MAKHIBA MOLLO: Mobilising domestic capital for climate change

The inaugural Africa Climate Summit hosted in Nairobi, Kenya, took place during the climate week hosted by the UN Framework Convention on Climate Change in September. The period also marked the beginning of spring in Sub-Saharan Africa — the perfect backdrop for urgent practical discussions, with delegates connecting the dots of real economic decisions on climate positive industry with investment and finance for adaptation and resilience. 

A particularly intense session was that hosted by the Blended Finance Task Force of the Sustainable Markets Initiative, established by the UK’s King Charles and better known as Terra Carta, the Africa Climate Fund, FSD Africa and Arm-Harith, a Nigerian-SA joint venture. It brought together some of the leading thinkers on climate and infrastructure finance — an engagement I have no doubt was followed by practical business decisions among the parties in attendance.

The core question the discussion was focused on was how to “crowd in” private-sector capital from domestic sources to obtain the between $50bn and $100bn required per year for the envisaged action around climate change. Collaboration, innovation and derisking were the three key themes that ran through the discussions like a repetitive chorus line.

My experience as an asset manager has shown the importance of adding a fourth dimension for our country — SA’s investment climate. As the country experiences significant levels of economic distress, high debt levels, talk of fiscal constraints, public sector budget cuts and resizing of government departments, we see the antithesis of a positive investment climate set on a stage of unrelenting load- and even water-shedding. 

The unprecedented challenges due to climate change require an unprecedented level of collaboration among the key actors in the public finance space to get as close as possible by 2030 to Net Zerio, at which point humanity is no longer adding to the total amount of greenhouse gases in the atmosphere. This requires governments, institutional investors, debt and equity financiers, stock exchanges and big capital working for climate solutions, acting in harmony.     

The investor community in SA is engaged in this endeavour, with many of the large pension funds signatories to the UN Principles for Responsible Investment, and has been investing along environmental, social and governance criteria (ESG) guidelines for a number of years. 

A working group developing a document on Responsible Investment and Ownership Guidance, which I serve on, is made up of a collective of asset owners, asset managers, pension fund administrators and other interest parties responsible for trillions of rand.   

The investment possibilities of this community have been broadened by amendments to local pension fund Regulation 28 earlier this year. While these amendments make it possible to invest more capital overseas, the point is to invest it here at home. 

Alongside Regulation 28 amendments, other changes to the regulatory environment can, and should, be intentionally reconfigured to enable far more transitional activity to a low carbon economy, through for example including listings requirements on climate change, thus allowing for more shareholder activism. 

Furthermore, prioritisation of targeted economic sectors and economic activity such as critical minerals mining and processing will create possibilities for new green revenue streams, and green futures minerals. 

The theme of collaboration has to ensure that the entire investment ecosystem is involved. This includes ensuring a role for the very people whose money it is (the trustees). We need to ask ourselves how we engage them in the conversation on green bonds, land-backed exchange traded funds (ETFs) and so on.

The second theme, innovation, is being seen in the instruments being developed to mobilise capital. Real appetite to mobilise domestic capital across markets in Africa exists, as shown by facilities we see emerging out of the African Development Bank (ADB), the Development Bank of Southern Africa (DBSA) and other multilateral development banks.

The ADB’s Africa 50 infrastructure investment, the DBSA’s climate financing facility and the African Climate Foundation are flagship advancements across the continent, among a number of other rainmakers. Sustained action in the debt and equity space by the private sector requires a measure of qualified guarantees from governments.

Derisking projects through public-private partnerships (PPPs) or blended finance instruments is needed to create impetus for the kind of cash generation and scalability of projects that will help mobilise the much-needed domestic capital for the trillion-dollar climate solutions drinking-well.   

When it comes to addressing the investment climate, the market is impeded by unfavourable conditions domestically. A stable investment environment with economic inducements is key. Low political risk, policy certainty and clearer fiscal direction will be the lightning rod for attracting investment. 

Predictability in markets, liquidity, dissemination of information, transparency and a solid governance regime make for a desired bedrock, which needs to be jealously safeguarded and not hamstrung by uncertainty, failing infrastructure and an altogether downward spiral. 

In SA sustainability and impact investing have steadfastly made headway in ESG positive projects. Asset-backed green and sustainability bonds, and large scale bankable green industrialisation projects, are being originated ever more. Money is available and willing to follow bang for buck, but even in green investments the right market conditions for investor confidence are necessary. 

The pull for large-scale capital is on more fronts, and while there is some evidence of mobilisation it is clear much needs to be done in the SA context to enhance the investment climate and give us the best chance.

Beyond ourselves, perhaps we can as citizens of Africa Inc move with the tenacity required to ensure the dividends we want. The Nairobi Declaration was signed and calls to action made. In the third week of September, flowing out of Climate Week, the UN General Assembly marked the halfway point of the sustainable development goals (SDGs) to 2030. 

The SDG conversation in New York will also have moved the needle a bit closer to realisation of our vision. There is no room for austerity on this precipice of a climate evolution; we must put our green money where our mouths are.  

• Mollo is an independent ESG consultant.