To deliver on the green development agenda, there is an urgent need to address the lack of investment-ready socially, economically and environmentally (ESG) sustainable projects.
Globally and in Africa particularly, public and private impact investors deem the lack of grade green investments as a major constraint to investment in low-carbon, climate-resilient and sustainable ventures.
Increasingly, ESG funds chasing investment opportunities in Africa continues to grow. It is therefore important that African countries create investment-grade projects that can absorb the capital that is readily available.
For example, the latest survey from the Global Impact Investing Network has found that of the $404 billion of impact investing assets held by the network respondents, the vast majority (59per cent) is allocated to emerging markets, with sub-Saharan Africa attracting the most assets at 21 per cent or $85 billion.
Clearly, the main barrier to investment in sustainable projects is not the lack of available finance, but rather a lack of well-prepared and investment-ready bankable projects.
The difficulty by investors to find viable investments in Africa that meet both financial and social/environmental objectives is partly due to the limited number of sustainable social enterprises able to demonstrate a sufficient track record and capacity development in accordance with the risk appetite of most impact investors.
This is coupled with limited ability to measure and report adequately on impact performance where such capacities exist.
Whether a project is bankable depends on a number of factors including the policy and regulatory environment, impact on relevant stakeholders, capacity of counterparts to engage with investors, quality of project documentation, economic development issues such as creditworthiness and at a fundamental level, the ability of the project to yield the desired positive impact to the society and/or the environment.
Undoubtedly, more effort needs to go into supporting green project transaction development in order to build a sustained pipeline of viable deals that can take up the available ESG funds. Below are some of the approaches that can facilitate the creation of a pipeline of bankable green investments.
Build sustainability into projects from the start - If sustainability is planned in as a key requirement from the outset, it can’t be traded or forgotten. This ensures that different concerns — environmental, economic and social — are balanced and considered from the onset. For example, the vulnerability to climate change mandates that infrastructure designs be resilient to foreseeable risks.
ENABLING POLICY AND REGULATORY ENVIRONMENT - Growing the number of viable sustainable social enterprises in a given context requires that there is an adequate level of entrepreneurial activity generally. This can only be possible in a stable regulatory environment.
Having a clear tax and contract enforcement framework is particularly vital.
SUPPORT FOR PROJECT PREPARATION - This includes planning for sustainable infrastructure at the national level, ensuring attention to the climate change implications of projects, continued focus by governments and financial markets to expand capacity for transaction management and project preparation.
SUSTAINED ENGAGEMENT AT MULTIPLE LEVELS - Building on the broad common interest of sustainable development, collaboration across the banking, pension, capital markets, insurance sectors and government, to support joint financing of short, medium and long-term projects should be embraced more.
STRENGTHEN INSTITUTIONAL AND ENTERPRISE CAPACITY – Enterprises should be enabled to navigate the challenges of raising finance from a range of investors with different expectations and requirements as well as ground experience to negotiate transactions with investors and project developers.
GREATER TRANSPARENCY AND TRACKING OF IMPACT - Strengthened support for project preparation should be accompanied with a more concerted effort to understand the full range of experiences, to identify and scale-up efficient and effective practices. Standardised approaches to measurement of impact would allow easier comparison across investments and provide a common language for communicating impact.
PUBLIC FUNDS TO FOCUS ON SUSTAINABLE INFRASTRUCTURE - Public resources should emphasize financing of low-carbon infrastructure of the future and discontinue financing carbon-intensive infrastructure, except in extreme cases when no other options are available.
The above approaches represent a sample of efforts that can improve the flow of investment into sustainable projects in Africa. No single approach can operate in isolation. It is therefore important that preparation support to build bankable green investments be viewed as a broader process of learning and innovation.
Failures will happen which should be recognized as benefits to the process. Accordingly, the approaches should be complemented with sufficient investments in evaluation and lesson sharing.