role in November 2022 after COP27 in Sharm-el-Sheikh. During this period, working closely with both the outgoing Climate Champion from Chile, Gonzalo Muñoz, and the incoming Climate Champion from Egypt, Mahmoud Mohieldin, Nigel worked tirelessly to promote climate action on the part of non-state actors – civil society and the private sector – and establish the Climate Champions Team as a formidable catalyst for climate action. The Climate Champions Team has been able to amplify its direct impact through an extraordinarily impressive range of innovative partnerships, including in Africa.

In his new role as a Senior Adviser, Nigel will complement FSD Africa’s work on climate finance, and particularly in innovative green financing.

It has been estimated that climate finance in Africa needs to increase by a factor of nine times (by an additional $250bn per annum) to meet the continent’s aggregate Nationally Determined Contributions and, in particular, to increase climate finance coming from the private sector which, at just 14% of the total, is a much lower share than in other regions. There is also a need to spread climate finance more equitably around the continent (as more than 50% of climate finance currently goes to just 10 countries) and to change the mix of climate finance more towards equity (or grants) than debt which the continent can scarcely afford at present.

To achieve this, FSD Africa is planning to both scale up its work in green finance and support new partnerships with organisations looking to drive climate and nature-positive action and which see advantage in leveraging FSD Africa’s financial sector expertise and networks.

Commenting on his appointment, Nigel Topping praised FSD Africa for its trailblazing work in developing Africa’s financial markets and innovation in tapping capital using new instruments such as green bonds and gender bonds. He observed that FSD Africa has been supporting green finance in Africa for several years having initiated green bond programmes in Kenya and Nigeria in 2017. It has used this experience to build out an extensive and diversified portfolio of other projects in the climate and nature space.

He commented: “Climate finance will be critical for enabling Africa to adapt to the growing impacts of climate change and to ensure that its future development path is consistent with the goal of limiting global warming to no more than 1.5°C. I look forward to working with the FSD Africa team of experts across the African market to fast track the development of innovative climate finance and nature programmes and ensure that more benefits are realised by the population and investors across the markets.”

FSD Africa’s CEO Mark Napier welcomed Nigel Topping’s appointment:

“We are delighted to have Nigel joining our team. Nigel is an incredibly impressive and collaborative leader with great sectoral knowledge on climate action. I have no doubt at all that he will be able to accelerate the impact of our work on climate, deepen our technical knowledge in relevant sectors and join us in brokering exciting new partnerships.”

FSD Africa’s Board Chair, Frannie Léautier, joined the CEO in welcoming Nigel Topping observing that a commitment to developing and implementing transformative adaptation programmes to tackle climate change in Africa will be key in tackling poverty and inequality: “Nigel’s decision to join FSD Africa as a Senior Climate Adviser is a fantastic endorsement of the work that our team has been doing for several years to develop solutions to the continent’s most pressing challenge of the day – climate change. We will benefit greatly from his leadership and experience,” she added.

Transform Health Fund Announced at U.S.-Africa Leaders Summit

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Washington, DC, Dec. 14, 2022 (GLOBE NEWSWIRE) — The Health Finance Coalition (HFC), powered by Malaria No More, and AfricInvest today announced pledged commitments of $50 million for the pan-African Transform Health Fund, to finance the scaling of proven, innovative models that improve access, affordability, resilience, and quality of healthcare in Africa. U.S. International Development Finance Corporation (DFC), U.S. Agency for International Development (USAID), Royal Philips, Merck & Co., Inc., known as MSD outside of the United States and Canada, FSD Africa Investments, Netri Foundation, Anesvad Foundation, Grand Challenges Canada (with funding from Global Affairs Canada), Chemonics International, and MCJ Amelior Foundation have all announced their commitments, subject to final due diligence before closing. IFC is in the advanced stage of approving its investment in the fund.

