Private equity goes green in sub-Saharan Africa

A recent report in the East African bore some good news for the environment in Africa. From the continent’s declining forest cover to sustainable technologies, millions of dollars in funds are being lined up to invest in saving the environment.

The International Finance Corporation (IFC), in partnership with the UK government, has put together a private equity fund of funds that will provide growth capital to firms in Africa and other emerging markets that deliver resource efficiency and low-emission products and services.

The IFC Climate Catalyst Fund has its first tranche of investment from the two partners lined up. While the IFC will invest up to USD 75m in the fund, the UK government has approved an investment of USD 78.5m from the UK’s International Climate Fund as part of its Climate Public-Private Partnership, or CP3, initiative.

According to Lars Thunell, IFC executive vice president and CEO, the Climate Catalyst Fund intends to assemble a diversified portfolio of private equity funds managed by established and emerging fund managers. This will go into direct co-investments in early and growth-stage companies that are developing innovative technologies and helping reduce climate change.

“Addressing climate change is a strategic priority for IFC, and private equity is well suited to jump start climate-friendly investment in emerging markets,” says Thunell, IFC’s executive vice president.

This new development comes in the wake of an announcement of a final close by US-based Global Environment Fund (GEF) of its forestry fund. At USD 209.6m, the close of the GEF Africa Sustainable Forestry Fund which targets several countries in sub-Saharan Africa was USD 13.1m above the initial USD 196.5m target.

According to GEF, the investment vehicle that targets Gabon, Tanzania, South Africa and Malawi is the first private equity fund focusing solely on sustainable forestry in the region, adding that its strategy will focus on adopting best practices as well as obtaining Forestry Stewardship Council certification.

Investments by the GEF Africa Sustainable Forestry Fund will range from USD 15m to USD 30m. Though this will mainly be into existing forests, the firm says that some investments would also be made in new plantations or natural forest concessions.

In the same vein, last year, six new investment funds were approved by Overseas Private Investment Corporation, the US government’s development finance institution, which will see USD 875m injected into emerging markets’ forestry and climate change.

With the millions of funds being lined up for investment into the environment, it points towards viability of private sector investment into the environment. Over the years, this task has long been left to governments and non-governmental organisations.

The UN Framework Convention on Climate Change is in the process of putting together a fund, the Green Climate Fund that will invest in developing countries to help them adapt to climate change and mitigate its efforts.

UK International Development Secretary Andrew Mitchell says that joint ventures would help the private sector to tackle this global problem by investing in some of the fastest growing economies in the world. “For too long the power of the private sector has been forgotten in the fight against global challenges. Climate change affects us all, but it will hit the poorest the hardest,” Mr Mitchell said.

Imara is an investment banking and asset management group renowned for its knowledge of African markets.