Investments funds increasingly play a role in financing sustainable energy production.
The fight against global warming is mainly achieved through sustainable energy production which is a component of ‘green infrastructure’ (a strategically planned network of natural and semi-natural areas with other environmental features designed and managed to deliver ecosystem services, such as green energy, clean water or air, etc.). Sustainable energy production in Africa is one of the main challenges of the 21st century.
During an official visit to Nairobi, Kenya in June 2022, the President of the African Development Bank Group indicated that many African countries are still unable to access green climate finance because they have not developed the required nationally determined contributions and long-term strategies. While the African Development Fund, the financing arm of the African Development Bank Group, does support the countries most vulnerable to climate change, this is not enough.
Given the COP27 in Egypt in November 2022, it has become essential to develop an African strategy to fight global warming on a large scale.
Despite the Covid-19 pandemic having impacted the volume of financing on the African continent, foreign direct investment remains an important source of prosperity. It often takes the form of private equity – i.e. investment in unlisted social capital – or venture capital – i.e. investment in start-ups with long-term objectives. According to the African Private Capital Activity Report published in 2021, these investments in social capital have increased to a total amount of USD 7.4 billion. This is double the 2020 figure. The same is true for venture capital.
This increase in investment activity is primarily the result of the accelerated pace of capital deployment by private equity fund managers in the post-pandemic era, across various investment strategies and sectors. Investment funds are therefore on a roll.
The ESG (Environmental, Social and Governance) criteria applied increasingly, if not a requirement, by these investment funds allow investors to finance sustainable energy projects. Investing through an investment fund also provides for risk diversification, which therefore diminishes investors’ fears or concerns when considering investments on the African continent.
PKM Africa accompanies international actors active in the sustainable energy production in Africa and closely follows the quickly growing and evolving African fund landscape.
For more information, do not hesitate to contact Pierre Vanholsbeke.
June 2022