The announcement was made as part of the U.S.-Africa Leaders Summit in Washington, D.C. hosted by President Biden. The Transform Health Fund is an innovative blended-finance fund focused on locally led health supply chain, care delivery, and digital solutions in Africa. The fund is a collaborative effort bringing together commercial, government, and donor investments under the leadership of AfricInvest, a leading pan-African investment platform active across private equity, venture capital and private debt, and the Health Finance Coalition, a group of leading global health funders hosted by Malaria No More, to finance enterprises that improve health system resilience and pandemic preparedness across the continent.

The Transform Health Fund will provide debt and mezzanine financing to scale high-impact health enterprises serving vulnerable communities, while offering risk adjusted returns. As a result, the Fund is expected to help bolster healthcare systems in Africa, which face a massive financing gap – a challenge made more difficult by COVID-19 – by working to achieve Universal Health Coverage (UHC).

The Challenge: Africa Faces a Massive Health Financing Gap

While Africa is home to 16 percent of the global population and 23 percent of global disease burden, just 1.6 percent of annual impact investments – now estimated at a market size of $1.16 trillion – target the healthcare sector in Sub-Saharan Africa. Small and medium enterprises (SMEs) are generally left out of this impact investment and the COVID-19 pandemic has made this gap even wider.

The Opportunity: Innovative Financing to Support African Healthcare

To respond to the critical healthcare financing gap in Africa while building a resilient ecosystem, the Transform Health Fund will target three critical areas serving low-income patients: supply chain transformation, innovative care delivery, and digital innovation. The Transform Health Fund investments will target countries across sub-Saharan Africa, with a focus on East, Southern, and Francophone West Africa.

“Three decades of expertise and insight allows AfricInvest to leverage a wide range of support throughout many regions of the continent,” said Ziad Oueslati, Founding Partner, AfricInvest. “We believe our team is well-positioned to continue financing African health-sector companies through innovative financing models such as the Transform Health Fund.”

“The Transform Health Fund will demonstrate that health enterprises serving the most vulnerable communities are investible,” said Martin Edlund, CEO, Malaria No More and Executive Director of the Health Finance Coalition. “To solve the health financing gap in Africa, we need to crowd in substantial private investment – this fund demonstrates a new model for achieving that while prioritizing transformative health impact.”

“Scaling proven solutions in Africa’s healthcare requires adequate investment and innovative financing,” said Noorin Mawani, Co-lead of the Transform Health Fund. “The Transform Health Fund seeks to apportion risk and return while delivering high impact-focused funding to healthcare businesses that need it most.”

“The Transform Health Fund demonstrates what’s possible when you combine a ‘capital stack’ approach to financing with a genuine commitment to transformational impact,” said Ray Chambers, WHO Ambassador for Global Strategy and Health Financing. “But to achieve the world’s ambitious global health goals, we need to urgently scale such efforts – especially as the world recovers from COVID-19 and faces serious macroeconomic headwinds.”

“Working together, we can build a stronger and more resilient healthcare system in Africa by strengthening regional supply chains, delivering care to underserved communities and leveraging the digital economy to provide innovative healthcare solutions,” said Makhtar Diop, Managing Director of IFC. “The rapid pace of innovation witnessed in the health sector provides an opportunity to leapfrog and we look forward to our collaboration with the Transform Health Fund to finance Africa’s health transformation.”

“Since our company’s founding, we have been committed to advancing global health and using the power of science to save and improve lives,” said Robert M. Davis, CEO and Chairman, Merck & Co., Inc. “Creative financing models like the Transform Health Fund can be effective tools to help enable greater access to health, and we welcome the opportunity to partner with like-minded organizations focused on strengthening health systems around the world.”

“DFC is proud to be one of the first supporters of Transform Health Fund whose mission is to invest to strengthen healthcare systems and supply chains across Africa,” said Lauren Cochran, Vice President of Equity and Investment Funds, U.S. International Development Finance Corporation (DFC). “This commitment is an important example of DFC’s work to expand access to quality healthcare services, build the private sector, and empower local communities.”

