The largest ever African equity investment by the Green Climate Fund, which is a $12 billion global climate finance facility, has been approved to support infrastructure that can endure the consequences of a changing climate.
The Infrastructure Climate Resilient Fund, the first offering by the asset management division of Nigeria-based Africa Finance Corp., would use its $253.7 million commitment as an anchor investment. It will also produce a new asset class of resilient infrastructure debt, according to AFC Capital.
“We need to change the paradigm as to how infrastructure is built, how infrastructure is planned, and how infrastructure integrates 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% 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 powerful cyclones have hit the southeast coast, while droughts have parched East Africa and floods have destroyed infrastructure in South Africa and parts of the continent’s west.
Consultants to the AFC have estimated that Africa requires $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 price the perceived risk they have for a climate-resilient infrastructure class,” says Kavita Sinha, director of the GCF’s private sector facility division. “We are in the role of creating market knowledge.”
AFC Capital, with funding of $50 million to $60 million from its parent, is aiming to raise between $400 million and $550 million for the fund this year and ultimately a total of $750 million, including investments from African pension funds and sovereign wealth funds. Separate funds that would follow a successful fund raising effort for the facility may bring total funding to $2 billion.
The funding from the Green Climate Fund will consist of $240 million in so-called junior first-loss equity, meaning that the GCF will aim to catalyze contributions to the fund by agreeing to take the initial losses on any investments. A further $13.7 million will come in the form of grants.
As part of the United Nations Framework Convention on Climate Change, 194 countries decided to establish the Global Climate Fund (GCF), which is financed by industrialized nations. Its headquarters are in South Korea.
The infrastructure fund of the ACF will first focus on investments in 19 different African nations, from Kenya to Benin. It intends to provide funding for a variety of initiatives, including strengthened telecommunications infrastructure, ports that can handle increasing sea levels, and electricity transmission lines that can endure severe weather while carrying power from renewable energy plants.
