As we enter 2019, a critical year for the implementation of the Sub national Climate Fund Africa (SnCF Africa), Patrick Scheurle, CEO of BlueOrchard Finance, describes what makes the R20-BlueOrchard partnership so innovative and explains the key role impact investing and “blended finance” can play in accelerating green infrastructure investments in emerging markets, Africa in particular.
Patrick Scheurle, you are the CEO of Blue Orchard Finance, a leading impact investor. What is an impact investor and how can it be of any help for sub-national infrastructure projects?
An impact investor pursues a dual mandate: he has clearly defined impact targets as well as financial return objectives. The two are not mutually exclusive, as some people may think. In the context of subnational infrastructure, an impact investor is striving for attractive risk-adjusted returns combined with strong positive environmental impact. An impact investor can be of help for subnational infrastructure projects as he takes into account all relevant stakeholders in its investment consideration and does not subordinate environmental questions to financial goals.
You are referring to blended finance. What is a blended finance vehicle and how can this finance model reduce the perception of risk in green infrastructure in emerging markets in general, and in Africa in particular?
Green infrastructure projects in emerging markets, and more specifically in Africa usually carry several risks such as construction risks, political risks, technical operating risks, or counterparty credit risks. Blended finance vehicles are very well suited to balance these risks for private investors. The term “blended finance” describes funding provided by public actors such as development finance institutions and multilateral development banks in de-risking instruments (e.g. guarantees, first-loss or risk sharing capital, and technical assistance facilities) with the aim to crowd in private capital. Public capital in such structures does not only provide capital protection but also return enhancement for the private investor class, making the product more appealing to private investors. Blended finance is thus a very powerful tool to crowd in private capital. In addition, grant-funded technical assistance facilities, which accompany such vehicles and are raised parallel to the fund, are highly effective in facilitating project development for the benefit of the fund and its investors.
You have developed a strategic partnership with R20, thanks to the creation of the Sub national Climate Fund Africa. How is this innovative?
Basically, SnCF Africa is a one-stop solution for project developers realizing their projects. There is no other comparable vehicle out in the market to our knowledge. Both R20 and BlueOrchard contribute their specific expertise and experience. R20, via its subnational network, identifies demand for subnational infrastructure projects and with the help of so-called Pre-Investment Facilities and Technical Assistance Funds, R20 and selected technical partners support the development of projects. BlueOrchard helps to find a financing solution, shaping the deal and making it investable. In addition, BlueOrchard with its global network of public and private investors ensures that the funding for the SnCF can be secured in order to realize all projects.
As we are starting an important new Year – Heads of State Summit in New York dedicated to climate change; the entry into force of the Climate Paris Agreement, including the required 100 B$US annual commitment from donors for Climate change in developing countries – what is the expected calendar for SnCF Africa in 2019?
2019 will be a critical year for the implementation of SnCF Africa. For example, the ramping up of the fund, the first close and the first projects ready to invest are all targeted for the first half of the year. Furthermore, the SnCF teams are being bolstered with new additions, both on R20’s and BlueOrchard’s side.