“As part of our ambition to improve the lives of 2.5 billion people per year by 2030 and in particular the health and well-being of 400 million people in underserved communities, we recognize the important role businesses can and need to play in unlocking financing for Universal Healthcare in Africa,” said Marnix van Ginneken, Philips’ Chief ESG & Legal Officer. “The Fund’s innovative model positions private capital to co-invest and provide impact capital to innovative healthcare delivery models, including digital transformation which is essential to bridging the gap to underserved communities and increasing access to quality and affordable care.”

“We have seen from our work throughout Africa that transformative change happens when local leaders, innovators, and entrepreneurs have the resources, networks, and capital to bring their ideas and solutions to scale,” said Jamey Butcher, President and CEO, Chemonics International. “Chemonics is proud to support the Transform Health Fund, an investment vehicle that will do just that for healthcare in Africa.”

“We are delighted to partner with AfricInvest and The Health Finance Coalition in establishing an investment vehicle that has secured much needed private flows of finance for African healthcare,” said Anne Marie Chidzero, Chief Investment Officer, FSD Africa Investments. “The fund will back an emerging class of private health provision that will improve livelihoods for vulnerable populations. The future of health finance lies in bringing together different types of capital with a common purpose, something we are excited to back through our investment in the Transform Health Fund.”

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Africa’s carbon finance stream can be scaled up to $200 billion per annum – Osinbajo

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Nigeria’s Vice President, Prof. Yemi Osinbajo, said Africa’s share of the global carbon market can be scaled up massively to reach foreign direct investment (FDI) of between $120 to $200 billion annually.

The Vice President stated this during his keynote speech at the Rockefeller Foundation meeting in New York.

He identified a combination of capital flows, job creation, and the avoidance of long-term climate destruction as critical drivers of African leaders’ interest in supporting this effort.

According to him, Africa currently has only a small share of the carbon market. He explained the importance of this projected carbon finance stream, saying:

“For a continent that needs $240 billion annually in mitigation investment alone, this carbon finance stream could be the difference between transitioning and not (transitioning). As all of us in this room understand well, the priorities of the African continent are not just to act decisively on the climate crisis, but to also create significant growth opportunities for our young and growing population.”

“The investment required to advance the energy transition in Africa is huge. World Bank estimates suggest that Africa needs $6.5 trillion US dollars between now and 2050 for mitigation action alone to keep temperatures below 2 degrees of warming.”

VP Osinbajo also highlighted that the carbon market pipeline could create 30 million jobs in the next decade, with the potential to create more than 100 million jobs through climate-aligned projects by 2050.

Africa’s carbon markets: During his speech, VP Osinbajo noted that the rapid progress recorded in Africa benefitted from the support of a very engaged Steering Committee with the United Nations, Global Energy Alliance for People and Planet (GEAPP), USAID, and a range of other public and private actors, which resulted in the successful launch of the African Carbon Markets initiative (ACMI) in Sharm-el-Sheikh, Egypt during the COP-27 event.

“The strong commitment and presence from fellow African leaders demonstrate the willingness and leadership of Africa. We already have 7 African countries (Burundi, Gabon, Kenya, Malawi, Mozambique, Nigeria, and Togo) signed up to develop country carbon activation plans and over $200 million in advanced market commitments, which we must continue to further advance as this is going to be the critical driver of action on the continent.”

“I think it’s an auspicious moment for Africa to be participating more fully in the global carbon market conversation, especially in the light of the slowing pace of green investment flows into the continent. The work several of us have done together in the past few months makes it clear that while other sources of flows are slowing down globally, carbon markets are growing rapidly,” Osinbajo said.

Advancing carbon markets: VP Osinbajo also spoke about the essence of collaborations in developing carbon markets on the continent. He said collaboration is a key to unlocking opportunities in Africa’s carbon markets. He said:

“One of the strong points of ACMI and the way we must structure it going forward, in terms of governance, is the flexibility to smoothly work with other initiatives, and there will be many others. Two days before the opening of Cop 27, Senator John Kerry and I had a conversation about the proposed Energy Transition Accelerator and we both agreed that once the details were worked out, we would work out a collaborative framework with ACMI.

