Delivering real-world impact: As Africa sits on significant sustainable investment potential, the Green Assets Wallet plans to drive green capital into the region
Africa calls for immense infrastructure investments in the near future, both to support economic growth and to cope with extreme weather events, such as droughts and flooding, caused by climate change. More and more African countries are recognising the need to shift to sustainable and climate resilient economies through viable green investments.
Responsible investors globally are increasingly concerned with delivering real-world impact through sustainable investment strategies. Yet, few of them allocate green capital in Africa. The Green Assets Wallet is set on changing this, showing that delivering real-world impact and making a good return on investment can be compatible.
In Kenya, for example, costs resulting from climate change impact are estimated at over 2% of GDP per year. Having recognised the economic and financial risks this translates to, Kenya has become a pioneer in green finance in the region. It was therefore no surprise that Stockholm Green Digital Finance (SGDF) and the Nairobi International Financial Centre (NIFC) Authority co-organized the workshop ‘Green FinTech Opportunities for Kenya’, on 1st October 2019, hosted by the Nairobi Securities Exchange (NSE), just as Acorn Holdings issued Kenya’s first green bond.
It’s Time for Kenya
Kenya has plenty of success stories to tell and yet much of the world is to recognize and support the nation’s investment in green energy. With 70% of its electricity capacity coming from renewable energy sources (this is more than three times the global average), Kenya hopes to reach 100% in the medium term. This ambitious target requires much needed capital to finance the transition.
With several robust policy and regulatory frameworks in place for a functioning green capital market, Kenya is among the leaders (not just in Africa) in terms of offering favourable conditions for green investments. Examples include the recent landmark decision of zero-rates withholding taxes on green bonds, concerted efforts such as the Green Bond Programme and different codes of conduct to promote sustainability in capital markets. However, there is still a long way to go.
The same week the SGDF/NIFC workshop on ‘Green FinTech Opportunities for Kenya’ was held in Nairobi, Acorn Holdings (a Nairobi-based property developer and one of the workshop participants) raised an equivalent of USD 41.45 million during the first issuance of a green bond in Kenya. The money will go towards building sustainable student housing.
“There was such a great atmosphere at the workshop. We deep-dived into the Green Assets Wallet and discussed opportunities and challenges in Kenya’s green debt market. I was delighted that Acorn was with us at the workshop and shared their experience on launching Kenya’s first green bond.” Linn Ternsjö, Project Manager, Stockholm Green Digital Finance.
The workshop was also a good opportunity to receive insights for a Green Assets Wallet Guide, specifically targeted to African countries. The main objective of this soon to be published Guide is to support the process of greening capital markets in Africa. Targeting potential issuers, investors and validators in less mature markets - but where the need and potential for green finance is high – the Guide would give a solid introduction to the Green Assets Wallet.
The Green Assets Wallet – Building a Bridge to Africa
Awareness that environmental risks such as climate risks can translate into financial risks is growing fast in the region. For the green finance market to take off however, capital actors in Kenya must first define principles of green finance that make sense in the local context. On one hand, investor confidence is still low (corporate bonds have not done so well in the past) and identifying green investment opportunities has proven to be difficult. Potential issuers of green bonds on the other hand fear low returns due to high diligence fees and information on potential projects and their green impact has been limited so far. These market failures can in part be overcome using the Green Assets Wallet.
"We believe that the blockchain technology behind the Green Assets Wallet can be really helpful in improving trust for the corporate bond market in Kenya. Investors can be confident that the information is validated in a way that cannot be changed and everyone can have immutable records," said David Irungu, Head of Business Development, Nairobi Securities Exchange.
The Wallet is a technology that supports the scaling up of the green debt market and bridges green investors with potential investment opportunities through cost efficient and immutable verification of green impact. The technology also sets out clear indicators and units through which issuers can report positive impact back to investors.
“The Green Assets Wallet is the catalyser to making sustainable investment opportunities accessible to investors globally looking for real-world impact in Africa,” explained Cecilia Repinski, Executive Director Stockholm Green Digital Finance
The Wallet is an innovative blockchain solution that essentially closes the green investment gap. It injects efficiency and trust into the green debt market, allowing for a wider range of green asset classes to demonstrate trust. Through efficient methods for tracking and third-party oversight, the platform increases investor confidence, that lacks in emerging markets and allows for green loans to take off.
According to Númi Östlund, Senior Advisor Emerging Markets for the Green Assets Wallet and Director of AidHedge, “there is an untapped potential in green bonds for fuelling sustainable growth in Africa, and Kenya’s market is currently at a tipping point, where green finance could potentially restart the country’s bond market.”
Kenya has developed a framework for the issuance of its first sovereign green bond . This would make Kenya the first country in East and Central Africa to issue a sovereign green bond. The Green Assets Wallet could not come at a better time to harness the momentum seen in Kenya and other African nations. Here, green investments in key sectors such as energy, transportation, agriculture and infrastructure are currently promoting economic growth. The Green Assets Wallet supports the wider financial sector innovation through the development of domestic green bond markets, essential for these vital investments.
“Kenya’s green bond market is at the nascent stage and the use of technology to provide solutions to challenges, experienced by stakeholders in other markets, is a great initiative, as it can help us leapfrog some of these issues here. The Green Assets Wallet has the potential to help scale the green bond market, especially in emerging markets. The workshop provided a good opportunity for local investors and potential issuers to see first-hand how the Wallet makes the whole process more efficient and transparent.” Oscar Njuguna, Senior Business Development Manager, Nairobi International Financial Centre Authority