More than 600 million people across the African continent lack access to clean, safe and affordable energy. According to the Africa Progress Panel, it will take until 2080 for every African to have access to electricity if we keep doing what we are doing. In spite of this rather gloomy prediction, lights are switching on across the continent, thanks to the ingenuity of energy entrepreneurs.
But the green economy is also about more than access to energy; it’s about the innovative entrepreneurs building worm farms and turning waste oil from restaurants into biodiesel and fertiliser. According to almost all of them, access to finance and mentorship are the two main impediments to growth.
Access to appropriate financing is regularly cited as among the biggest challenges to scaling successful small businesses, a problem that is particularly acute in climate-related sectors where risks are perceived as being higher by many potential investors.
In South Africa, the World Bank’s Climate Technology Program, together with GreenCape, the Bertha Centre for Social Innovation and Entrepreneurship and the World Wide Fund for Nature – South Africa (WWF-SA), is testing an innovative, outcomes-based funding mechanism, the Green Outcomes Fund (GOF), to catalyse investment into promising green small and growing businesses (SGBs) that contribute to social and environmental outcomes.
“The Green Outcomes Fund brings together blended finance and outcomes payments to catalyse green impact in a way that has never been done before. The Bertha Centre is very excited to be collaborating with the World Bank, GreenCape and WWF-SA on such an innovative model to support South Africa’s green small and growing businesses,” says Tine Fisker Henriksen, impact investing project manager with the Bertha Centre.
The GOF aims to incentivise South African fund managers to increase investment in green SGBs by paying for the green outcomes they generate.
The GOF has partnered with local fund managers investing in SGBs. These funds will receive payments for green outcomes achieved by their green investees, which can be used by the funds to cover the costs of originating green investments, or providing necessary technical assistance and business development to green investees.
“The Green Outcomes Fund brings together blended finance and outcomes payments to catalyse green impact in a way that has never been done before.”
Which outcomes are available for ‘purchase’?
Central to the GOF is the achievement of green outcomes, manifested in a set of verifiable metrics. The team behind the GOF developed a set of green metrics that can be selected as potential payment triggers. The specific metrics developed include new access to clean energy connections, number of new green jobs created, tonnes of CO2 emissions sequestered, and tonnes of waste diverted from landfill into productive uses, among others.
The fundraising journey
In this first phase, the consortium is seeking a small initial amount (one to two million US dollars) to pilot the GOF. This will be used to test the GOF approach with potential outcomes-based funders.
Priority outcomes-based funders for the pilot include donors and foundations (for example, grant making foundations with a mission to catalyse impact investing). If the initiative is successful, it will not only encourage development of the green finance sector, but also offer a unique opportunity for donors to channel their funds directly to the outcomes they care about most.
Greg Macfarlane, principal of enterprise and supplier development firm Edge Growth, said, “The GOF funding will be a catalyst to raise additional funding from impact investors, which will in turn dramatically increase Edge Growth’s ability to invest in green SGBs who would otherwise not have had access to such capital.”