“Carbon markets will play a critical role in the implementation of this (Energy Transition) Plan – in mobilizing the capital required to move to our net-zero economy-wide trajectory. I want Nigeria to have the first Carbon Markets Activation Plan.”

In his contribution, the US Presidential Envoy on Climate Change, Senator John Kerry, commended VP Osinbajo for his leadership on the issue of energy transition. Kerry said:

“We are grateful for the leadership of the VP, grateful for the reception you gave me on my visit to Nigeria. I am honoured to share the platform with you on how to move the African Carbon Market Initiative (ACMI) forward.

“It is possible to create a high-integrity carbon market in a way to address Climate Change and African Development aspirations. We are all joined together looking forward to developing the financing.”

In case you missed it: The ACMI is a new initiative that was launched during the conference of parties (COP 27) event held in Egypt. The ACMI will be led by a fourteen-member steering committee of African leaders, CEOs, and carbon credit experts. The ACMI aims to dramatically expand Africa’s participation in voluntary carbon markets.

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‘A unique opportunity’: Why calls are growing for new rules to protect ‘nature markets’

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A new report has pinned the overall value of nature markets at a huge $10tr – but will it cut through with decision makers at COP15?

The launch of the UN biodiversity talks in Montreal this week has prompted yet another report that attempts to put a financial value on the services nature provides to the global economy.

The, study published by the Taskforce on Nature Markets group this morning, pins the value of”nature markets” at almost $10tr a year, a figure which amounts to roughly 11 per cent of global GDP.

The report, produced with help from McKinsey sustainability analysis outfit Vivid Economics, identifies two dozen markets that are explicitly base on the valuing and trading of nature, ranging from emerging markets such as carbon and biodiversity credits and nature liability insurance to more established markets such as conservation, nature-related tourism, and soft commodities.

The findings were framed by NatureFinance, the group behind the task force, as proof of the need to enhance governance of these so-called nature markets through cross-jurisdictional governance and regulation. The group has warned that embedding rules and incentives in these markets that protect nature are in the interest of the global economy, noting they are likely to lead to improvements on the bottom line for both public and private sectors.

The findings add to a library of reports published recently that have sought to either put a price on nature’s services or highlight the economic benefits they bring and the risks associated with their destruction. NatureFinance analysis is notable, because it specifically explores the role nature plays in the trajectory of 24 specific markets, from agricultural and livestock to nature-based carbon credits.

Jason Eis, executive director of Vivid Economics, said the findings highlighted the need to ensure that governance of these markets benefits nature. “The key is market governance and market infrastructure including features like rules of trade, product and certification standards, taxes and subsidies which could potentially help drive incentives for companies to support nature in responsible ways,” he said.

The Global Biodiversity Framework (GDF) under discussion at COP15 sets out a number of measures around how global systems of governance and finance can be reformed to better protect nature and close a massive $700bn annual biodiversity financing gap by 2030. Target 14 calls for biodiversity values to be integrated into policies, regulations, planning, development processes, poverty reduction strategies, accounts, and assessments of environmental impacts at all levels of governance. This integration of nature into policymaking dovetails with the aim of Target 19 in the draft text, which calls for a rapid acceleration in both public and private finance towards nature conservation and remediation, in particular in the Global South.

Simon Zadek, co-lead of the Taskforce Secretariat and executive director of NatureFinance, said it was critical that funding for biodiversity was not limited to foreign aid. “By redesigning nature

markets to include nature positive instruments and policies in their governance, we can include a broader array of financial tools and move beyond Official Development Assistance (ODA) as the principal source of biodiversity funding,” he said. “We have a unique opportunity to reshape the core logic of these markets so that nature positive, net zero and equitable outcomes are built into the way they operate.”

The start of the COP15 Summit this week has also been accompanied by the launch of a number of new products designed to help companies and investors track and reduce their exposure to nature-related risks or quantify the benefits generated by nature-positive investments.

For example, a new ratings agency launched by the African Leadership University’s School of Wildlife Conservation (ALU’s SOWC), consultancy firm Dalberg, and FSD Africa Investments is aiming to help investors measure, rate, track and communicate the positive impacts their investments have on biodiversity.

