The World Bank’s Climate Technology Programme has partnered GreenCape, the Bertha Centre for Social Innovation and Entrepreneurship and WWF South Africa to test an innovative, outcome-based funding mechanism to catalyse investments into small green businesses that contribute to social and environmental outcomes.
The Green Outcomes Fund aims to incentivise local, South African fund managers to increase investment in green small and growing Businesses (SGBs) by paying for the green outcomes they generate.
It has partnered with local fund managers investing in SGBs, with these funds to 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 fund has been created due to the fact access to appropriate financing is regularly cited as among the biggest challenges to scaling successful small businesses, a problem particularly acute in climate-related sectors where risks are perceived as higher by many potential investors.
“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 South Africa on such an innovative model to support South Africa’s green Small and Growing businesses,” said Tine Fisker Henriksen, impact investing project manager at the Bertha Centre.
Central to the Green Outcomes Fund is the achievement of green outcomes, manifested in a set of verifiable metrics. The team behind the fund have 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 carbon dioxide emissions sequestered, and tonnes of waste diverted from landfill into productive uses, amongst others.
In this first phase, the consortium is seeking a small initial amount of between US$1 million and US$2 million to pilot the fund. This will be used to test the approach with potential outcomes-based funders. Priority outcomes-based funders for the pilot include donors and foundations.
If the initiative is successful, it is hoped 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.
“The Green Outcomes Fund 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,” said Greg Macfarlane, principal of Edge Growth.