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Green finance in Africa - A guide for Investors

March 7, 2020

Green finance in Africa - are there any green investment opportunities?

African countries are among the most exposed to climate change, but the continent only sees about 5% of global green/climate investments.

With a population of 1,2 billion people and many strong growth markets, combined with the least developed energy sectors in the world Africa has one of the largest green investment opportunities globally.

Green finance is also growing in Africa, with a number of countries taking the lead. Investors can support the shift to sustainable and climate resilient economies while getting not only good returns but also real-world impact.

Nigeria was among the first sovereign green bond issuers and South Africa has seen a number of green municipal bonds. Kenya, Namibia and Marocco are all following close behind, with green bonds issued.

Did you know?

The demand for green finance products is exploding. Globally, bonds are so far the largest market and has grown 25 times since 2013.

Even though it is projected to quadruple in size in 2020 it will only represent a small fraction of the total global bond market, illustrating the long-term growth potential.

Case highlight: Municipal green finance

In June 2017 Cape Town (SA) raised ZAR 1billion / USD 76 million for green municipal projects, with a special focus on transport and water issues.

Projects covered by the bond include the procurement of electric buses, energy efficiency in buildings, water management initiatives, sewerage treatment and the rehabilitation and protection of coastal structures.

But can we trust that we get actual green impact?

How can I trust the green impact of my investments?

Green finance builds on providing investors with a clear and measurable green impact besides the return on investment. There are a vast number of potential green projects, and the types of impact is as wide ranging.

Capital markets build on trust, and the same is true for green finance… External validators can boost trust, by validating all parts of a green finance offer – from the design, the financials to the impact provided.

Green impact can, for example, be validated by certifications, measurements, audits or even by opening access to data produced by green projects.

Did you know?

The Green Assets Wallet provide all the tools investors and issuers need for an effective reporting of green impact – with complete transparency and trust.

Using the blockchain-based platform makes the reporting simple, but also ensures it’s in the familiar standard format and metrics requested by investors in green finance.

The platform offers a system for both self-validation and third-party validation of green commitments and impact. Investors can get the green results validated by external validators, such as consultants or auditors – with complete trust as all data is stored on the blockchain.

Case highlight: flexible validation of impact

With digital solutions, impact reporting becomes more and more effective. One example is the Beyond the Grid Fund for Zambia (BGFZ), which finances green off-grid energy solutions in Zambia.

The impact of installations is reported using real-time data from relevant systems (Pay-as-You-Go platforms, CRM systems, Power management systems). That way data on energy produced, no. of connections, CO2 mitigated and more is instantly available to project owners, local and international investors alike.

This sounds great, but Africa is complicated…

In many African markets both investors and issuers are faced with a number of challenges trying to do business. Financial markets are not developed enough to provide the rating, credits or risk instruments many investors take for granted. This is an especially large challenge for international investors, working in hard currency.

There are however a wide number and growing of market makers, specialized in supporting both investors and issuers in their efforts to build green capital markets in Africa. These actors cover everything from local currency hedges, guarantees, technical advisory and pipeline facilitation.

Did you know?

There are a number of local market programs that supports green finance actors. One example is the Kenyan Green Bonds Programme, that supports green capital market growth in Kenya. The programme advises market actors, and has produced a national guide as well as a number of market studies showing potential green project pipelines in the different sectors.

Case highlight: transaction support that brings green projects to the market

In October 2019 Acorn issued Kenya’s first green bond, to finance the construction of 6 green-certified student properties in Nairobi, creating clean, safe and affordable accommodation for 5,000 students. The transaction was supported by GuarantoCo, who provided investors with a partial credit guarantee to cover 50 percent of the KES 5 billion bond.

Still, is this really worth my time?

Africa’s potential for green projects is substantial. In power generation alone, the need for renewable energy dwarfs levels achieved so far on the continent. The production of renewable energy is at about 10 % of Europe’s, while about 600 million people lack electricity altogether.

While the need for green capital markets in Africa is clear, and market makers are steadily filling gaps in financial risk, investors also need trust in the green impact provided. That is where the Green Assets Wallet comes in, ensuring that impacts are reported and validated with complete trust and transparency.

Green investment in Africa with GAW: Transparent and trusted impact reporting

GAW provides investors with validated and transparent impact data that enables them to monitor and report on the impact of investments. All impact data is structured and comparable, allowing for effective impact portfolio management.

1. Finding green investments with the Green Assets Wallet

Find investments according to various/preferred green categories and create a portfolio with updated impact data for all projects and instruments. Through the Wallet all investments can be analysed, monitored and benchmarked.

2. Immutable impact data creates trust

Through the Green Assets Wallet impact can be validated by certified external validators. With audits and shared data on a distributed ledger, investors have credible impact reports.

3. Structured data in open formats ensures efficient impact reporting

Through the Green Assets Wallet investors can access impact reporting in comparable and open formats, ensuring easy aggregation for onwards reporting.

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A special thank you to the Nairobi International Financial Centre Authority for their feedback on the Guides, as well as all participants at the Green Fintech Opportunities Workshop which was hosted by the Nairobi Securities Exchange. The Guides would not have been possible without their input and collaborative effort. Thanks also to the Emerging Markets Sustainability Dialogues (EMSD) programme of Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH, commissioned and financed by the German Federal Ministry for Economic Cooperation and Development.

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