The new Biodiversity Investment Rating Agency is set to advise investors on identifying the opportunities for impact investing in biodiversity-related projects, spotlighting relevant frameworks to measure biodiversity investment impacts. “Institutional investment in biodiversity as an asset class will be the key to unlocking the billions of private capital we need to address climate change and promote the business of conservation,” said Mike Musgrave from the SOWC.

Anne-Marie Chidzero, CIO at FSD Africa Investments, said the Biodiversity Investment Rating Agency would “help investors measure and track the impact of their capital on biodiversity conservation and restoration will play a central role in increasing investment in the sector”.

Meanwhile, British start-up NatureMetrics has this morning announced the launch of a new nature performing monitoring service for companies, designed to help them continually monitor their impact on nature.

“By launching the world’s most accurate nature performance monitoring system, companies across the globe will have one simple-to-deploy tool, enabling them to understand, track and improve their natural capital,” said Katie Critchlow, CEO of NatureMetrics. “Through cutting edge environmental DNA technology, we’ve devised a way of turning complex nature data into simple and meaningful metrics to inform board room level decisions for business and nature.”

Attempts to measure and price nature remain controversial in some quarters, and the surge of new products and reports that frame nature as an asset class or cluster of markets will be met by criticism from some green groups as the talks get underway in Montreal. Some campaigners have long argued that appealing to companies and countries’ financial self-interest panders to the root cause of the destruction of nature – the pursuit of economic growth. There is also a debate around whether the focus on environmental risk disclosures and measuring natural capital is inadvertently helping companies to defer actions that can deliver a more nature-positive world.

The counterargument, of course, is that quantifying nature’s services can drive change rapidly and at scale, because translating natural assets into financial terms will inevitably hit home with governments and in boardrooms. There is also strong sense among companies that the introduction of nature risk reporting into financial accounts is an important first step in their journey towards becoming nature-positive operations and giving investors insights they need to divert capital towards greener businesses. More than 300 companies have expressed their support for any deal reached at COP15 to include rules that would make nature risk reporting mandatory at large companies and financial institutions.

At any rate, NatureMetrics headline $10tr figure for the value of nature markets is clearly designed to shock governments and businesses assembled at COP15 into delivering a deal that can secure future economic growth by protecting nature. Delegates should take note.

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Innovative Rating Agency Launched to Boost Biodiversity Investments

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African Leadership University’s School Of Wildlife Conservation (ALU’s SOWC), Dalberg, and FSD Africa Investments bring together their in-depth expertise in biodiversity conservation and restoration, finance, and impact investments to form a partnership that will help investors measure and track the impact of their biodiversity-related investments over time.

NAIROBI, KIGALI, DAR ES SALAAM – A pioneering initiative aimed to boost biodiversity investments by helping investors measure, rate, and track their impact on biodiversity conservation and restoration – the Biodiversity Investment Rating Agency (BIRA) – was launched today by the African Leadership University’s School of Wildlife Conservation, Dalberg, and FSD Africa Investments.

Biodiversity is ranked as the third most significant threat to humanity, after carbon emissions and nuclear war.  Yet, less than 16% of the required funding is currently available for biodiversity, leaving a US$ 700 billion funding gap for biodiversity conservation and restoration. Private capital can play a critical role in closing this funding gap while tapping into an attractive asset class that is poised to grow. However, investments are currently limited because there is no standard way to measure, rate, track, and communicate biodiversity impacts. Investors are looking for simple, credible tools based on biodiversity science.

 Figure 1: Illustration of the biodiversity conservation funding gap

Illustration of the biodiversity conservation funding gap
Source: The Nature Conservancy, Closing the Nature Funding Gap, 2020

To address these challenges, BIRA will advise investors on identifying the opportunities for impact investing in the biodiversity sector, spotlighting relevant frameworks to measure biodiversity investment impacts, and provide existing aligned frameworks with guidance on how to make their tools investor friendly. BIRA aspires to see measurement frameworks that can provide simple answers to investors’ questions about the potential outcomes of biodiversity investments. BIRA will work in collaboration with existing frameworks that meet certain design criteria to develop modules that match measurement frameworks with investor needs.

