Two years ago, representatives of more than 190 countries signed the Paris Climate Accord at COP21. Global Network Perspectives asked experts across the network about the policies that their countries are implementing in order to meet the commitments made in the agreement—and the challenges that remain.
Two years after the adoption of the COP21 agreement in Paris, what types of policies are being implemented in your country to meet the commitments made in the agreement? Is there optimism about meeting those commitments?
According to the South African Department of Environmental Affairs, South Africa is achieving progress on climate change adaptation at all levels of government. The momentum increased after South Africa issued its National Climate Change Response Policy (NCCRP) white paper and there is currently a draft National Adaptation Strategy on the table that is intended to be the cornerstone for climate change adaptation in the country and to reflect a unified, coherent, cross-sectoral, economy-wide approach to climate change adaptation.
What are the biggest challenges in meeting the commitments in your country or region?
According to the National Adaptation Strategy, financing the transition to a climate-resilient society will be one of the key challenges. This will entail developing and/or accessing innovative mechanisms such as investment strategies, frameworks and climate funds. There is a clear need for innovative and blended forms of financing, and increased catalysation of private investment.
This is one of the core focus areas of the Bertha Centre for Social Innovation and Entrepreneurship, a specialised unit at the UCT Graduate School of Business. As the first academic centre in Africa dedicated to advancing social innovation and entrepreneurship, the Bertha Centre is working in a unique socio-economic space. Our goal is to increase the uptake of high-impact business models and financial instruments in Africa. That includes working to develop innovative financial instruments that drive more capital towards social and environmental outcomes.
We try to support and create an enabling ecosystem for businesses to grow, whether they are early-stage green businesses in South Africa or access to energy enterprises in East and Southern Africa.
In South Africa specifically, we’ve found that the same problems apply to green small and growing businesses as the local investment funds supporting them; it’s challenging to raise risk-willing capital locally and the deal size is often too small to be attractive, locally and internationally. Since many of the green business models are new and the topics highly technical, they are viewed by investors as high risk, with the confounding challenge of high start-up costs, limited track record, and lack of working capital. Traditional financing through commercial banks or commercial lending institutions is often not a viable option for many green enterprises. The inability to predict future cash flow from sales, the actual return on investment per product sold, the lack of customers’ credit history and, often, the informal economy within which these businesses operate mean they struggle to access finance.
Is the agreement driving innovation in the business community in your country? Has it prompted new investments or private-public partnerships?
Innovative financial structures offer significant opportunities to attract and drive capital to support the green economy.
As an example of what that means in practice, The Bertha Centre has worked with the World Bank’s Climate Technology Program (CTP), WWF South Africa and GreenCape to develop a Green Outcomes Fund (GOF), which provides outcomes-based, matched, concessionary capital to local investment funds to promote investments in small and growing green businesses in South Africa. This structure drives capital to high impact early-stage green businesses that are working to combat climate change and combines public and private capital for the benefit of the local green economy.
The Green Outcomes fund is the first of its kind structure, which tests whether an outcomes-based payment model can catalyse additional local investment in small and growing green businesses and ultimately further the development of a robust green impact investment industry in South Africa. It was developed through a design-thinking process, in consultation with the green businesses, local investment funds, and international impact investors, both public and private. The fund will set out to:
- Drive deals and innovative finance strategies: As a result of setting up the structure, local fund managers are already experimenting with linking the cost of capital to social and environmental gains.
- Enable local fund managers to invest with greater efficiency: By providing outcomes-based incentives, the GOF enables local fund managers to invest with greater efficiency and risk mitigation, provided they continuously deliver on the green impact mandate.
- Organise the green investment market place: The portfolio spans early stage seed funders providing high risk capital to investors expecting market rate returns in order to increase the coordination between capital committed to green SGBs. This portfolio approach is key to developing the green impact investing industry.
We’re also setting up a national taskforce for impact investing, which includes looking at the green economy and driving more private and public capital towards social and environmental outcomes. The taskforce is part of the global steering committee for impact investing.
If South African investors and entrepreneurs can work together on great ideas and innovative funding models, it’s likely that we can make significant steps towards achieving the change needed to meet the COP21 agreement.