Working to Advance Investor Frameworks to Mobilize Capital Flows in Africa

The transition to a low-carbon global economy is expected to provide economic growth alongside new investment opportunities. Success will require collective action across Developed and Emerging Markets as well as across all sectors. For investors, there is a growing recognition and focus on the role of Emerging Markets in this global transition. 

Many institutional investors currently cite reputational and financial risks as barriers to investment in the transition across Emerging and Frontier Markets. This is driven, in part, by a lack of consensus around what activities are consistent with a successful energy transition. The reality, in a continent like Africa, is that this transition will require a combination of scaling investment in green technologies alongside transformation of existing carbon-intensive business practices. 

Net Zero is a collective global goal which will require Developed, Emerging and Frontier Markets to work together, moving beyond an exercise in decarbonization, towards supporting the creation of sustainable African economies that take into account the role of nature, are adapted to the physical impacts of climate change, have adopted circular economy approaches and support principles of equality. 

The Green Investment Principles (GIP) for the Belt & Road recognizes that the Emerging Market transition journey, including for Africa, will be different to Developed Markets. It will not be linear, and will not be a simple emissions reduction exercise. With a view to mobilizing the capital required to finance this transition, the Africa Chapter of the GIP seeks to facilitate investment opportunities, build capacity for local financial institutions, and convene resources to support development of sustainable standards and principles for Africa. 

Building on previous collaborative efforts, GIP invited Mercer and the International Forum of Sovereign Wealth Funds to explore the role private capital can play in supporting the low-carbon transition in Africa, including what transition means in the context of the continent. Consistent with the 2022 G20 Sustainable Finance Report, a broad definition of transition is proposed that goes beyond lower and net-zero emissions. 

This report is primarily written from an institutional investor perspective, culminating in a proposed overarching finance and transition framework that investors can use strategically to allocate to the African transition. Informed by an assessment of current investment solutions that support the African transition, this report argues that institutional investors should consider ‘transition investment’ as a new discipline, one that captures the many different aspects that comprise a successful transition. This complexity highlights the importance of experience in the local markets, collaborating with credible partners and, on occasion, making capital allocation decisions in the absence of a long-term track record. Adopting more flexible and relevant decision-making criteria brings the potential for increased investment in the African transition alongside investment opportunities. 

The proposed investment framework in this report highlights the role of collaboration. This is a key aspect of the Africa Chapter of the GIP, and the expectation is that this report sets the foundation for further engagement across the range of financial services stakeholders to support the mobilization of capital (both public and private) at the scale required to support of the African transition. Relevant investment-related findings will also be carried over to other Emerging and Frontier markets, including through the South East Asia Chapter of the GIP. 

Finally, special thanks must go to Dr. Ma Jun, Co-chair of GIP and Chairman of China Green Finance Committee, Hendrik du Toit of Ninety One and Brahim Benjelloun-Touimi of Bank of Africa, the two Co-chairmen of the GIP Africa Chapter, Cara Williams, project sponsor from Mercer, as well as Victoria Barbary of the International Forum of Sovereign Wealth Funds, for collectively driving this agenda forwards. The authors would also like to extend their sincere thanks to the asset owners, investment managers, financiers and policymakers who have generously contributed to the findings set out in this report. 

Full report: 

PARTNERING-FOR-TRANSITION-DECEMBER-2023-EN-FINAL.pdf