eBusiness Weekly
The Green Climate Fund, a US$12 billion international climate finance facility, has agreed to make its biggest ever African equity investment, backing infrastructure that can withstand the impact of a warming planet.
Its US$253,7 million commitment will serve as an anchor investment in the Infrastructure Climate Resilient Fund, which is the first offering by Nigeria-based Africa Finance Corp.’s asset management unit, AFC Capital Partners. It will also, AFC Capital said, create a new asset class of resilient infrastructure debt.
“We need to change the paradigm as to how infrastructure is built, how infrastructure is planned, how infrastructure integrates the climate science into the offering,” Ayaan Zeinab Adam, AFC Capital’s chief executive officer said in an interview.
“We need to establish this asset class as the climate resilient asset class.”
While Africa produces just 4 percent of the world’s greenhouse gas emissions, it is being hit hard by climate change and its response has been hamstrung by a lack of funds. In recent years, unusually strong cyclones have struck the southeast coast, droughts have parched East Africa and floods have destroyed infrastructure in South Africa and parts of the west of the continent.
Consultants to the AFC have estimated Africa requires US$2,3 trillion to construct the pipeline of climate-resilient infrastructure it needs. Traditionally it has been a struggle to attract capital to so-called climate-adaptation projects, which deal with the consequences of climate change, rather than mitigation projects, such as wind and solar power plants that generate a reliable revenue stream.
“The GCF’s role here is to help other investors reprice the risk perception they have for a climate resilient infrastructure class,” Kavita Sinha, director of the GCF’s division of private sector facility.
“We are in the role of creating market knowledge.”
AFC Capital, with funding of US$50 million to US$60 million from its parent, is aiming to raise between US$400 million and US$550 million for the fund this year and ultimately a total of US$750 million, including investments from African pension funds and sovereign wealth funds. Separate funds that would follow a successful fund raising for the facility may bring total funding to $2 billion.
The funding from the Green Climate Fund will consist of US$240 million in so-called junior first-loss equity, meaning that the GCF will aim to catalyse contributions to the fund by agreeing to take the initial losses on any investments. A further US$13,7 million will come in the form of grants.
The formation of the GCF was agreed upon in 2010 by 194 countries as part of the United Nations Framework Convention on Climate Change and is funded by developed nations. It is based in South Korea.
The ACF’s infrastructure fund will initially target investments in 19 African countries across the continent, ranging from Benin to Kenya. Among the projects it plans to back include electricity transmission lines that can withstand violent weather as they carry power from renewable energy plants, ports that cope with rising sea levels and reinforced telecommunications infrastructure. — Bloomberg