FSD Africa Investments and Dalberg are excited to welcome ALU’s SOWC as the science and training partner for the initiative. ALU SOWC will bring its expertise in scientific inquiry, research, and training to ensure that the modules developed are credible and usable. BIRA will also lean on SOWC’s expertise to develop and launch training programs that will help bridge the existing knowledge gap in the market.

By bridging the gap between investors and the existing biodiversity measurement frameworks, BIRA will support informed decision-making by investors. Ultimately, this will increase investments in conservation and restoration, leading to positive biodiversity outcomes.

Mike Musgrave, Conservation Leadership Faculty, School of Wildlife Conservation, said:

“Institutional investment in biodiversity as an asset class will be the key to unlocking the billions of private capital we need to address climate change and promote the business of conservation.”

Devang Vussonji, Partner, Dalberg Advisors, said: “We have lost 68% of monitored animal populations between 1970 and 2016. We face a USD 700 billion funding gap in reversing this effect, and private capital will be essential in filling this gap. BIRA aims to attract private capital to the sector by making it easier for private investors to measure, communicate, and track biodiversity outcomes.”

Anne-Marie Chidzero, CIO, FSD Africa Investments, said: “FSD Africa Investments is proud to partner with Dalberg and the African Leadership University’s School of Wildlife Conservation to create the Biodiversity Investment Rating Agency. This innovative initiative to help investors measure and track the impact of their capital on biodiversity conservation and restoration will play a central role in increasing investment in the sector.”

BIRA invites technical partners and investors to join the founding partners in developing the initiative. Interested parties should contact Devang Vussonji at devang.vussonji@dalberg.com.

FSDAi Nyala Facility B.V. invests USD 1.5 million in equity into ARUWA Capital Management

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Amsterdam, 05 December 2022 – FSDAi Nyala Facility BV (FNF BV or Nyala) has invested USD 1.5 million in equity into Nigerian based ARUWA Capital Management. ARUWA is a Gender Lens Investing (GLI) Fund which provides capital and post-investment management support to Small and Growing Businesses (SGBs). This investment has brought the Fund to its target size of USD 20 million.

In addition to the investment, Nyala will provide post-investment catalytic support to ARUWA’s team focused on achieving a sustainably investable proposition with a robust team and governance.

This transaction is a high-profile deal in the GLI space. ARUWA Capital Management is a Nigerian GLI fund, founded in 2019 by seasoned investment professional, Ms. Adesuwa Okunbo Rhodes.

ARUWA’s investment thesis is to make healthy returns by investing in female-oriented, female-owned or female-led SGBs in real economy sectors with steep growth curve potentials, thanks to the leverage of technology. ARUWA’s post-investment support to its portfolio companies is also well thought through as it makes use of high-quality finance and administration expertise from a locally renowned consultancy with a strong track record in venture building.

Joris van Oppenraaij, Senior Investment Officer at Nyala Venture stated that “Pre-investment, we closely worked with ARUWA on attracting more institutional investors to speed up the closing of the fund. During that period, I witnessed the swiftness with which ARUWA’s team executes high quality deals, followed by post-investment focused and tailor-made support to their investees”.

“This is Nyala Venture’s first investment and is an excellent fit with Nyala’s catalytic mandate given ARUWA’s focus on Gender Lens Investing and on Small and Growing Business. As part of our mandate, we aim to build a new asset class of Local Capital Providers, such as ARUWA, to further strengthen and deepen the SGB Financing ecosystem in Sub-Saharan Africa” added Bart Schaap, Managing Director at Nyala Venture”

“This marks an important moment to celebrate as we back female fund managers in Africa, future and formidable allocators of capital for our sustainable future” noted Anne-Marie Chidzero, CIO FSDAi.  “This investment builds upon the Collaborative for Frontier Finance’s vision for Africa that Small and Growing Businesses need local capital managers to address the systemic gap in financing these engines of growth and jobs” concluded Drew von Glahn, Executive Director, Collaborative for Frontier Finance.

