More than 600-million people across Africa 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 continue as we are. At the same time, Afrobarometer reports that despite high levels of economic growth over the last decade, "lived poverty" remains across the continent, with 74% of respondents reporting going without cash income at least once during the past year.
It is statistics like these that the Sustainable Development Goals (SDGs), the UN-driven global development agenda adopted towards the end of 2015, aim to address, with the realisation that our current strategies are insufficient.
Building on the Millennium Development Goals, the SDGs work in the spirit of partnership and pragmatism to encourage countries to make the right choices now to improve life for future generations. Crucially, one of the factors they take into account is the essential role of economic growth in developing and middle-income markets. In other words, business and private-sector growth in these regions has a key role to play in development and poverty reduction.
However, as things currently stand, many existing businesses demonstrate a lack of engagement with the SDGs. Ethical Corporation’s State of Responsible Business 2016 report, which surveyed 2,045 sustainability professionals globally (36% of whom worked for a company or a brand), revealed that more than half of businesses ignored them altogether.
It is promising then, to see that green-focused entrepreneurs are rising to the challenge, channelling their ingenuity in useful forms, such as building worm farms; turning waste oils from restaurants into bio-diesel and fertiliser; and conserving scarce water resources, creating jobs and opportunity as they go. Nonetheless, these green businesses face considerable obstacles. The greatest of these is finance and mentorship.
When a green business is trying a new, innovative, or untested green business model, the risks are often higher, and the payoffs less certain. Thus, even though small green businesses offer significant potential in terms of social, environmental and economic impact, they remain largely underserved in terms of access to finance. But without sufficient funding opportunities, green businesses can’t grow and maximise their impact.
From an investor perspective, financing early-stage, small, or growing businesses is risky and often requires hands-on involvement and costly technical assistance. Given these risks and associated costs, new approaches are needed to catalyse more investment into the green economy.
One such initiative is the Green Outcomes Fund (GOF), a collaboration between the Bertha Centre for Social Innovation and Entrepreneurship (UCT Graduate School of Business), The World Bank, WWF-SA, and GreenCape. The GOF uses an innovative financial structure to incentivise local, South African fund managers to increase investment in small green businesses that make a demonstrable contribution to the country’s green economy, as well as job and enterprise creation.
The fund provides pure or reimbursable grants to these fund managers, in exchange for the achievement of pre-agreed green outcomes. These outcomes payments primarily help cover the costs associated with originating and investing in small green businesses, ultimately linking the access to, and cost of, capital to a business’ social and environmental impact.
Innovative financial approaches such as the GOF have been identified as one of the key strategies needed to help us meet the UN’s SDGs. Over the next decade, the UN estimates that implementing the SDGs will cost between $50-trillion and $70-trillion, and the Paris Climate Agreement will cost more than $12-trillion over 25 years.
The key to such structures is that they will act as a catalyst to raise additional funding from impact investors, says Greg Macfarlane, principal of Edge Growth, one of the local investment funds participating in the GOF structure. This will, in turn, increase participating investment funds’ ability to invest in green sustainable businesses that would otherwise not have had access to such capital.
There’s an important message here. It’s not only about funding, but in how the funding is raised and managed. Funding alone is not enough; we require innovative funding models. The GOF blends different types of capital to create greater social and environmental impact. A blended approach — ie mixing concessional, or below market returns, with commercial return expectations — should encourage local investment funds to increase their funding to SGBs and facilitate technical, yet business-oriented, support to green initiatives.
If South African investors and entrepreneurs work together on great ideas and innovative funding models, it’s likely we can make significant steps towards achieving the SDGs. With support and a little ingenuity, perhaps — through a thriving green economy — we can offer solutions to some of SA’s major socioeconomic and environmental challenges.
• Fisker Henriksen is impact investing senior project manager at the Bertha Centre for Social Innovation and Entrepreneurship; and Suchecki is innovative finance project manager at the Bertha Centre.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.