Nigeria-based Africa Finance Corp.’s asset management unit, AFC Capital Partners has made a $253.7 million commitment to serve as an anchor investment in the Infrastructure Climate Resilient Fund.
It will also create a new asset class of resilient infrastructure debt, AFC stated.
“We need to change the paradigm as to how infrastructure is built, how infrastructure is planned, how infrastructure integrates the climate science into the offering,” Ayaan Zeinab Adam, AFC Capital’s chief executive officer said in an interview.
Consultants to the AFC have estimated Africa requires $2.3 trillion to construct the pipeline of climate-resilient infrastructure it needs. Traditionally it has been a struggle to attract capital to so-called climate-adaptation projects, which deal with the consequences of climate change, rather than mitigation projects, such as wind and solar power plants that generate a reliable revenue stream.
“The GCF’s role here is to help other investors reprice the risk perception they have for a climate resilient infrastructure class,” Kavita Sinha, director of the GCF’s division of private sector facility. “We are in the role of creating market knowledge.”
AFC Capital, with funding of $50 million to $60 million from its parent, is aiming to raise between $400 million and $550 million for the fund this year and ultimately a total of $750 million, including investments from African pension funds and sovereign wealth funds. Separate funds that would follow a successful fund raising for the facility may bring total funding to $2 billion.
The funding from the Green Climate Fund will consist of $240 million in so-called junior first-loss equity, meaning that the GCF will aim to catalyze contributions to the fund by agreeing to take the initial losses on any investments. A further $13.7 million will come in the form of grants.
The formation of the GCF was agreed upon in 2010 by 194 countries as part of the United Nations Framework Convention on Climate Change and is funded by developed nations. It is based in South Korea.
The ACF’s infrastructure fund will initially target investments in 19 African countries across the continent, ranging from Benin to Kenya. Among the projects it plans to back include electricity transmission lines that can withstand violent weather as they carry power from renewable energy plants, ports that cope with rising sea levels and reinforced telecommunications infrastructure.