 

Kenya to pilot Africa’s first data hub for real estate investors

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Kenya will be the first country to benefit from an initiative by players in Africa’s housing sector seeking to make critical data available for developers, financiers and the public.

Through the Open Access Initiative, data on the cost of construction, time taken to complete projects, and specific challenges arising in the housing sector will be made public across the continent.

The initiative which will cover the continent is being piloted in Kenya.

The Open Access Initiative is being spearheaded by the Centre for Affordable Housing Finance in Africa (CAHF), Financial Sector Deepening (FSD) Africa Investments, Financial Sector Deepening (FSD) Kenya, and Reall and International Housing Solutions (IHS).

Together, these market facilitators have formed the Affordable Housing Investment Alliance (AHIA) which will in turn drive the Open Access Initiative.

The anticipation is that this data will guide investors in affordable housing on what units are profitable, areas that are underserved, and how to navigate the challenges and returns on investments.

Ultimately, this information is expected to save investors money and time.

Smart investment decisions

The initiative comes a few months after the Centre for Affordable Housing Finance (CAHF) and the Africa Union for Housing Finance (AHF) pointed out in a report on the lack of good data which should inform investors in the sector. As such, investing in the sector is risky and expensive.

This new initiative will then be the guiding torch in these murky waters for investors.

According to the vision of this initiative, the plan is to have affordable housing practitioners – developers, financiers and investors – share data and delivery experiences in a central repository.

This repository will then become the full database of all investments into affordable housing in Africa, Kenya being the pioneer.

“Data and information sharing between the parties and collaboration in the advocacy and engagement processes will leverage the individual efforts of the parties to realise economies of scale in improving the enabling environment for affordable housing,” reads the vision board of the alliance.

The alliance notes that although data is fundamental to the investment decision, there is limited good quality and focused data.

“Investors and developers all highlight the difficulty of accessing data that gives an accurate picture of the affordable housing investment opportunity and its risks,” said the alliance.

Open platform

The data is limited in composition and associated costs, clarity of the process followed when development was being put up (including steps, time and costs) – the blockages that arise, impact on affordability, details relating to people, target market and their affordability.

In addition, the data does not include other financial pressures, housing needs, the performance of the investment – whether it is a worthwhile venture or not – and how improvements can be done.

The solution to this problem as the document proposes is to have this information public. The Open Access Initiative approach, according to the document, asserts that when money is invested into a development, it should have a twin objective – achieve the immediate development output (housing units) and support the broader market development.

“In order to achieve the latter, the sharing of data and information related to the investment experience becomes a condition of investment. Over the course of the investment, this data and information will be collected and then developed into useful outputs for sharing in the public domain,” the document says.

Outputs will be produced on various levels, some will target participating developers, other development finance institutions (DFIs) and the general public. To amplify the usage of information at hand AHIA will produce a wide range of outputs, such as project fact sheets, investment fact sheets, action briefs and case studies as well as a data dashboard.

“It is anticipated that these outputs will support actors along the housing value chain to support investments in overcoming blockages they face and develop tools, frameworks, and baseline research to support both the investee and other market players in addressing the challenges that they confront in delivering affordable housing.”

Showcase activities

Additionally, the output will showcase the activities of market players engaging in affordable housing, demonstrating their focused attention on both opportunities and risks and encouraging greater investment into the affordable housing sector, given the clear attention to delivery risks, and the identification of niche market opportunities enabled through this effort.

“The Open Access Initiative is about market development. The intention is to build and support a more competitive environment in which a range of market players see (and can act on) opportunities to invest while raising the bar on quality and long-term sustainability,” the alliance says in the document.

“Ultimately, it can contribute towards an overall cost saving in the actual product and the time taken to achieve its delivery, benefiting the original data sharer, the investor, and the market as a whole,” it adds.

In a nutshell, the alliance says, the Open Access Initiative asserts that sector players should not compete on how to access information but on how it is used to optimise resources.

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