Home Opinion Featured Articles Could outcomes-based financing trigger Green Small investments?

Could outcomes-based financing trigger Green Small investments?

business opportunity
business opportunity

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. In South Africa, the World Bank’s Climate Technology Program, together with GreenCape, UCT GSB’s Bertha Centre for Social Innovation and Entrepreneurship and the WWF-South Africa, is testing an innovative, outcome-based funding mechanism, the Green Outcomes Fund (GOF), to catalyse investments into promising green small and growing business (SGBs) that contribute to social and environmental outcomes.

‘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-SA on such an innovative model to support South Africa’s green Small and Growing businesses,’ says Tine Fisker Henriksen, Impact Investing Project Manager with the Bertha Centre.

The Green Outcomes Fund (GOF) 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. The GOF has partnered with local fund managers investing in SGBs. These funds will 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.

Which outcomes are available for “purchase”?

Central to the GOF is the achievement of green outcomes, manifested in a set of verifiable metrics. The team behind the GOF 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 CO2 emissions sequestered, and tonnes of waste diverted from landfill into productive uses, amongst others.

The fundraising journey

In this first phase, the consortium is seeking a small initial amount (USD 1-2m) to pilot the GOF. This will be used to test the GOF approach with potential outcomes-based funders. Priority outcomes-based funders for the pilot include donors and foundations (e.g. grant making foundations with a mission to catalyze impact investing). If the initiative is successful, 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.

Greg Macfarlane, Principal of Edge Growth, said that ‘the GOF 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.’

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